ECJ’S DECISION ON CONSULTATION IN A REDUNDANCY SITUATION
In its recent decision of Junk v Kuhnel, the European Court of Justice considered two key issues in relation to redundancy collective consultation:
1. Does ‘redundancy’ mean the giving of notice of termination by the employer or the actual termination of employment?
2. Is the employer required to conclude the consultation process with the employee representatives and the notification procedure to the relevant public labour authorities prior to making redundancies?
The case is important for UK employers. Therefore, we have taken time to consider the judgement to try to offer considered, commercial advice on it.
What is the background to this decision?
Section 188 of the Trade Union of Labour Relations (Consolidation) Act 1992 (“TULR(C)A”) implements into UK law European Council Directive 98/59/EC on collective redundancies. The Directive provides the legal framework in the EU for collective redundancies.
Section 188 goes further than is required by the Directive by specifying a time limit for when dismissals can be effected. The Directive does not specify a time limit before which dismissals may take effect in relation to the consultation process. TULR(C)A provides that collective consultation must begin “in good time” and in any event:
- where the employer is proposing to dismiss 100 or more employees within a period of 90 days or less, at least 90 days before the first employee’s dismissal takes effect, and
- otherwise, at least 30 days before the first employee’s dismissal takes effect.
The obligation to collectively consult does not bite until the employer proposes to dismiss as redundant 20 or more employees, at one establishment, within 90 days.
Both the Directive and TULR(C)A provide that the consultation must take place “with a view to reaching agreement”.
TULR(C)A also implements the provisions (and timescales) of the Directive relating to notification of a labour authority. TULR(C)A provides that an employer proposing to dismiss as redundant 100 or more employees at one establishment within a period of 90 days or less must notify the Secretary of State (the DTI), in writing, of his proposal at least 90 days before the first of those dismissals takes effect or 30 days before if dismissing between 20 and 99 employees. This is done on form HR1, a copy of which should be given to the unions/employee representatives at the start of the collective consultation process.
What has the ECJ decided?
The ECJ decided that, in the context of collective consultation in a redundancy situation:
- a ‘redundancy’ takes effect when the employer gives notice of termination of employment to the employees (rather than on the actual date of expiration of that period of notice); and
- the Directive imposes an obligation on the employer to begin consultation with the workers’ representatives in good time where the employer is “contemplating collective redundancies” - which the ECJ stated corresponded to a situation in which no decision had yet been taken. As a result, the obligation to consult and to notify the workers’ representatives and the public authority arise prior to any decision by the employer to terminate contracts of employment (ie give notice).
How should this decision be interpreted for UK employers?
The ECJ decided that, in the context of collective consultation in a redundancy situation:
It is important to note that the ECJ’s decision is based on the wording of the Directive, not of TULR(C)A, and there are some key points which impact on how the decision should be interpreted for UK employers:
- The Directive does not give a time-table (i.e. in terms of number of days) between the ending of consultation and the date when dismissals can be effected. This, as stated above, is something that the UK Government introduced when it enacted TULR(C)A. The only time-limit in the Directive relates to the notification of public authorities.
- The case was referred to the ECJ by Germany and the decision should be viewed in the context of the specific German consultation provisions.
- The German public labour authority plays a key role in any German collective redundancy process. Reporting to it within the correct time limits under German law is therefore very important. In contrast, reports of collective redundancies to the DTI in the UK are used for statistical purposes only. Despite having the power to do so, the DTI has never prosecuted, or imposed a fine on, any employer for a breach of this notification obligation.
- In order for an employer to satisfy its collective consultation obligations in the UK, it must, from the outset of consultation, intend to consult in good faith with a view to reaching agreement with the employee representatives. In addition, the employer must intend not to effect any dismissals during the 30/90 day period. However, the process of consulting with a view to reaching agreement may take less than 30/90 days. In this event, notice may be given to employees during the 30/90 day period. The key is what the employer intended when the process began.
What does the decision mean for UK employers?
There will, no doubt, be arguments from employees’ representatives and legal advisers generally that Junk means that, in a redundancy collective consultation situation, employees should not be given notice to terminate their employment until after the relevant 30/90 day period has expired.
Indeed, on reading the Junk decision, it is easy to see how this conclusion may be drawn and there is a risk that an Employment Tribunal faced with an argument based on Junk may make such a finding. Therefore, the cautious employer may wish to wait until after the expiry of the 30/90 day period before giving notice.
However, although we acknowledge that there is a risk, we believe that that interpretation of Junk is over-simplistic.
It is our view that, in practical terms, all this decision does is confirm that collective consultation with a view to seeking agreement must have been completed before notice of termination is served. The provisions of TULR(C)A impose an obligation on an employer to start the consultation procedure at a certain time (i.e. in “good time”) and carry out a good faith consultation. An Employment Tribunal determining whether or not an employer has properly complied with its obligation to collectively consult must examine the intention of the employer at the commencement of consultation. This will be a question of fact.
It may well be the case in practice that the process of consultation with a view to reaching agreement (which, the ECJ in this decision has now confirmed means to “negotiate”) may take less than the 30 or 90 days specified in TULR(C)A. In these circumstances, in our view, notice of termination can be served - this is because the requirement to consult collectively will have been satisfied.
We do not believe that this case provides for a “minimum consultation period”, although, as explained above, employers can expect employees (and their representatives) to suggest that it does. No such obligation is imposed under TULR(C)A which remains the current law in the UK.
Instead the UK formulation – of 30/90 days before the first redundancy takes effect - relates to the starting of the collective consultation period and does not necessarily fix its length. It could be longer or shorter than the 30/90 days, depending on whether there has been a sufficient attempt to reach agreement.
We believe that the real thrust of this case lies in the relationship between the length of the consultation period and the notification of mass redundancies to the relevant public authority. The ECJ’s decision suggests that employees should not be given notice (even if consultation has been completed) until after 30/90 days of notifying the DTI. If correct, this would have a significant impact on UK employers. However, as stated above, the DTI does not have the same purpose or importance as does the equivalent public authority in Germany. Failure to comply with this obligation may give rise to a fine – which has to date not been imposed. Therefore (in practical terms), it is likely that the DTI will be satisfied if the HR1 form is submitted at the beginning of consultation and the employer intends not to give notice until after the 30/90 day period.
However, if an Employment Tribunal does interpret this case (wrongly in our view) to mean that an employer may not give employees notice of redundancy until after the expiry of the relevant 30/90 day period, where would that leave employers who elect not to be cautious? As long as the consultation really is finished by the time notice is given it is, in our view, unlikely that a Tribunal would make a protective award greater than the number of days between when notice was given and when, on this analysis, notice should have been given.
Therefore, the question for employers is whether to give the employees the money up front – ie not give notice until the expiry of the 30/90 day period plus pay in lieu of notice - or, complete consultation properly then give notice and wait to see if employees or Tribunals take the point.
There will, of course, be some employers who will prefer to take the cautious approach pending the first Tribunal decision on this point following the Junk decision. This will, of course, be a question of judgement for each employer and we would be pleased to provide detailed advice on any specific scenario to assist employers to make that decision.
What should employers do?
In our view, provided that:
- employers enter into good faith consultation with the employee representatives with a view to reaching agreement; and
- at the time consultation commences the employer does not intend to give notice within the 30/90 day period, the process of consulting with a view to reaching agreement may take less than the 30/90 days. If this is the case, an employer may issue notices of termination during the 30/90 day consultation period (although ideally that notice should not terminate prior to the end of the 30/90 day period).