Collective Consultation: When should it start?

One of the most difficult issues with redundancy collective consultation is the issue of when it should begin.

A recent opinion from the Attorney General (AG) of the European Court of Justice (ECJ) in USA v Nolan attempts to clarify matters by explaining that the obligation to consult begins when a strategic or commercial decision is taken, which compels the employer to contemplate collective redundancies. Based on the AG’s opinion, it is clear that consultation must start early enough for it to be a worthwhile exercise, but late enough for there to be sufficient certainty over what is being proposed. In practical terms, employers will need to focus on the effectiveness of the consultation and ensure that statutory consultation periods are met.

We should also add the caveat that this is only an opinion of the AG rather than the full Court itself and, whilst in most cases the Court takes the same view, there have been cases where different views have been reached.

Background

For practical and commercial reasons companies will not wish to start consultation prematurely, but likewise cannot delay matters for fear of risking a costly protective award claim. A breach of the legislation can result in an award of up to 90 days actual pay per employee.

Consultation must begin in good time with a view to reaching an agreement, and is triggered when an employer is “proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less”. It is the ‘proposing to dismiss’ part of the definition that has caused a great deal of litigation, particularly because the underlying European Collective Redundancies Directive uses different wording. Under Article 2.1 of the Directive, the obligation arises where an employer is ‘contemplating redundancies.’ The European wording of ‘contemplating’ envisages consultation starting at an earlier stage than the UK wording.

Business reasons for redundancies

In trying to reconcile these two definitions the EAT has previously taken a wide view of ‘proposing to dismiss’ which can be seen in the UK Coal Mining case. UK Coal Mining Ltd v NUM 2008 is authority for the legal point that an employer should begin consultation early enough to consult on the business reasons for redundancies.

Whilst earlier cases did say that employers were not required to consult on the business reasons for redundancies, the prevailing approach since the UK Coal Mining case in 2008 has been that employers probably should begin consulting early enough to consult over the business reasons.

Yet the European case of Akavan in 2009 seemed to take a different approach, by saying that the duty to consult arises later, i.e. “when a strategic or commercial decision is taken which compels the employer to contemplate or to plan collective redundancies.”

The Court of Appeal in Nolan felt the law was unclear and asked the ECJ to clarify the position. The referral questions were:

Does the employer’s obligation to consult about collective redundancies, pursuant to the Directive, arise:

As ever in employment law, the AG’s response was to reject both options and take a ‘somewhere in the middle’ response to these 2 questions, which broadly follows Akavan explained in more detail below.

Facts of USA v Nolan

The Secretary of the US Army decided in March 2006 to close an army base in the UK. The workforce was informed on 24 April 2006. Collective consultation commenced on 5 June 2006, and dismissal notices were issued on 30 June. Contracts of employment were terminated on 29 or 30 September 2006.

Ms Nolan was employed as a civilian employee of the base, and brought a claim that the US had failed to consult in good time and had not explained the delay in starting proceedings. The tribunal agreed that the US had failed to engage in a meaningful consultation process and made a protective award. The US appealed to the EAT, who upheld the tribunal’s award to the affected employees. The US then appealed to the Court of Appeal who decided to make a referral to the ECJ. One of the points raised in the US’ grounds of appeal concerned the impact of the Akavan decision which had been issued after the EAT had rejected the appeal from the US.

Opinion of the Attorney General

Last week the AG issued his decision, making it clear on the facts of this case, that neither of the two referral questions proposed by the Court of Appeal involved the correct approach. He explained that the approach in question 1 was too premature since no strategic or operational decision had been taken. In contrast, the approach in question 2 was too late since by that time the strategic decision would have been made.

The key trigger is therefore “when a strategic or commercial decision which compels him to contemplate or to plan for collective redundancies is made - by a body or entity which controls the employer.”

Therefore the obligation to consult must arise at a time when there is still a possibility of preserving the effectiveness of such consultations. Consultations must not be launched too late or prematurely, but rather the focus should be on the effectiveness and the quality of the consultation, rather than the timing.

Finally, the AG also commented on the position where a parent company makes a decision regarding a closure, which triggers redundancy consultation with a subsidiary. He explained that a final decision from a parent company should not be handed down to a subsidiary to carry out their wishes. If that happens, the subsidiary will be in breach of the legislation. A parent company must advise their subsidiary what they are contemplating in relation to redundancies, it is then for the subsidiary to carry out the consultation, and it is only after the consultation has ended that a final decision by the parent company should be taken.

The AG did not expressly reject the view endorsed by the EAT in the UK Coal Mining case that consultation must cover the business reasons for the closure. But perhaps the ECJ will take a clearer approach.

So where does this leave employers?