Mark Shulman, Consultant Solicitor at Keystone Law

REDUNDANCY - Collective consultation

The law
Consultation requirements for collective redundancies are covered by section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULR(C)A). "Where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less…", collective consultation is required. Where an employer fails to comply with the collective consultation provisions, an employment tribunal may make a protective award of up to 90 days' gross pay for each affected employee (section 189, TULR(C)A).

What do the words "at one establishment" mean? In [USDAW v Ethel Austin Ltd (In Administration) UKEAT/0547/12/KN and USDAW & Anor v Unite The Union & Ors]() UKEAT/0548/12/KN, the EAT held that the respective employers had been wrong to treat each of the individual stores as "one establishment".

Background
Ethel Austin had a chain of 90 stores and a head office. The business had gone into administration. 490 employees were made redundant having been employed at locations with 20 or more employees. They received the maximum 90-day protective award from an ET. However, 1,210 employees were made redundant and received no protective award since they were at locations with fewer than 20 employees. When Woolworths went into administration, 3,233 employees were not entitled to receive a protective award on a similar basis.

What is "one establishment"?
On appeal to the EAT, the sole issue was whether that exclusion by the ETs was correct and what constituted "one establishment" (i.e. whether a site by site "atomised" approach was appropriate, or whether it was correct to take a holistic approach i.e. consider the whole business).

USDAW submitted that in order to comply with the Directive 98/59 EC (on the approximation of laws of the member states relating to collective redundancies), section 188 should be interpreted purposively so as to require an employer to consult where it proposed to dismiss as redundant:

(a) 20 or more employees at one or more establishments; and/or

(b) 20 or more employees at one establishment, with the word "establishment" being interpreted broadly in light of the Directive's purpose as meaning the whole of a relevant retail business rather than each of its stores; and/or

(c) 20 or more employees (with the words "at one establishment" being deleted from section 188 altogether).

Therefore, the first issue to consider was what Directive 98/59 EC actually meant. The EAT reviewed the history of section 188 and the various amendments which had been made over time. There was a distinction between the Directive and section 188 so that:

* Article 1(1)(a)(ii) of the Directive requires consultation over a period of 90 days, when there were at least 20 employees proposed as redundant, whatever the number of workers in the establishments in question; * Section 188(1) of TULR(C)A requires consultation when there are proposed redundancies of  "20 or more employees at one establishment within a period of 90 days or less".

The cases of  Rockfon AS v Specialarbeijderforbundet I Danmark [1995] ECR 1/4291 and  Athinaiki v Chartopoiia AE v Panagiotidis [2007] ECR 1/1499 illustrated that when looking at the meaning of "establishment" in the context of collective redundancies, the CJEU had applied a definition consistent with the core objective of improving workers' rights. Therefore, section 188 had to be construed consistently with that core objective. The principal case in USDAW's submissions was Ghaidan v Godin-Mendoza [2004] 2 AC 557, in which the House of Lords set out the proper approach to be taken by a court when undertaking its duty to interpret legislation pursuant to section 3 of the Human Rights Act 1988, so as to comply with Convention obligations as far as it is possible to do so and to add or take words away to comply with higher purposes. The Ghaidan case was relied on and followed in EBR Attridge LLP v Coleman [2010] ICR 242 in the context of the duty of a court to interpret legislation, as far as possible, compatibly with EU law obligations (where words were added to the Disability Discrimination Act 1995 to cover "associative discrimination", as required by the Equal Treatment Framework Directive (2000/78/EC).

The question posed by the EAT was whether section 188 could be construed in the light of the Directive to exclude the words "at one establishment" or to add words "at one or more establishments", or would such a construction go against the grain of the legislation? The EAT stated that the judgment in Marleasing SA v La Comercial Internacional de Alimentación SA [1990] ECR 1/4135 confirmed that additional words can be put in. Words could also be taken out and they could be moved around. The clear Parliamentary intention was to implement the Directive correctly. The EAT therefore considered it was entitled to construe section 188 so that it complied with the obligation under the Directive.

The EAT agreed with all of USDAW propositions in relation to collective redundancy consultation. Accordingly with regard to the various interpretations advance by USDAW, the EAT held that the union was correct when they argued that section 188 should not impose any site-based restriction on the number of employees. Applying the principles pulled together by Underhill P in EBR Attridge LLP v Coleman, the EAT was entitled to construe section 188 so that it complies with the obligation under the Directive. The statements of principle set out in Ghaidan and Attridge, explain the extent of the court's interpretative function where the literal words of a statute are in conflict with the Directive.

