Employers must consult staff representatives at the earliest opportunity
The last few years have seen the demise of numerous household names, including Woolworths, Comet, HMV and, more recently, Austin Reed and BHS. When national chains fail, large numbers of employees are inevitably made redundant, so employers might be expected to know by now what the law requires of them in these circumstances. But it seems this is not always the case.
In Stokes v City Link an employment tribunal recently considered claims brought on behalf of ex-employees of courier firm City Link, which went into administration in December 2014 with the loss of nearly 3,000 jobs. Directors of the company had previously been prosecuted and acquitted of the criminal offence of failing to send advance notice of the job losses to the government.
The Trade Union and Labour Relations (Consolidation Act) 1992 (section 188) requires an employer to inform and consult with representatives of the employees affected where it is proposing to make 20 or more people redundant at one establishment within a 90-day period. An ‘establishment’ is the local unit to which the employees are attached.
The employer must give trade union or other employee representatives certain prescribed information, including the reasons for the proposed dismissals, the number of employees it proposes to dismiss, the method for selecting those employees, and the proposed method of calculating any redundancy payments.
Employers must also consult about ways of avoiding the redundancies and limiting their consequences. Consultation must be ‘meaningful’ and with a view to reaching agreement, even if no agreement is actually reached. It must begin in good time and at least 45 days before the first dismissals take effect where an employer is proposing to dismiss more than 100 employees.
If an employer fails to comply with these requirements, an employment tribunal can order the company to pay up to 90 days’ gross pay per employee affected where the employees’ claim that there has been a failure to consult is well founded. This compensation is known as a ‘protective award’ and is not linked an employee’s length of service. A tribunal will always start with the maximum award and will only reduce this where there are mitigating circumstances. If an employer is insolvent, the National Insurance Fund picks up the tab, up to a limited amount.
City Link had been in financial difficulties since a change of ownership in April 2013. By November 2014 there was a clear turn-around plan but it seems that employees and their representatives were kept in the dark. Even when it became apparent that administration was the only option, no consultation at all was carried out. Instead, on Christmas Day in 2014, 2,727 employees found out via the national press that they would be dismissed in less than a week’s time. They brought a claim over the company’s failure to consult.
Tribunal
In an employment tribunal, the employer argued that it was hoping to secure additional funding from the firm’s owner, private equity company Better Capital, and as it only became apparent on 22 December 2014 that this would not be forthcoming, there was no time to consult.
The tribunal found that the employer knew back in November 2014 that it would potentially have to make large-scale redundancies or face insolvency, and the consultation should have begun then, as this was when the ‘proposal’ to dismiss was made. It awarded the maximum ‘protective award’ as it found no mitigating circumstances. Indeed, the employment judge was scathing of City Link, finding it had made a “conscious decision for the financial benefit of themselves and Better Capital not to inform the employees or carry out any sort of consultation and comply with their legal obligations”.
Comment
Employers do have a possible defence to this sort of claim if they can show there were special circumstances which made it not possible for them to comply. However, they must still do all that is reasonably practicable in the circumstances. As this decision shows, employment tribunals will have no truck with organisations that ignore their legal obligations on collective redundancies. Employers should err on the side of caution, and inform and consult at the earliest opportunity, even if plans are not fully formed. If necessary, information can be drip fed as it becomes available.
Claire Helling is a solicitor in the employment team at Shoosmiths
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