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Collective redundancies: ECJ decides that "establishment" means the local employment unit and dismissals do not need to be aggregated across separate establishments

By: Amanda Steadman

Submitted by Firm:
Addleshaw Goddard
Firm Contacts:
Michael Leftley, Sarah Harrop
Article Type:
Legal Article
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In 2013 the EAT reached a controversial decision requiring businesses to aggregate dismissals across the whole of their business for the purposes of triggering collective consultation. The case was referred to the ECJ to rule on the meaning of establishment. Today, the ECJ has handed down a decision which confirms that "establishment" means the local employment unit to which the redundant worker is assigned to carry out his duties. Further, employers are not obliged to aggregate dismissals across different establishments. Therefore, the UK's collective redundancy legislation prior to the EAT's decision had been compatible with the EU Collective Redundancies Directive (USDAW and Wilson v WW Realisation 1 Ltd (in liquidation) and others).

Legal framework

The obligation to consult with representatives when making collective redundancies is derived from the EU Collective Redundancies Directive (Directive). When implementing the Directive, Member States were able to choose from two possible definitions of "collective redundancies":

  • The first option required consultation where, over a period of 30 days, the number of proposed redundancies was: (i) at least 10 employees in establishments normally employing more than 20 but fewer than 100 workers; (ii) at least 10% of the number of workers in establishments normally employing 100 – 299 workers; or (iii) at least 30 in establishments normally employing 300 workers or more (Option 1); or
  • The second option required consultation where, over a period of 90 days, the number of proposed redundancies was at least 20, whatever the number of workers normally employed in the establishments in question (Option 2).

The UK chose Option 2. However, the wording in our domestic legislation, the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), took a more restrictive approach and provided that employers were only obliged to consult where they were: "…proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less" (s.188(1)).

It had been argued that under the Directive the duty to consult arose as soon as 20 or more employees were to be dismissed within a 90-day period, regardless of where the employees were employed. By contrast, under TULRCA, the obligation to consult was only triggered where 20 or more redundancies were proposed at a single establishment.

The "Woolworths" case – what did the EAT decide?

In July 2013, in a case brought on behalf of workers made redundant from two separate retail businesses (Woolworths Group plc and Ethel Austin Ltd), the EAT decided that all redundant employees were entitled to be collectively consulted once the overall number of redundancies had reached 20 or more across the entire business, regardless of where the employees worked. The EAT decided that the words "at one establishment" were to be deleted from section 188 of TULRCA in order to be compatible with the Directive. You can read our full report on the decision here.

In reaching this decision, the EAT concluded that the existing European case law on the meaning of "establishment" related only to Option 1 of the Directive and that there were no cases concerning the meaning of establishment for the purposes of Option 2 – the approach adopted by the UK. Accordingly, it fell to the EAT to decide the meaning of establishment for these purposes. The EAT concluded that when deciding the meaning of establishment their core objective was to advance the rights of workers in accordance with the Directive and the Charter of Fundamental Rights of the European Union.

This radical decision meant that employers needed to commence collective consultation once there was a proposal to dismiss as redundant 20 or more employees within a 90-day period, wherever they were based. This was particularly onerous for large, multi-site employers.

Court of Appeal – reference to the ECJ

The Government applied to appeal that decision to the Court of Appeal. In January 2014, the Court of Appeal referred the case to the ECJ, where it was joined with a Northern Irish case and Spanish case concerning similar issues (Lyttle and others v Bluebird UK Bidco 2 Ltd EUECJ C-182/13 and Andres Rabal Canas v Nexea Gestion Documental, SA, Fondo de Garantia Salarial EUECJ C-392/13).

The two key questions referred to the ECJ were:

(i) Does the phrase "at least 20" within Option 2 of the Directive refer to dismissals across all establishments affected within a 90-day period or does it refer to dismissals occurring in each individual establishment?

