EAT cases consider financial penalties for employer for failure to inform & consult
Two recent EAT cases have examined the correct approach for making financial awards to employees when there is a failure to inform and/or consult in TUPE and collective redundancy situations. Both cases confirm that the purpose of any award is penal, not compensatory. However, they also emphasise that awards should be linked to the seriousness of the default and that although it is a starting point the maximum award is only applicable if the facts warrant it.
In Shields Automotive v Langdon & Brolly the employer failed to comply with a duty to inform and consult under TUPE. Although it was aware of its obligations it only gave employees three hours in which to digest the news of the transfer and hold elections of employee representatives. One employee, Mr Langdon, deliberately chose not to vote as he was concerned about the timescale. A second employee, Mr Brolly was not present because it was his day off and although formally entitled to vote was given no opportunity to exercise that vote. As it happened there was a tie for the second employee representative and the employee ultimately appointed was selected by the employer purely on the basis of a perception of greater availability for consultation meetings. The EAT concluded that the employer had failed to inform and consult properly in that the electoral process was rushed and there was no evidence that it was not reasonably practicable for it to be carried out over a longer timescale. In the tie-break situation the ultimate selection was not made by the affected employees but by the employer. The EAT confirmed that an award of two weeks pay was appropriate for Mr Langdon. However it reduced the award payable to Mr Brolly from seven weeks to three weeks pay. Although Mr Brolly had been affected by both flaws in the process (the timescale and the tie break) the employer was conscious of its obligations and had sought to comply with them. The breaches were primarily technical as full consultation did take place albeit the electoral process had been flawed.
In AEI Cables ltd v GMB the employer completely failed to comply with a duty to inform and consult in a collective redundancy situation. The facts of the case were that the employer was warned by its accountants on 17th May that unless it reduced costs quickly there was a risk of it trading whilst insolvent, which could lead to fraudulent trading and other liabilities. Further advice obtained on 25th May made it clear that the business should be closed immediately. On 27th May the employer dismissed its employees with immediate effect. The EAT concluded that although the purpose of making a protective award is penal there was still an obligation on the tribunal to take account of mitigating factors. As the employer was unable to trade lawfully after the advice it received on 25th May there was no possibility of a 90 day consultation period. Some consultation could have taken place from 17th May, or even from 25th May; however in the circumstances an award of 90 days was excessive. The EAT reduced the award to 60 days.
It is important for employers to remember that although there has been a change in the law reducing consultation periods from 90 days to 45 days for collective redundancy consultation there has been no change to the maximum level for a protective award, which remains 90 days. Whilst perhaps sounding a comforting note, these cases are topical reminders that employers faced with collective consultation obligations should do as much as they reasonably can in the circumstances to comply with their obligations, whether that be the election of appropriate representatives, the provision of information or the consultation itself.
