Some recent decisions of the European Court of Justice (ECJ) have put an end to the long standing uncertainty, and administrative burden, placed on employers since the ground breaking decision of the Employment Appeal Tribunal (EAT) in the “Woolworths” litigation on the collective redundancy legislation.

The latest of these ECJ decisions was announced last week and concerned the fall-out from the insolvency of the women’s retailer Bonmarché in 2012, and in particular, the closure of 12 of its 20 stores in Northern Ireland.  The ECJ’s decision echoed the decision in the better known “Woolworths” litigation, also decided this month.  The “Woolworths” litigation actually relates to two separate insolvencies – the famous closure of the beloved Woolworths stores in 2008 and, two years later, the clothes retailer Ethel Austin which succumbed to the same fate.  In both Woolworths and Ethel Austin, the shop workers union USDAW made claims for a protective award for failure to consult employee representatives about the redundancies which followed.

Both ECJ decisions confirmed that employers do not have to aggregate the number of redundancies across all their sites when determining whether the 20 employee threshold for informing and consulting employees is met. These decisions are a welcome relief for multi-site employers, who have been living with uncertainty on collective consultation during a redundancy process since the EAT’s decision in 2013.

The background to the ECJ’s decision in the Woolworths litigation

The UK legislation says that employers must consult employee representatives if they are proposing to dismiss as redundant 20 or more employees at one establishment  within a period of 90 days or less. The issue to be decided in the “Woolworths case” was whether each store was a separate “establishment”, so that there was only an obligation to consult collectively in the larger stores where 20 or more employees were made redundant.

It came as a surprise when in 2013 the EAT disagreed with the Employment Tribunal’s decision that each store was a separate “establishment”, concluding that UK law should require employers to aggregate the number of redundancy dismissals across all sites when determining whether the 20 employee threshold is met. In order to make the UK law consistent with the Directive, the EAT decided that the words “at one establishment” should effectively be ignored.  The practical impact of this decision was ground breaking – as well as expensive.  Irrespective of the size of the store in which they worked, every Woolworths and Ethel Austin employee was entitled to a protective award.

As both companies were insolvent, the obligation to pay these awards fell on the Secretary of State, who appealed the decision to the Court of Appeal. The case was then referred to the ECJ. There were two key questions that Court of Appeal referred to the ECJ.  First, what is the precise scope of the concept of “establishment” – is it the local place of work or the whole business of the company?  And secondly, does the Directive in any event require redundancy numbers to be aggregated across the whole company? Similar questions also arose in the Bonmarché litigation.

What the ECJ said

In short, the ECJ concluded that the EAT had misinterpreted the Directive: there is no requirement to aggregate redundancy numbers across the whole company, you should look at the thresholds on a per establishment basis.

And the term “establishment”, it bluntly stated, had been interpreted by the ECJ before, and must mean the same here.  It is the unit to which the workers made redundant were assigned to carry out their duties – so essentially a geographic test, the local place of employment.

What the ECJ’s decisions mean for multi-site employers

These cases mark the end of a long period of uncertainty for multi-site employers who can now safely revert to the status quo.  Ever since the spate of insurance company mergers in the late 1990s which saw the closure of numerous small high street branches across the country and the EAT decision in MSF v Refuge Assurance (2001), we have believed that the collective redundancy legislation is designed to protect local communities from significant job cuts – in other words, that the impact on the local area is the predominant purpose of the collective redundancy consultation rules.

So when is the obligation to consult collectively triggered? Put simply, it is when there are 20 or more dismissals proposed at any one “establishment” in the UK within a period of 90 days.  An “establishment” is not defined in the UK legislation but these cases make it clear that it is the local unit or entity to which the redundant workers are assigned to carry out their duties. It is not essential that the unit in question has its own management which can independently effect collective redundancies. Defining a relevant “establishment” is a question of fact for the tribunal to decide, taking all circumstances into account. However, as a general rule of thumb, it means a physical presence and is largely directed at the place of work to which the employees are assigned.

Click here to read our report on the Advocate General’s opinion in the “Woolworths litigation”, which was followed by the ECJ.

Click these links for the ECJ decisions referred to in this alert:

Bonmarché litigation: Lyttle & Others v Bluebird UK Bidco 2 Limited

Woolworths litigation: USDAW and another v WW Realisation 1 Ltd (in liquidation), Ethel Austin Ltd and another