Accordingly, in relation proposition (b) above (that "establishment" meant the whole retail business), the EAT agreed that there were no site-based restrictions and the only way to deliver the core objective of protection of the dismissed workers was to construe the word "establishment" as meaning the entire retail business of each employer. Whilst this approach was "fact-sensitive" and may not be the same in every case, it was consistent with the core objective of the Directive.

However, the EAT went further and held that as a matter of construction, the words "at one establishment" in section 188 should be deleted entirely (proposition (c) above).

The EAT went on to say that if it was going too far in these constructions, they would also adopt the contention that collective consultation is required where 20 or more employees at one or more establishments are proposed as redundant (proposition (a) above), so as to give effect to the purpose of the Directive as stated in Rockfon i.e. to achieve the core objective of improving workers' rights.

Comment
The EAT accepted all of USDAW's submission and so employers will now probably have to collectively consult with employee representatives once they reach the 20 employee threshold regardless of the location of the proposed dismissals (i.e. the single business approach). Although the EAT indicated that what is an establishment comprising the retail business of each employer is "fact sensitive", for large organisations there will be the practical challenge of knowing when that threshold is reached because small numbers of redundancies in various different locations could trigger the duty to consult collectively. Employers who are proposing to dismiss fewer than 20 employees in any 90 day period will not be affected by the ruling and will not need to consult collectively.

It is believed that that permission to appeal the EAT's decision to the Court of Appeal has been sought by the Secretary of State for BIS who was a Respondent but did not attend the EAT appeal).

Meanwhile, a reminder that from 6 April 2013, the Trade Union and Labour Relations (Consolidation) Act 1992 (Amendment) Order 2013 SI 2013/763 made changes to the rules on collective redundancy consultation. Now, where an employer is proposing to dismiss 100 or more employees at one establishment within a 90-day period, the minimum period before the first redundancy can take effect was reduced from 90 to 45 days after consultation starts. Also, where an employer is proposing to dismiss 20 or more employees at one establishment within a 90-day period, employees on fixed-term contracts "which have reached their agreed termination point" are excluded from collective redundancy consultation obligations.

ACAS has published "How to manage collective redundancies", a non-statutory guide aimed at employers.

Custom and practice – enhanced redundancy payments
Were redundant employees entitled to enhanced redundancy payments arising from custom and practice? Possibly, said the Court of Appeal in [Park Cakes Ltd v Shumba & Ors]() [2013] EWCA Civ 974, remitting the case to an ET for a fresh decision.

Background
The Claimants, who had been subject to a TUPE transfer, were made redundant and claimed that they were entitled to enhanced redundancy pay (at double the statutory entitlement). Whilst the Claimants all had written terms of employment, including a staff handbook, there was nothing expressly relating to enhanced redundancy payments.

The Claimants' case before the ET was that:

* their employer had operated a formal redundancy scheme under which the enhanced terms and a lump sum of £600 were paid; * such payments were made over very many years, whenever redundancies occurred; and * the existence of that scheme was well-known both to the Union and to the workforce generally and was correctly understood by them to reflect an implied contractual entitlement.

The employer did not dispute that there was a policy of paying enhanced redundancy terms, though not including the £600 lump sum. But the employer's case was that it was not a contractual entitlement: there had been no negotiation with employees or their representatives and the policy was not communicated to employees generally or "systematically" provided to them.

The ET dismissed their claims, saying that "enhanced redundancy pay had been paid to pre- transfer employees in the past, although it was not clear on how many occasions it was paid, but the Tribunal was unable to infer that it was paid without exception". The ET was not satisfied that payment of the enhanced redundancy pay was made "automatically" and "the claimants have not proved on the balance of probabilities that there was an implied term entitling them to an enhanced redundancy payment and their claim fails and is dismissed."

The Claimants appealed to the EAT. By a majority, the EAT decision was that the enhanced redundancy terms had been paid on the occasion of every redundancy exercise from 1993 to 2006. The EAT went on to conclude that the fact that the ET had, without explanation, declined to make a finding which, on the face of it, was inevitable on the undisputed evidence was fatal to its overall reasoning and conclusion. As was apparent from the case authorities, the question whether an enhanced payment has been made consistently over a substantial period and a substantial number of redundancies was a factor of central importance in deciding whether it is to be treated as contractual. However, the fact that the ET should have found that the payments were made without exception, did not mean that the claims were bound to succeed. The invariability of payment was only one factor, albeit an important one, in the overall assessment which had to be made. Accordingly the case had to be remitted to the ET for re-hearing.

