The European Court of Justice (ECJ) held that ‘establishment’ refers to an individual workplace, as opposed to an aggregated total of workplaces.
This will be both a welcome clarification and relief for larger employers. Their obligations under the Collective Redundancies Directive 98/59 and s.188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) i.e. to consult with employees in cases of 20 or more redundancies within a 90 day period, are limited to individual workplaces only.
In 2009, Woolworths became insolvent and subsequently administrators entered into collective consultations with employees in relation to redundancies. The administrators treated each store as ‘one establishment’, applying s.188 TULRCA. Consequently, the administrators entered into collective consultations with only those stores with more than 20 employees, eliminating many more employees from the consultation process.
Lawyers for the redundant staff of Woolworths sought protective awards for those employees that were not included in the collective consultation. In 2013, the Employment Appeals Tribunal (EAT) held that Woolworth’s application of the words ‘one establishment’ as per s.188 TULRCA, was incompatible with the Collective Redundancies Directive, which did not refer to ‘establishment’ in the singular. Applying TULRCA therefore, could have the effect that employers were able to circumvent the consultation provisions by fragmenting their workforces. The EAT adopted a purposeful approach to TULRCA and severed the words ‘one establishment’. The case in effect added to the burden on larger employers considering redundancies of 20 employees across their workforce. The case was referred to the Court of Appeal, which in turn referred it to the ECJ.
The ECJ was tasked with clarifying the wording of the Directive i.e. did ‘at least 20 dismissals’ mean those dismissals at one establishment or the aggregate number of dismissals over any number of establishments? The ECJ affirmed Woolworth’s position and held it was the former. ‘Establishment’ meant the distinct entity to which employees were assigned to carry out their duties as opposed to the whole of the economic business unit. The ECJ sought to balance the objectives of the Directive i.e. to protect employees in redundancy processes and to harmonise both protection and associated costs across the EU. The Court stated that the purpose of the Directive was to ensure a floor of protection for employees and that, beyond that, it was the prerogative of Member States to decide whether to introduce more favourable terms for employers.
Technically, the ECJ did not confirm the meaning of the word ‘establishment’ and merely affirmed the right of Member States to adopt their own rules beyond the basics of the Directive. Larger employers with a collective number of economic units, such as housing associations, are not required to aggregate their workforce when applying the rules on collective consultations when considering redundancies. If the reverse were true, and as the ECJ noted, employers could have found themselves in an unfavourable position of having to consult with 20 plus employees in a unit and possibly a single employee in another, restricting their capacity to manage redundancies and consequent risk.
For more information, please contact a member of the Employment Team.