Collective redundancy consultation : Decision on meaning of ‘Establishment’

Employers will be breathing a sigh of relief at the European Court of Justice’s judgment in the Woolworths/Ethel Austin cases (USDAW and anor v VW Realisation 1 Ltd and ors). The Court has confirmed that ‘establishment’ in relation to collective redundancy consultation means the individual workplace and not the whole business of the employer.

When they are proposing to make 20 or more employees redundant at one establishment in a period of 90 days, employers need to carry out collective consultation with employee representatives. In this case, the ECJ has indicated that, when closing down their stores, Woolworths and Ethel Austin were right to treat each store as a separate ‘establishment’. They were therefore correct that they only needed to engage in collective consultation in relation to stores with 20 or more affected employees.

By way of background, you may recall that Woolworths and Ethel Austin became insolvent and went into administration some years ago. Both companies had stores spread across the UK which were closed, resulting in the redundancy of thousands of employees. Where employers are proposing to make 20 or more employees redundant in one establishment in a period of 90 days, they are required by section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (‘TULRCA’) to collective consult with employee representatives about the proposed dismissal. This was done only in the most cursory way by the liquidator in these cases. The Union involved made a claim on behalf of the employees to the Employment Tribunal.

The Tribunal held that, although there had been a failure to collectively inform and consult, it considered that each individual store was an ‘establishment’. Consequently, it held that the obligation to collectively consult had not been triggered at stores with less than 20 employees, resulting in over 4,500 employees not being entitled to a compensatory protective award. The Union appealed the decision.

In 2013, the Employment Appeal Tribunal (EAT) held that section 188 of TULRCA did not comply with the European Directive regarding collective redundancies. It argued that the words ‘at one establishment’ should be deleted so the obligation to collectively consult would be triggered as soon as 20 employees were to be made redundant with 90 days, regardless of where they worked. The companies involved appealed this decision.

The Court of Appeal referred the matter to the ECJ to rule on the meaning of ‘establishment’, i.e. does it mean the whole of the relevant retail business or the unit where the employee is assigned to carry out their duties (e.g. an individual store).

The ECJ has now given its judgment and confirmed that ‘establishment’ means an individual workplace, or more accurately, the entity to which the workers made redundant are assigned to carry out their duties. There is no need for all dismissals across the whole business to be aggregated together. Therefore, the 20 employee threshold must be met in respect of each individual establishment rather than across the business as a whole.

Referring back to its previous decisions in Rockfon A/S and Athinaiki Chartopoliia AE, the ECJ stated that ‘establishment’ means the unit to which the workers made redundant are assigned. However, it is not essential that the unit in question is endowed with a management that can independently effect collective redundancies. In addition, an ‘establishment’ consists of a distinct entity having a certain degree of permanence and stability. Where an undertaking comprises several entities meeting the criteria for ‘establishment’, it is the entity to which the workers made redundant are assigned to carry out their duties that constitutes the ‘establishment’.

The ECJ gave a clear indication that it was reasonable for the UK Employment Tribunal to view each individual Woolworths or Ethel Austin store was a separate establishment. Therefore, if fewer than 20 employees in those stores were affected by the redundancies then they did not need to be collectively consulted. This decision will come as a relief to employers who, since the decision of the EAT in this case, have been forced to collectively consult even where there are only one or two employees affected in one location (if there were 20 or more employees affected across the country within the 90 day period).

The ECJ has referred this case back to the UK’s Court of Appeal which is expected to reverse the decision of the EAT.