Where an employer proposes to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less, that employer is required to inform and consult with appropriate representatives of the affected employees. Failure to comply with this duty will expose an employer to what is known as a “protective award” of up to 90 days’ pay in respect of each employee. In contrast to most other aspects of employment law which typically seek to compensate employees for actual loss suffered, protective awards are intended chiefly to punish employers for non-compliance with their legal obligations.
A claim for a protective award may generally only be brought on an employee’s behalf by appropriate representatives. An individual employee may only bring a claim for a protective award directly in limited circumstances; specifically, where he or she is not covered by a recognised trade union or other standing body of representatives and where no other employee representatives have been elected for the purposes of the collective redundancy consultation.
It is established law that appropriate representatives may secure protective awards on behalf of all the employees they represent. However, until recently, it was unclear whether an award secured by an individual employee would apply to that individual only or whether it could extend to other employees in the same position who were not themselves party to that individual’s claim.
The Employment Appeal Tribunal (“EAT”) has recently clarified this issue in the case of Independent Insurance Co Ltd v Aspinall and another.
The employer was an insurance company that went into provisional liquidation and made significant redundancies including approximately 350 employees in the offices at which the claimants worked. In doing so, it did not comply with its collective redundancy consultation obligations. There was no recognised trade union or other standing body of employee representatives and no representatives were elected for this purpose.
Three individuals sought a protective award on their own behalf. The Employment Tribunal granted the protective award not only to them, but also to the 350 or so other redundant employees as well. The employer appealed to the EAT.
The EAT allowed the employer’s appeal.
The EAT held that protective awards may only be made in favour of the individual claimants if the claim has been brought by an individual. In those circumstances, awards that benefit other redundant employees cannot be made. The right to bring a representative claim for a protective award is limited to trade unions and other elected representatives only and, even then, only in respect of the “constituency” of employees they represent. The EAT was particularly concerned to avoid the “wholly anomalous” situation where an individual claimant could have greater rights than a trade union or elected representative but without any corresponding duties to the other employees whom they purportedly represent.
What does this mean for employers?
In light of this decision, some employers may be tempted not to allow employees to elect employee representatives on the basis it may be more viable commercially to take their chances against individual employees bringing claims.
The EAT considered that the prospect for an employer of being faced with multiple claims of this nature (possibly before numerous different tribunals) should serve as a “substantial disincentive” to employers choosing simply not to comply with their obligations.
It remains best practice for employers to inform and consult with employee representatives in collective redundancy situations. However, there will clearly continue to be situations where this is simply not commercially practicable (for instance, in the event of insolvency). In those situations, assuming that there is no recognised trade union or existing employee representative body, employers may now be comforted to know that they will only be liable to a protective award in relation to individual employees who themselves bring claims.
This decision is complimented by a similarly employer-friendly finding by the EAT in Phillips v Xtera Communications Ltd. In that case, a redundant employee tried to claim a protective award by challenging the validity of the employee representative ballot. The EAT upheld the Employment Tribunal’s decision and rejected the claim, finding that if the number of employee representative candidates in a collective redundancy situation matches the number of vacancies, an employer is permitted to treat the candidates as elected without the need to hold a ballot. This makes clear that collective redundancy law does not require employers to hold a ballot in an uncontested employee representative election.