Collective consultation: when does the consultation arise?
Making large numbers of redundancies is never easy for an employer. The law imposes obligations on the employer to consult with affected employees…
Making a large number of redundancies is never easy for an employer. Aside from the inevitable financial and employee relations issues, the law imposes additional obligations on the employer to consult with affected employees collectively.
In the recent case of E Ivor Hughes Educational Foundation v Morris, the Employment Appeal Tribunal considered the obligation on employers to consult collectively and, specifically, when this obligation arises.
The legal obligation to consult collectively
The basic position is quite straightforward. When an employer proposes to make 20 or more employees redundant in any given establishment within a 90-day period, they are then under an obligation to consult with those employees collectively. This will involve consultation with elected representatives of the affected employees, which must be conducted with a view to avoiding the need for dismissals, limiting the number of dismissals, or mitigating the effect of any dismissals. Consultation must commence at least 30 days before the first redundancy takes effect (or at least 45 days before if 100 or more redundancies are proposed).
These obligations are generally well understood by employers and are fairly uncontroversial (now that we know that the word ‘establishment’ is included in this test, from the recent European decision in the Woolworths case). What is less certain, however, is the precise trigger point for these obligations: i.e. at what point in the decision-making process can you be said to be “proposing” to make redundancies.
The precise point when the obligation to collectively consult is triggered may be trickier to determine in some cases than others. It will always depend on the particular facts of the case. Furthermore, there is still some dispute about the legal test that should be applied to determine the trigger point.
In one key case, UK Coal Mining v National Union of Mineworkers, the EAT found that an employer was obligated to consult affected employees on the business decisions behind the decision to close a site, before the decision becomes final. However, in the case of Akavan v Fujitsu Siemens, the European Court of Justice found that the duty to consult only arises when a decision is made to plan for collective redundancies, not when that decision is merely contemplated.
As there is a degree of uncertainty as to which of these positions was correct, it was hoped that the EAT in E Ivor Hughes would provide some much-needed clarity on the issue.
The Tribunal decision
In this recent case, the Foundation that ran the Peterborough and St Margaret’s school, the E Ivor Hughes Educational Foundation, was concerned about rapidly declining pupil numbers. At a meeting in February 2013, the governors met to discuss the problem and it was agreed that unless there was a significant increase in pupil numbers by April 2013, the school would be forced to close. A subsequent meeting in April 2013 found that pupil numbers were even lower than expected so it was decided that the school would have to close at the end of the 2013 summer term. Members of staff were therefore given their contractual one term’s notice of dismissal on 29 April 2013, only four days after the decision to close the school was taken.
The staff members subsequently claimed, amongst other things, a failure on the part of their employer to consult them collectively and applied to the Tribunal for a protective award (which can be as much as 90 days’ actual gross pay for every employee who was not consulted). The Tribunal found that the duty to consult the employees had been triggered at the February 2013 meeting and, in light of the fact that no consultation took place, the Tribunal awarded 90 days’ gross pay to every affected employee. The Foundation tried to argue that it should be exempt from the duty to consult collectively because any sort of consultation may have put off prospective parents from sending their child to the school and damaged its chances of staying open, but this argument was rejected by the Tribunal. The Foundation appealed this outcome to the EAT.
The decision of the EAT
When looking at the facts of the case, the EAT considered the tests for instigating collective consultation from both UK Coal Mining and Fujitsu, but unfortunately did not come to a clear decision on which test is correct.
The EAT found that at the meeting in February 2013, there was a “fixed, clear, albeit provisional intention” for collective redundancies — which satisfied the UK Coal Mining test — as well as a “strategic decision…compelling the employer to contemplate or plan for collective redundancies” — which satisfied the test in Fujitsu. In this way, the EAT found that both tests were satisfied in this case in February, so it did not feel the need to make a decision on which test took precedence.
The EAT also considered the Foundation’s defence that there were special circumstances that exempted it from its consultation obligations but again found in favour of the employees. The EAT said that during the meeting in February 2013, the Foundation did not consider the threat to the school that consultation might bring. Indeed, this was an argument that was only raised once the Foundation faced litigation. The EAT said that an employer can only argue for the special circumstances that were in its mind at the time it was making key decisions and, in this case, the Foundation had been reckless in not properly considering its legal obligations at the time. In brief, ignorance of the law was no defence in this case.
This reasoning also contributed to the EAT’s decision to uphold the original remedy of 90 days’ gross pay for each employee. The EAT reiterated that the protective award is punitive in nature, and is calculated by a Tribunal starting with awarding the full 90 days’ pay and then reducing this figure depending on any mitigating factors. In this case, considering that the Foundation’s ignorance of the law was not real mitigation, the EAT upheld the original maximum award.
This case is a useful restatement of the basic legal position of collective consultation, as well as a reminder that Tribunals will readily award the maximum protective award to the affected employees, even in situations with a well-meaning and arguably naive employer.
For any dedicated followers of the law, however, it is unfortunate that this case does not give us any new clearer direction about when the obligation for collective consultation arises. The EAT chose not to settle the dispute between UK Coal Mining and Fujitsu, and in doing so missed the opportunity to give employers a definitive test as to when the obligation to consult arises.
The safest approach in the meantime is therefore to seek comprehensive legal advice when considering taking a business decision that could result in 20 or more redundancies (or that number being placed at risk). The obligation to consult could arise earlier than you might expect.