Collective redundancy consultation – do you need to look back before moving forward?
02 December 2020
A recent European Court of Justice ruling suggests that employers should look at a “rolling” 90-day period when ascertaining whether collective redundancy consultation is required. While this has potentially significant implications, the end of the Brexit transition period may limit its fallout.
Sections 188 and 193 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) give effect to the EU Collective Redundancies Directive (the Directive). They require an employer to engage in collective consultation and notify the government (with an HR1 form) if it is “proposing to dismiss” as redundant 20 or more employees at one establishment within a period of 90 days.
The concept of “proposing to dismiss” has generally been understood to refer to the future dismissal of employees, for the following main reasons:
- The natural meaning of the phrase suggests that dismissals which have already happened should be disregarded.
- The European Court of Justice (ECJ), in the 2005 case of Junk v Kühnel, indicated that the Directive is concerned with the stage before decisions are made: “the case in which the employer 'is contemplating' collective redundancies and has drawn up a 'project' to that end corresponds to a situation in which no decision has yet been taken”.
- It is difficult to see how consultation could help with “avoiding collective redundancies or reducing the number of workers affected”, as the Directive requires, if employees have already left.
What has the latest ECJ judgment decided?
The latest case, referred to the ECJ from Spain, required it to consider the following circumstances:
- A company called Marclean dismissed an employee, UQ, on 31 May 2018.
- Between 31 May 2018 and 15 August 2018, 35 other people ceased to be employed by Marclean.
- Although most of those other employees purportedly resigned, a Spanish court held that between 30 and 35 of them had in fact been dismissed as redundant by Marclean.
- Under Spanish law, the Spanish court could only look at dismissals predating UQ’s dismissal when determining if it formed part of a collective redundancy (other than in the context of an abusive phasing of redundancies designed to thwart employees’ consultation rights).
The question that the Spanish court referred to the ECJ was whether such a generally backward-looking approach – which contrasts markedly with the UK approach under TULRCA – was compatible with the Directive and, if not, what was the correct approach.
Without referring to Junk v Kühnel, the ECJ ruled that it is insufficient to consider only other dismissals either predating or postdating the date of a dismissal when determining whether it forms part of a collective redundancy. Instead, the reference period is the period of any 90 consecutive days during which the relevant dismissal occurred and in which the employer dismissed the greatest number of employees as redundant.
In effect, this suggests employers need to look at a “rolling” 90-day period, and take into account dismissals already effected or underway, when ascertaining whether they have reached the threshold at which collective redundancy consultation is required.
Implications for employers
The ECJ’s decision raises three main specific issues for employers.
First, many have recently made redundancies due to coronavirus. They may not, however, have undertaken a collective consultation process or filed an HR1 on the basis that they were never proposing 20 or more redundancies within a future period of 90 days at one establishment.
The ECJ’s decision suggests that, depending on the circumstances, such an approach might have been unlawful. If a legal challenge were made, it could be argued that earlier redundancies predating the later proposal to dismiss should also be counted in determining whether collective consultation was required. This is especially problematic for employers because the starting point for compensation will be a protective award of 90 days’ uncapped pay if no consultation was undertaken. Even if employees signed settlement agreements, protective award claims can only be validly settled via an Acas COT3 agreement (albeit it is possible to include strong deterrents to pursuing legal action in settlement agreements).
Employers in the private sector may nevertheless take comfort from the disparity between the wording of TULRCA and the ECJ’s interpretation of the Directive, as arguably it is not possible for an Employment Tribunal (ET) to construe TULRCA in a manner consistent with it. If that is correct, unless an employer is an “emanation of the state” against which the Directive itself can be directly enforced, employees would have to bring what is known as a “Francovich claim” - legal action directly against the government for its failure properly to transpose the Directive. (However, Francovich claims will not be possible after 31 December 2020 when the Brexit transition period ends - see below.)
Secondly, an employer may be planning future redundancies. A prudent approach to determining whether it needs to undertake a collective redundancy process would now involve counting all dismissals, including all those recently made, those in respect of which consultation has already begun, and those proposed for the future, within the relevant rolling 90-day period, in order to determine whether collective consultation is required. This is despite section 188(3) of TULRCA providing that “in determining how many employees an employer is proposing to dismiss as redundant, no account shall be taken of employees in respect of whose proposed dismissals consultation has already begun”. (No similar wording appears in the Directive.)
Some employers may feel that the disparity between the ECJ’s interpretation of the Directive and the clear wording of TULRCA means that such an approach would be unduly cautious, given the cost of retaining employees during a consultation process for an extended period who they may feel are clearly and unavoidably redundant due to the impact of Covid-19. They might also consider it somewhat nonsensical to restart the clock on consultation with individuals in respect of whom discussions may already be far advanced or even concluded. Nonetheless, employers should remember that failing to notify the government of a collective redundancy is a criminal offence and the penalties for not undertaking collective consultation are punitive in nature.
Finally, as the ECJ did not refer to Junk v Kühnel, it appears to remain good law. This latest judgment should not affect the continuing importance of the concept of “proposing” or “contemplating” redundancies (as referred to in TULRCA and the Directive respectively). This means it is more important than ever for employers accurately to document their processes in order to be able to demonstrate their intentions at any time. They should ensure that they document how and why those intentions may have changed in light of new circumstances, if further redundancies become necessary shortly after others.
Status of this ruling post-Brexit
As the ECJ’s judgment predates the end of the Brexit transition period, it will amount to “retained” EU law after 1 January 2021. This means that it will not be possible for ETs or even the Employment Appeal Tribunal to depart from it, although the Court of Appeal and Supreme Court can do so where they feel “it is right to do so”.
This does not mean, however, that ETs will necessarily be able to find a way to read the decision consistently with the legislation given the clear wording of s188(3) of TULRCA. Moreover, Francovich claims against the government to the effect that it has not implemented the Directive correctly are no longer possible from 1 January 2021.
Finally, Parliament could legislate at some point to overrule this ECJ decision if it wanted to do so. The practical implications, at least for the UK, may therefore be perhaps mercifully limited.
UQ v Marclean Technologies SLU – ECJ judgment available here (although please note the text is not yet available in English)