Collective redundancy law shake-up: reducing the burden on employers?

Practical Law UK Articles 2-523-7987 (Approx. 4 pages)

Collective redundancy law shake-up: reducing the burden on employers?

by Dee Masters and Chesca Lord, Cloisters.

Shorter consultation period

The Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) implements the Collective Redundancies Directive (98/59/EC) (the Directive) in Great Britain, and governs the process surrounding collective redundancy exercises (see box "Current law"). Employers that are proposing to dismiss as redundant 20 or more employees at "one establishment" within a period of 90 days or less must undertake a collective consultation exercise (section 188, TULRCA). This process must start "in good time".

At present, where an employer is proposing to dismiss 100 or more employees, the minimum consultation period is 90 days. The government has proposed a new minimum consultation period of 45 days in these circumstances.

Businesses are likely to be disappointed with the reduction as the consultation exercise revealed a clear preference from employers for a 30-day minimum period, which would mirror the position where 20 to 99 employees are within scope of a collective redundancy exercise.

Guidance on "one establishment"

One source of frustration for businesses has been the confusion surrounding the meaning of "one establishment" in section 188 of TULRCA.

Indeed, we understand that an appeal is shortly due to be heard by the Employment Appeal Tribunal, which will consider this very issue. In USDAW v WW Realisation 1 Ltd (in Liquidation), the employment tribunal concluded that a single store of Woolworths was "one establishment" so that the collective consultation duty only applied where individual stores engaged 20 or more employees (Case no 3201156/10; www.practicallaw.com/0-518-1811). The tribunal rejected the trade union's argument that the position should be assessed nationally so that all employees were within scope of the duty to consult.

In order to help clarify the definition of "one establishment", the government has announced that it will be asking Acas (the Advisory, Conciliation and Arbitration Service) to publish non-statutory guidance which will expand on its meaning with reference to the following factors: geographical location, management structure, management of financial autonomy, cohesion of the workforce, nature of the work undertaken or type of service provided, contractual relationship between employer and employee, and the level within the company at which the decision to dismiss is taken.

Unfortunately, the government's intention is that the Acas guidance will do no more than set out guidelines so that employers and employee representatives can tailor the consultation process appropriately. Our view is that non-statutory guidance in this format will probably increase the potential for dispute and litigation because sophisticated employee representatives will inevitably seek to exploit any uncertainty in order to push for a broad definition, as this will engage the minimum consultation requirements.

Fixed-term contracts

The Directive excludes all fixed-term contracts from its scope. However, TULRCA provides that the collective consultation obligations do not apply to employees who are employed on fixed-term contracts of three months or less, or where the task to be performed under the contract is not expected to last for more than three months (section 282).

Some commentators have concluded that this is a form of gold-plating, that is, it exceeds the terms of the Directive. Accordingly, in the draft legislation, the government will significantly widen the exception contained in TULRCA by excluding all employees on fixed-term contracts from the collective consultation requirements where the contract is clear about the point at which employment ends, either through the completion of a particular task, or through reaching a specified time.

This reform is bound to be universally welcomed by employers, especially those in the higher education sector that rely heavily on fixed-term contracts, because it will introduce additional flexibility. It also has the added benefit of introducing certainty in the wake of University of Stirling v University College Union ([2012] ICR 803; www.practicallaw.com/4-518-6307). In that case, the Scottish Employment Appeal Tribunal concluded that the expiry of a fixed-term contract could fall within the scope of TULRCA, but the issue was essentially fact-specific, with the deciding factor being whether any of the reasons for dismissal related to the individual as indicated by the language of section 195 of TULRCA.

However, the proposal has been met with resistance by organisations such as the TUC. In addition, there may be challenges to this reform on the basis that the Fixed-term Workers Directive (99/70/EC) establishes a principle of non-discrimination as between comparable permanent and fixed-term employees, whereas the proposed changes will introduce a significant difference of treatment between these groups.

Implications

Reform of the law on collective redundancy will have a major impact on the economy. Statistics show that since a peak in the recent recession, typically 150,000 individuals are made redundant each quarter. The average annual redundancies from large-scale collective consultations were 96,770 between 2002 and 2011, which were mainly in the financial services and manufacturing sectors. Internal restructuring was the primary reason for these large-scale redundancies.

Our view is that, in theory, the government's reforms will reduce the burden on employers. However, in the short-term there is a risk that the changes will encourage disputes as parties argue over the extent to which the changes are compatible with EU law and the correct way to interpret the anticipated non-statutory guidance from Acas on the thorny question of "one establishment".

Dee Masters and Chesca Lord are barristers at Cloisters.

Link to consultations and PLC Employment resources

Consultation outcome: Collective Redundancies: Consultation on changes to the rules, www.gov.uk/government/consultations/collective-redundancies-consultation-on-changes-to-the-rules
Redundancy (8): collective consultation, www.practicallaw.com/2-200-2987
Overview of the employment aspects of insolvency, www.practicallaw.com/5-382-4105

Current law

Employees or their representatives can bring claims against employers for failure to comply with the collective consultation requirements under the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) and, if successful, an employment tribunal may order the employer to pay a protected award to certain groups of employees.

TULRCA defines a redundancy as a dismissal for a reason not related to the individual concerned or for a number of reasons all of which are not so related (section 195). This definition is significantly broader than the meaning of redundancy in the Employment Rights Act 1996 (ERA), which is relevant to individual claims for redundancy payment or unfair dismissal claims. Generally speaking, under the ERA, an employee is redundant where his dismissal is wholly or mainly attributable to the closure of a particular site or a part of the business, or where the business no longer requires work of a particular kind or as many employees to undertake that work (section 139).

It follows that under the broader definition in TULRCA, a redundancy situation may arise where there is a reduced need for employees by the business, but also where employees are dismissed and re-engaged so as to force through new terms and conditions even where that does not entail a reduction in headcount (GMB v MAN Truck & Bus UK Ltd [2000] ICR 1101; www.practicallaw.com/1-101-2515).

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