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What does “establishment” mean?
To calculate whether the proposed number of redundancies is 20 or more, only employees in that establishment can be included. According to the ECJ, an “establishment” is the unit to which workers are assigned to carry out their duties, whether or not there is a separate management (Rockfon v Specialarbejderforbundet i Danmark C-449/93 [1996] IRLR 168). There is no definition of “establishment” in TULRCA and this can result in serious injustice, as illustrated by recent experiences of staff following the collapse of the Woolworths retail chain:
After retail chain Woolworths went into administration in 2008, the insolvency practitioners failed to consult with USDAW, the recognised union. USDAW brought a successful application for protective awards, winning £67.8 million for 24,000 Woolworths’ employees. However, 3,000 employees received no compensation because the Employment Tribunal decided they had been employed in separate shops, each employing fewer than 20 employees.
The tribunal justified its decision on the basis that each store had its own organisation and distinct purpose, and that staff worked at particular stores and did not move between stores. Its finding is surprising, especially since functions like accounting and human resources were probably managed centrally and the stores were probably not capable of operating independently of head office.
The EAT has granted USDAW leave to appeal against the decision and the full hearing is expected to take place in 2013.
Case No. 3201156/2010, London Central Employment Tribunal
Revised Acas guidance on collective redundancy consultation, How to manage collective redundancies, includes some guidance on the meaning of establishment. The guidance suggests asking the following questions:
• Is the workplace a distinct entity?
• Does it have a degree of permanence and stability?
• Does it have the ability to carry out the tasks it has been assigned?
• Does it have a workforce, technical means and organisational structure that allow it to carry out its function?
According to the guidance, an establishment can mean more than one place, or a place at which employees do not habitually work. The following example is given:
A logistics company has three distribution sites and warehouse staff are assigned to particular sites run as distinct entities. For them, the site would be the establishment. But the drivers, although based at one site, are required to work flexibly across three sites and managed as a single entity. For them, the establishment is likely to be the three sites taken together.
Acas: Managing Collective Redundancies
In MSF v Refuge Assurance plc & another ([2002] IRLR 324), the EAT held that field staff in an insurance company were assigned to their local branch office, meaning that the duty to consult was only triggered if 20 or more redundancies were proposed within one branch office. But in Mills & Allen v Bulwich (EAT/154/99), the EAT held that a nationwide direct sales team was a single establishment, even though sales staff worked out of different offices around the country, so that when 24 redundancies were proposed nationwide, there was a duty to consult the union.
The situation is even less clear cut where employees work temporarily on various different sites, and the Acas guidance suggests:
• checking what the contract of employment says about geographical location;
• considering any relevant management structure;
• understanding what happens in practice — are there any working patterns and how long do they last.
According to the Acas guidance, to be an establishment, a distinct entity does not have to:
• be geographically separate from other units and facilities of the undertaking;
• be independent, in terms of any legal, economic, financial, administrative or technological autonomy;
• have a management that can independently carry out collective redundancies.
The test triggering the duty to consult collectively is whether 20 or more redundancy dismissals are proposed at the start of the consultation process. The fact that fewer than 20 employees eventually end up being dismissed is irrelevant. This is not surprising, as one of the key purposes of collective consultation is for union and employer to work together to find ways of avoiding compulsory redundancies:
Sarah Hardy was one of 26 employees told they would be made redundant when their office closed. Her employer argued that since it expected to redeploy most of them elsewhere in the business, making only 12 redundant, the collective consultation requirements did not apply. The EAT disagreed. An employer “proposes to dismiss” if it proposes to terminate existing contracts. Even if new jobs were to be offered to some staff, they would be at a different location and involve different duties. This amounted to a proposal to dismiss, triggering the duty to consult.
Hardy v Tourism South East UKEAT/0931/04 ([2005] IRLR 242
The definition of redundancy for the purposes of collective consultation is much wider than the statutory definition for individual redundancies, set out at the start of this chapter. It is any “dismissal for a reason not related to the individual concerned”.
The result of this wider definition is that the union can have a right to be consulted over dismissals that do not meet the definition of redundancy under section 139 of the ERA — for example, where there is no reduction in work volume or work numbers but there is a fundamental change in terms and conditions. In GMB v Man Truck and Bus UK Ltd EAT/971/99 ([2000] IRLR 636), the EAT confirmed that the dismissal of employees and their re-engagement on new terms and conditions gives rise to collective redundancy consultation rights, even though there is no proposed reduction in the number of employees.