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Meaning of the word 'establishment' clarified in high profile redundancy case

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The recent case of USDAW and another v WW Realisation 1 Ltd, Ethel Austin Ltd and another provides clarification of the meaning of the word ‘establishment’ for the purposes of determining when collective redundancy requirements apply.  Howard Robson, Employment Partner, reviews the cases and what they might mean for employers.

Article 1(1)(a) of the European Collective Redundancies Directive (the Directive) provides member states with a choice of two possible definitions of ‘collective redundancy’, both of which refer to workers in ‘establishments’. The Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), which implements the Directive in UK law, adopts the second of those definitions. Under section 188(1) of TULRCA, employers are obliged to collectively consult where they propose to make 20 or more employees at one ‘establishment’ redundant within a period of 90 days or less. Where an employer fails to comply with the collective consultation provisions, a tribunal may make an award of up to 90 days’ gross pay for each affected employee.

WW Realisation 1 Limited (better known as ‘Woolworths’) and Ethel Austin Limited were both national high street retailers that went into administration, resulting in widespread redundancies. The meaning of ‘establishment’ was key to determining whether these were cases of collective redundancy to which the requirement to collectively consult applied.

Tribunal awards for failure to consult under section 188 of TULRCA were made, but only to those employees who had worked at stores with 20 or more employees. It was held in both cases that each store was a separate ‘establishment’ and therefore those who had been employed at stores with fewer than 20 employees were not entitled to an award.

Appeals to the Employment Appeal Tribunal (EAT) were made and upheld in both cases. It was held that the words ‘at one establishment’ in section 188 of TULRCA were incompatible with the Directive and should be disregarded for the purposes of a collective redundancy involving 20 or more employees.

Appeals were subsequently made to the Court of Appeal, which in turn referred the cases to the European Court of Justice (ECJ).  The Advocate General considered the word ‘establishment’ in the Directive to mean the local employment unit or entity to which workers are assigned to carry out their duties. The aim of the Directive did not support a broader interpretation of ‘establishment’. It did not require the number of redundancies across the whole of an employer’s business to be totalled in order to determine whether it was a case of collective redundancy, and consequently whether the requirement to collectively consult applied. It was, however, for national courts to determine exactly how each local employment unit was to be constituted in any particular case.

Following the Advocate General’s opinion, the ECJ held that the word ‘establishment’ in the Directive meant the local employment unit to which workers are assigned to carry out their duties. It was not essential that the unit had its own management that could independently effect collective redundancies. The case will now return to the Court of Appeal to determine whether, on the facts, each individual branch of Woolworths and Ethel Austin constituted a separate establishment.

Although aggregating the number of dismissals across the whole of an employer’s business would increase the number of workers eligible for protection, the purpose of the Directive is not only to provide greater protection to workers, but also to ensure comparable protection for workers in different member states and to harmonise costs involved in implementing collective redundancies. A wider interpretation of ‘establishment’ would not further this objective.

The decision will be welcomed by employers who have, in recent years, faced difficulty in knowing when the threshold of 20 employees has been reached (and consequently when the collective redundancy provisions apply). Although the ECJ has left it to the Court of Appeal to rule definitively on whether each individual branch of Woolworths and Ethel Austin constitute an establishment, the judgment is clear that the tribunals are permitted to regard each store as a separate establishment.

It is worth bearing in mind though, that although the unit to which workers are assigned to carry out their duties will often be obvious, this may not always be the case. It was, for example, the Advocate General’s view that if an employer operated several stores in one shopping centre, it would not be inconceivable that all of those stores should be regarded as constituting a single employment unit.

If your business is considering affecting redundancies, or if you have questions about an employment issue, please contact the Employment Team on 02380 717717 or email Howard at howardrobson@warnergoodman.co.uk.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.