ECJ gives judgment on the meaning of "establishment" in collective redundancy consultation

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

The European Court of Justice ("ECJ") today gave its long awaited judgment on three cases concerning the EU Collective Redundancies Directive (the "Directive"), including the reference made by the Court of Appeal in the case of USDAWanor v Ethel Austin and anor and , more commonly known as the "Woolworths case".

In summary, the ECJ has held that "establishment" means the unit or entity to which the redundant workers are assigned to carry out their duties; it does not mean the whole of the employer's organisation. This decision will be welcomed by businesses.

Background

Section 188(1) of the Trade Union and Labour Relations (Consolidation) Act 1992 ("TULRCA"), which implements the Directive in the UK, provides that the duty collectively to consult arises where an employer proposes to dismiss as redundant 20 or more employeesat one establishment within a 90 day period.

In 2013, the Employment Appeal Tribunal ("EAT") decided in the Woolworths case that, in order to construe Section 188(1) in a manner which is compatible with the Directive, it was necessary to delete the words "at one establishment". This was a significant change from the previous settled position and the practical impact of that decision is that employers are currently obliged collectively to consult where they propose, within a 90 day period, to dismiss as redundant 20 or more employees across the whole of the employer's business. Unsurprisingly, the EAT decision was appealed to the Court of Appeal, which decided to stay the proceedings and seek clarification from the ECJ.

In February 2015, the Advocate General gave his opinion, which indicated that the law should return to the previous settled position. The ECJ has today robustly confirmed this view.

Today's decision

In its judgment the ECJ highlighted two of the specific objectives of the Directive, being to (i) afford protection to workers who are subject to collective redundancies and (ii) ensure comparable protection for workers' rights in different EU Member States, and held:

• To interpret "establishment" in the way sought by the unions and workers in the Woolworths case would significantly increase the number of workers eligible for protection under the UK collective consultation rules, in contrast to the protection afforded to employees in other jurisdictions. It could also lead to circumstances in which a single worker of an establishment - possibly in a separate and distant location from the other establishments of the same employer - could be subject to collective consultation, which goes against the normal meaning of "collective redundancy" and is not appropriate in an individual case.
• An "establishment" is the unit or distinct entity to which workers who are made redundant are assigned to carry out their duties. What constitutes an establishment must be interpreted using the European case law in this area. In particular:
• • it is not essential in order for there to be an "establishment" that the unit in question is endowed with a management that can independently effect collective redundancies; and
  • an establishment may consist of a distinct entity, having a certain degree of permanence and stability, which is assigned to perform one or more given tasks and which has a workforce, technical means and a certain organisational structure allowing for the accomplishment of those tasks.

The Court of Appeal had also referred to the ECJ the question of whether the Directive could be relied upon by individuals directly against a private employer, if it was incorrectly transposed into UK law. However, since the ECJ considered that the UK has implemented the Directive correctly, the court has declined to rule on that question.

Practical advice

• The Court of Appeal must now decide whether the Woolworths and Ethel Austin stores were in fact separate "establishments" in light of the ECJ's ruling.
• Whilst the ECJ's decision is a positive development for employers going through restructuring processes, until the Court of Appeal's decision has been reached, the position as laid out by the EAT in 2013 still technically remains the applicable law.
• Employers should therefore proceed with some degree of caution until the UK courts have confirmed the position. However, the risk profile has certainly changed in light of today's developments.
• We will let you know as soon as the Court of Appeal has given its judgment.