By Alison Wallace, head of employment practice, Steptoe & Johnson
Individual consultation with employees in a redundancy exercise is common and accepted practice but when does collective consultation have to take place? Alison Wallace looks at the issues.
The European Directive 1998/59/EC Article two states that:
1. Where an employer is contemplating collective redundancies consultations shall begin with the workers’ representative in good time with a view to reaching an agreement.
2. These consultations shall at least, cover ways and means of avoiding collective redundancies or reducing the number of workers effected, and of mitigating the consequences by recourse to accompanying social measures aimed inter alia, at aid for redeploying or retraining workers made redundant.
3. To enable workers’ representatives to make constructive proposals, the employer shall in good time during the course of consultations
a) supply them with all relevant information.
This was transposed into UK Law by s.188 of the Trade Union and Labour Relations (Consolidation) Act 1992 ('the Act') which states that:
Where an employer is proposing to dismiss as redundant 20 or more employees at any one establishment within a period of 90 days or less, the employer shall consult about the dismissals all the persons who are appropriate representative of any employees who may be affected by measures taken in connection with those dismissals.
The law says that:
• The consultations shall begin in good time
• Consultation shall include consultation about ways of
(a) avoiding the dismissals
(b) reducing the number of employees to be dismissed and
(c) mitigating the consequences of the dismissals
These shall be undertaken with a view to reaching agreement with the appropriate representatives.
What does ‘proposing to dismiss’ mean?
This implies no more than a provisional proposal that is when an idea is conceived. The case law defines it as ‘more than the mere contemplating of or consideration of, dismissal during the formulation and adopting of a business plan but it is something less than a final decision.’ An example might be when a Board gives approval to a proposal.
In another case it was held that a ‘proposal to dismiss’ was something short of a final decision to dismiss and an employer who pretends to enter into consultations with their mind made up and is unwilling to countenance any alternative proposals is likely to fail in their duty.
Under the Act consultation must take place about ways of avoiding dismissals and where an employer fails to comply with one of its obligations to consult, a Tribunal is entitled to make a protective award.
The way to look at it is to adopt the approach followed in an earlier case namely, to decide how many days consultation will be needed and then count backwards from the date of redundancy to ensure that over 90 days elapse between commencement of consultation and the actual dismissals.
The purpose of the protective award is to compensate the employee for the loss of opportunity to be consulted with, and to make a difference. It is not an award of compensation for loss of earnings. It is a sanction for the breach by the employer.
Where a claim is made by a Trade Union for a protective award an Employment Tribunal has to decide the following:
• whether there was a duty to engage in meaningful negotiations to avoid dismissals
• when the consultation period should have started and
• the extent of the protected period.
Consultancy with whom?
The duty is to consult with:
• recognised union representatives and
• appropriate representatives
Appropriate representatives are either those with authority to receive information on behalf of employees or those elected for the purpose. If the employees fail to elect an appropriate representative, the employer must provide information to all the employees.
Once elected all employee representatives have the right to:
• have accommodation and facilities for access to the employees
• not be victimised
• claim for automatic unfair dismissal
• be allowed paid time off to undertake duties and training
Calculation of the protected period
In ‘good time’ means at least 30 days before the dismissal unless there are more than 100 employees being dismissed then a 90 day consultation period applies.
A complaint will not succeed if there are any special circumstances which rendered it impracticable for the employer to comply. The protected period shall be of such length as the Employment Tribunal determines to be just and equitable in all the circumstances having regard to the seriousness of the employer’s default in complying with the duty to consult. This is subject to a maximum of 90 days. The remuneration is 90 days’ actual pay for each affected employee.
The starting point for a protective award should therefore be the maximum period of 90 days and then the Employment Tribunal should consider whether there are any circumstances for justifying a reduced award.
In a recent case the court laid down the following guidelines. Any award must be such as is ‘just and equitable’ in the circumstances but an Employment Tribunal should focus on the seriousness of the breach, e.g:
- whether the failure was deliberate and
- whether the employer had access to legal advice about the relevant obligations.
