Establishing the Establishment

In light of a recent birth, the term “establishment” may bring to mind crown jewels and corgis rather than Woolworths, but that would be to miss out on the important case of USDAW v Ethel Austin Limited (the clue is not in the name  – Ethel Austin was a similar case and the claims were heard together).

The case concerned collective redundancy consultation of employees at Woolworths stores after it went into administration in 2008. The right to be collectively consulted over redundancy arises where 20 or more employees are proposed as redundant over a period of 90 days or less who are at the same establishment. When Woolworths went into administration its stores were closed and the employees redundant. Woolworths did not comply with the collective consultation requirements and affected employees were awarded compensation of 60 days’ gross pay. However, it was held that each store was a separate “establishment” and therefore those employees who worked at stores where there were less than 20 employees were not entitled to receive any compensation. USDAW, the trade union, appealed and the Employment Appeal Tribunal held that the proper construction of the law was that the requirement for the redundancies to be at the same establishment should be ignored. Accordingly, now the obligation to collectively consult will be triggered when there are more than 20 affected employees with the same employer, wherever they may be based.

This creates a very different landscape. Previously, an employer making redundancies at one location only had to do the maths for that location to see if the 20 employee threshold was reached. Now they will have to consider any redundancies across the business as a whole. There are lots of potential pitfalls in this, not least that the 90 day period is a rolling period and so a business may start outside of the 20 employee limit and thus not collectively consult, but find that over the 90 day period it has gone over that limit, in which case it will have breached its obligations. Compensation for failure to collectively consult can be up to 90 days’ gross pay for every affected employee, and so a failure to comply with the requirements can be a very costly exercise.

In practice this means that many employers may have to opt for collective consultation in circumstances where it may not actually be necessary, for fear of later redundancies taking the total affected employees over 20. This means more expense as the employer is then tied into a 30 day minimum consultation period (or 45 days if there are more than 100 affected employees).

There are ways and means through this and there is the prospect of a further appeal. However until such time as this may happen, rather like a new baby, employers must handle any redundancies with great care.

If you would like any further information about this issue, please contact me by emailing alexandra.carn@edwincoe.com

.

If you aren’t receiving our legal updates directly to your mailbox, please sign up now