(ii) If it refers to individual establishments, what is the meaning of establishment? Is it the whole of the relevant business being a single economic business unit (or such part of the business that is considering the redundancies) or is it the unit to which the worker is assigned to carry out their duties?

The ECJ heard the case on 20 November 2014.

Advocate General's Opinion

In February 2015, ahead of the ECJ's decision, the Advocate General delivered a welcome opinion for employers confirming that establishment meant the local employment unit to which the redundant worker was assigned to carry out his duties. Further, the Directive did not require dismissals across all of the employer's establishments to be aggregated when deciding whether the consultation thresholds are met.

This opinion, therefore, endorsed the orthodox approach of counting numbers for collective consultation by reference to the local employment unit rather than across the whole business. You can read our full report on the Advocate General's opinion here.

ECJ's decision

On 30 April 2015, the ECJ handed down its decision. They observed that "establishment" is a term of EU law and cannot be defined by reference to the laws of Member States. Therefore, the term must be interpreted in an "autonomous and uniform manner".

The Court noted that the term had already been considered in the context of Option 1 of the Directive. Together, the decisions in the cases of Rockfon and Athinaiki provided the following guidance on the meaning of establishment:

  • Establishment means the unit to which the redundant worker is assigned to carry out his duties.
  • An establishment does not need to have a management that can independently effect the redundancies.
  • An establishment, in the context of a wider undertaking, may consist of a distinct entity, having a certain degree of permanence and stability, and which has a workforce, technical means, and a certain organisational structure permitting the accomplishment of certain tasks.
  • It is not necessary for an establishment to have legal, economic, financial, administrative or technological autonomy.

In the Court's view, the case law confirmed that establishment meant the entity to which the redundant worker is assigned to carry out his duties (provided that the entity met the criteria set out above). This was the case regardless of whether the Member State had adopted Option 1 or Option 2. Option 2 was a "substantially equivalent alternative" to Option 1.

There was nothing in the Directive to support the view that "establishment" should have different meanings for Options 1 and 2. Indeed, to allow different meanings would mean that workers employed in an Option 2 Member State would have better protection that workers employed in an Option 1 Member State. This would be contrary to the aims of providing comparable protection and harmonising costs across Member States. To permit a wider meaning for Option 2 could also bring individual, unrelated redundancies within the consultation regime, which would go against the ordinary understanding of "collective redundancy".

The Court, therefore, concluded that:

(i) Establishment has the same meaning for Options 1 and 2 of the Directive. This means that the establishment is the entity to which the redundant worker is assigned to carry out his duties.

(ii) It is consistent with the Directive for dismissals to be counted per establishment. There is no requirement to aggregate dismissals across some, or all, establishments.

Therefore, the original wording of section 188 of TULRCA was not incompatible with the Directive.

Comment

Many employers doubted the correctness of the EAT decision and had chosen to continue using the orthodox approach of counting numbers for collective consultation by reference to the local employment unit, rather than across the whole business. This case will now return to the Court of Appeal to make its decision in light of this ruling. It seems highly likely that the Court of Appeal will overturn the EAT's decision and restore the original wording of s.188 of TULRCA. Pending that decision, however, the ECJ's ruling will provide employers with greater comfort that the orthodox approach is legitimate. Such an approach is also consistent with the current ACAS guidance on handling collective redundancies.

A return to the orthodox approach, however, does not avoid arguments that different sites constitute a single establishment. This will be a question of fact, taking into account the factors set out by the ECJ (see the bullet points above). There may be cases where different geographical entities should properly be considered as a single establishment. Indeed, the Advocate General had offered the example of an employer operating several stores within one shopping centre, stating that it would not be inconceivable that all such stores should be regarded as a single local employment unit. Where this is the case then redundancy dismissals would need to counted across all relevant sites when determining whether the collective consultation threshold had been met.

USDAW and Wilson v WW Realisation 1 Ltd (in liquidation) and others