A warning to the DTI must be given for collective redundancies of 30 days if there are more than 20 redundancies or 90 days if there are more than 100 redundancies.
The fact that consultation would have been futile in any event is not a factor that an Employment Tribunal should taken into account when assessing the level of award.
The duty to collectively consult also applies to those taking voluntary redundancy.
Who has to be consulted?
The duty to consult those who are going to be affected by the redundancies applies not only to those being dismissed but all those who are affected which is a wider group and will include those staying who will perhaps have larger roles or more onerous duties.
Constructive dismissals as well as dismissals merely to change terms and conditions of employment would be also be included as a dismissal for the purposes of requiring collective consultation. Where employees’ terms and conditions are changed by serving them with a dismissal and then by re-engaging them on new terms consultation should take place. If there were more than 20 dismissals there will be a duty to consult with appropriate representatives.
There is also a double duty to consult where there is a TUPE transfer. If the employees are to transfer there will be a duty to consult under those provisions as there will be no dismissals and the contracts automatically transfer but if there are to be redundancies this provision, as well as the TUPE provisions, will apply.
What is an establishment?
The Act only applies to collective consultations for 20 dismissals across the employer’s establishment but what is an establishment?
The ECJ has declared the establishment to mean ‘local employment unit’.
If the employer decides to dismiss less than 20 people there is no duty to collectively consult but there may be an obligation to consult individually (or with employee representatives) to effect a fair dismissal.
The Directive applies where there is a ‘winding up order’. Under the act, an employer ‘proposes to dismiss’ when a receiver has been appointed. The appointment does not automatically terminate the contract. The receiver then subsequently puts into place the process of termination. The urgency will reduce the time taken to move from the decision to dismissal. Often the decision to dismiss and its execution will take place at the same time. Is this acceptable?
There is a defence for employers for failure to inform and consult. These cases generally refer to the timing of consultation. Most cases where the defence of special circumstances are used involve insolvency cases but insolvency per se is not a special circumstance.
There is no obligation to consult if there are special circumstances that render it impractical to consult as long as it can be shown that the employer had done what is reasonably practicable.
If an employer can show both:
• special circumstances; and
• that they performed reasonably in the circumstances
then the absolute defence may succeed but it is not a mitigation point.
Ignorance is no defence
An employer who is told by a parent company to implement redundancies but is not told why or given sufficient information regarding the matter will remain blameless but may still be found to be in breach of statutory duties.
The consultation process
Information should be supplied before the consultation process begins.
The required information is as follows:
a) The reason for the proposed redundancies
b) The number of likely dismissals and the descriptions of employees involved
c) The total number of employees of those description employed by the employer at that establishment
d) The proposed method of selection for redundancy
e) The proposed method of carrying out the redundancy programme with due regard for any agreed redundancy procedures and including the time scale over which dismissals are to take place
f) The method of calculating non-statutory redundancy payments
Consultation is not required about the economics of or background to the decision or the context which has led to the purpose of the redundancies.
The information must be delivered to each of the appropriate representatives. The employer may also choose to deliver the information to Union headquarters as well as to the local or regional union representatives.
The information must be provided ‘in good time’. The case law in this area suggests that ‘in good time’ means that the employer must begin consulting before any notices of dismissal are sent and that the process should begin as soon as reasonably possible (in most cases that will be forthwith).
No consultations can take place until employee representatives are elected. An employer should start consultations when representatives are in place. If none are elected, the employer need only inform the employees.
An employee can claim the following remedies:
Breach of any of the following statutory duties:
• that the employer failed to comply with the statutory obligations relating to the election of employee representatives
• that the employer failed to comply with other statutory obligations
The employee may make a declaration that the employer is in default and if appropriate ask for a protective award to be made.
If the employer fails to comply with a protective award the second stage is for an aggrieved employee to make an application to an Employment Tribunal to enforce the award.
The employee may also claim for unfair dismissal by reason of redundancy.
A trade union may complain that the employer failed in their duty towards the union representatives.
Employers face potentially crippling award payouts if they fail to follow the correct procedures. It is crucial that businesses comply with their consultation obligations to avoid these hefty fines.