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Clarity on staff consultation during an insolvency

A European judgment has made staff consultation rules, which apply when a business goes bust, a little clearer. But there remain tricky, practical elements, as Moon Beever’s Sarah Rushton explains.

Sarah Rushton
partner, Moon Beever

On April 30 the Court of Justice of the European Union (CJEU) delivered its opinion in the long-running Woolworths case, USDAW & Wilson v WW Realisation 1 & Ethel Austin (in administration).

It ruled that an ‘establishment’ in legal terms is the entity to which workers made redundant are assigned to carry out their duties. This ruling was made to determine whether collective consultation rules are triggered. The court referred the matter back to the Court of Appeal to apply the ruling.

Whilst the decision will undoubtedly be welcomed by employers, collective consultation remains one of the trickier areas of the law. Last year the then business secretary Vince Cable and the Insolvency Service referred three Deloitte partners to the ICAEW for possible conflicts of interest in their dealings relating to Comet.

The referral was prompted by awards of around £26m to former employees in relation to a failure to inform and consult on redundancies when the business went into insolvency. However, whilst the former business secretary may have regarded the law in this area as ‘very clear’, the practical implementation of it, when trying to save a failing business, is anything but.

The background

The Trade Union and Labour Relations (Consolidation) Act states that an employer must collectively consult where it proposes to dismiss as redundant 20 or more employees at one establishment.

If it fails to do so each employee may be entitled to a protective award of up to 90 days’ gross pay. Awards are punitive rather than compensatory.

This limitation meant that often collective consultation requirements were not triggered where (for example) a business had a chain of shops and fewer than 20 employees were made redundant in each individual shop.

Consultation must begin ‘in good time’; however, certain minimum time periods apply depending on the number of redundancies proposed.

There is a limited ‘special circumstances’ defence available for employers who fail to collectively consult, but case law has established that insolvency or entering into administration, in and of itself, does not amount to ‘special circumstances’.

Posted on 16th July 2015 by Fred Crawley

 

 

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