*Court of Appeal decision
*The employer appealed to the Court of Appeal. Underhill LJ reviewed various case authorities on the issue of implying terms into a contract arising from "custom and practice". These included the well-known cases of Duke v Reliance Systems Ltd [1982] ICR 449 and Quinn v Calder Industrial Materials Ltd [1996] IRLR 126 (the facts of which were rather closer to the Park Cakes scenario). He also referred to the Court of Appeal decision in Albion Automotive Ltd v Walker [2002] EWCA Civ 946 where the issue again was whether enhanced redundancy terms had become part of the Claimants' contracts of employment "by custom and practice". However, whilst the Court of Appeal in Park Cakes described the list of relevant factors to be taken into account as outlined in Albion as being "not unhelpful", it warned that it should not be treated as a kind of definitive checklist or applied without thought.

In [Garratt v Mirror Group Newspapers Ltd]() [2011] ICR 880 Leveson LJ had reviewed essentially the same authorities as the Court in Park Cakes. It was made clear in Garratt that the essential object is to ascertain what the parties must have understood from each other's conduct and words, applying ordinary contractual principles: the terminology of "custom and practice" should not be allowed to obscure that enquiry.

The essential question is whether, by their conduct in making available a particular benefit to employees over a period, the employer had evinced to the relevant employees an intention that they should enjoy that benefit as of right. It followed that the focus must be on what the employer has communicated to the employees. What the employer may have personally understood or intended is irrelevant (except to the extent that the employees are, or should reasonably have been, aware of it).

*Relevant factors
*In considering what, objectively, employees should reasonably have understood about whether a particular benefit is conferred as of right, it is necessary to take account of all the circumstances known, or which should reasonably have been known, to them. Whilst Underhill LJ did not propose to attempt a comprehensive list of the circumstances which may be relevant in cases concerning enhanced redundancy benefits, they would typically include the following:

a) On how many occasions, and over how long a period, the benefits in question have been paid. The more often enhanced benefits have been paid and the longer the period over which they have been paid, the more likely it is that employees will reasonably understand them to be being paid as of right;

b) Whether the benefits are always the same. If, while an employer may invariably make enhanced redundancy payments, they nevertheless vary the amounts or the terms of payment, that is inconsistent with an acknowledgment of legal obligation - if there is a legal right, it must in principle be certain;

c) The extent to which the enhanced benefits were publicised generally. Where the availability of enhanced redundancy benefits is published to the workforce generally, that would tend to convey that they are paid as a matter of obligation, although much will depend on the circumstances and on how the employer expresses matters;

d) How the terms are described. If an employer clearly and consistently describes their enhanced redundancy terms in language that makes clear that they are offered as a matter of discretion – e.g. by describing them as ex gratia – it would be hard to see how the employees could reasonably understand them to be contractual;

e) What is said in the express contract. As a matter of ordinary contractual principles, no term should be implied, whether by custom or otherwise, which is inconsistent with the express terms of the contract;

f) Equivocalness. The burden of establishing that a practice has become contractual is on the employee and they will not be able to discharge it if the employer's practice, viewed objectively, is equally explicable on the basis that it is pursued as a matter of discretion rather than legal obligation.

The Court of Appeal concluded that none of the reasons advanced on appeal by the employer undermined the basis on which the majority in the EAT found the decision of the ET to be flawed. It followed that the appeal had to be dismissed and the Court upheld the decision of the EAT to remit the case to a fresh ET.

Comment
Clearly in cases of this kind, much will be fact sensitive. The helpful list of factors to be taken into account as promulgated by Underhill LJ may be used as a starting point. However, as explained in the judgment, where an employer clearly and consistently describes enhanced redundancy terms in language that makes clear that they are offered as a matter of discretion – e.g. by describing them as ex gratia –employees are less likely to be able to argue that they reasonably understood them to be contractual, regardless of how regularly such payments may be made. Careful drafting of contracts and staff handbooks should therefore help to avoid disputes about whether enhanced redundancy payments are regarded as a contractual entitlement or as discretionary payments.

Mark Shulman is a Consultant Solicitor with Keystone Law and an accredited workplace and employment mediator.