European Court Confirms Employers Can Count Redundancies on a Per Establishment Basis

The European Court of Justice has ruled that the UK is allowed to limit the obligation to consult about collective redundancies to cases where the proposed redundancies (20 or more) are at the same establishment. 

In USDAW another v Ethel Austin, USDAW brought claims for a protective award after Ethel Austin and Woolworths each went into administration, resulting in the closure of all stores. USDAW alleged that there had been a failure to comply with obligations to consult with employee representatives about the resulting redundancies (“collective consultation”). The employment tribunals upheld USDAW’s claims and protective awards were made. However, employees working in stores with fewer than 20 employees were excluded on the basis that the UK legislation only requires collective consultation where the proposed redundancies are at the same establishment. The tribunals found that each store was a separate establishment and so the employees working at smaller stores were not entitled to an award. 

USDAW appealed. The EAT ruled that the UK legislation does not comply with the Collective Redundancies Directive but it could be construed in order to give effect to the Directive by deleting the words “at one establishment” from the legislation. As a result employees who worked at stores which employed fewer than 20 employees were also entitled to protective awards. 

The issue was then referred to the European Court of Justice (“ECJ”) for a ruling on what the Collective Redundancies Directive requires. It has ruled that UK law does comply with the Directive. Employers are therefore able to calculate the number of redundancies proposed at each establishment when determining whether the threshold of 20 redundancies (within a period of 90 days or less) has been met. 

The ECJ ruled that an establishment is the unit to which the workers made redundant are assigned to carry out their duties. An establishment is not the whole of the employer’s business, although where a business does not have several distinct units an establishment may comprise the whole of the business. 

The decision will come as a relief to employers operating over a number of sites. Employers will only have to collectively consult about proposed redundancies if 20 or more redundancies are proposed at one establishment. The law has been restored to what was always understood to be the position before the EAT decision in this case. The ECJ decision also reflects the view of the Advocate General given in February this year.

There will still be issues over what constitutes an establishment in any given case. An establishment may sometimes be wider than one particular work location. However, the ECJ did say that the Directive is concerned with the socio-economic effects of collective redundancies in a local context. This suggests that geographical location is important.