Information and consultation at work: current consultation obligations on collective redundancies
Section 2 of the Personnel Today Management Resources one stop guide on information and consultation at work. Other sections.
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Gain an understanding of employers' consultation obligations on collective redundancies Work out whether consultation obligations have been triggered when redundancies are being made in batches Work out whether an existing employee consultation forum can be used for collective consultation purposes Work through a suggested timeline for the election of employee representatives Gain an overview of the
legal implications of collective redundancies covering a number of European
jurisdictions |
The current obligations of employers to inform and consult on collective redundancies are far removed from those that first appeared in 1975 from Europe in the guise of the Collective Redundancies Directive.
Back then, the UK legislation implementing the directive triggered consultation obligations where there was a single redundancy of an employee who was represented by an independent recognised trade union. In practice, this meant there were no consultation requirements in non-unionised workplaces.
The UK's record on transposing the European rules into domestic legislation is not a good one. Various challenges against the UK Government have taken place over the years on the basis that it has failed to implement the directive properly.
In particular, in November 1989, UK unions presented a case to the European Court of Justice (ECJ) claiming that the Government was in breach of its obligations under European rules as UK employers were not required to consult where there was not a recognised union. The ECJ agreed and the UK was required to put its house in order.
In response, regulations were implemented in the UK in 1995. The new rules gave employers a choice to consult with either the recognised union or the employee representatives elected for the purpose.
This provided a mechanism for consulting in non-unionised workplaces. However, giving employers a choice about whom to consult in unionised workplaces could produce the insidious result that an employer with a recognised trade union could ignore the union and instead choose to consult with the employee representatives.
This anomaly was addressed in 1999. The UK Regulations were amended once again into their current form. The new rules provide that employers who recognise a trade union must consult that union and cannot consult the employee representatives.
How many redundancies are needed before an employer must consult?
Where an employer is proposing to make at least 20 employees redundant at any one establishment within a period of 90 days or less, it must consult. This must be done in good time and at least 30 days before the first of the redundancies takes place. The consultation period increases to 90 days where the employer proposes more than 100 redundancies. The employer 'proposes' redundancies if it has a realistic idea that redundancies will be made (see table below).
Meaning of 'establishment'
The employer's obligation to consult depends on the number of employees likely to be made redundant at "any one establishment". What does the phrase mean?
This question is one that has vexed employment tribunals over the years. It is not defined by legislation and so has paved the way for ambiguity in this area. It is clear that it includes physical or geographical locations, such as retail outlets. It can also be interpreted to include an organisational element. So a number of retail outlets could come within the definition of establishment if they were organised as a single business unit. The lack of clarity has meant that it is possible for multi-site employers to argue that there are no consultation obligations where more than 20 redundancies are being made over more than a single site.
There is no single test to determine what is an establishment. For most employers, the answer will be obvious and will depend on the structure of the organisation from both a managerial and geographic perspective.
Batching
When calculating the numbers of proposed redundancies, no account is taken of employees who are already part and parcel of a redundancy exercise in respect of which the consultation process has already begun.
Example 1
An employer proposes to make 95 employees redundant on 1 September and begins the 30 day consultation process. Four weeks later, it transpires that a further 10 employees are at risk of redundancy as a result of events occurring after the original process began. The consultation period for the first batch of employees is 30 days because there are fewer than 100 employees at risk of redundancy. There are no consultation obligations in respect of the second batch because there are fewer than 20 employees at risk of redundancy. This is the case even though the total number of proposed redundancies is 105 within a 90 day timeframe.
Example 2
The process of batching has been used by some employers as a mechanism to avoid or reduce the consultation period. The employer proposes to make two groups of employees at the same establishment redundant over a 90 day period. There are 95 employees in one group and 10 employees in the second group. The employer hopes that by consulting immediately with the representatives of the 95 employees and delaying consultation in respect of the group of 10 employees, the consultation period will only be 30 days.
This strategy would not work because the proposed total of 105 redundancies were envisaged at the outset and therefore the correct consultation is 90 days for all affected employees. This situation differs from example 1 because in that scenario the second batch of 10 employees were not at risk of redundancy at the time that consultation process commenced for the group of 95 employees.
Who to consult
The employer is obliged to inform and consult with 'appropriate representatives' of the employees affected by its redundancy plans. Where the employer has recognised a trade union in relation to any of the affected employees, the employer must consult it.
Where employees are not within a class of employees covered by a union recognition arrangement, the appropriate employee representatives will be representatives elected by the employees themselves.
These representatives can be elected specifically for the purpose of the envisaged redundancies. Alternatively, it may be a body of representatives with a more permanent remit, provided that this remit includes consultation in relation to redundancies and their method of election or appointment gives them appropriate authority from the affected employees.
It is important to note that the obligations to inform and consult relate not only to those actually at risk of redundancy but also to any other employees that may be affected by the redundancy exercise. For example, where Business Unit A is being closed in a restructuring exercise and some of the tasks previously done by Business Unit A are being transferred to Business Unit B, then the employer will be obliged to consult with representatives of employees in both units, even though the employees in Business Unit B will not be made redundant. This is because those employees will be affected by the redundancies as a result of potential increase in their workload.
When to consult
There is some debate over when the consultation process should commence. The rules under UK law say that the process should begin when an employer proposes redundancies. However, the European Collective Redundancies Directive, on which the UK rules are based, states that the trigger is when the employer contemplates redundancies, which is at an earlier stage.
The received wisdom in the UK is that it is not necessary to consult until there are firm proposals to make a specified number of employees redundant, and that these proposals have been approved by the board of directors. This is line with the information that needs to be provided on consultation, which includes the number to be made redundant (see box below)
Once consultation obligations are triggered, the employer must start consultation in good time with a view to reaching agreement with the representatives. Minimum consultation periods are specified before the first proposed redundancies are to take place (see box below)
Consultation cannot commence until appropriate representatives are in place and have been provided with the information that needs to be communicated to them before the start of the consultation process (see box below). Accordingly, in circumstances where the employer needs to arrange for representatives to be elected, the employer will have to allow time for this process to happen before commencing the consultation. The employer cannot commence consultation before the election process has been completed.
The timeline below illustrates an example consultation exercise of 30 days. It should be noted that it is possible for consultation to take place over a shorter timescale, where, for example, there is a small workforce or simplified election process.
Consultation
A fair redundancy process requires that there is consultation at the formative stages of the dismissal, an initial warning must then be given as to the possibility of redundancy, followed by meetings to discuss the proposed method by which employees are to be selected for redundancy and the selection criteria used.
In the course of consultation with the representatives, an employer has a duty to consider any representations made by the representatives. If the representations are rejected, an employer has to give his reasons for the rejection. Consultation must be entered into with a view to reaching agreement and must not be a sham exercise. Presenting representatives with a proposal that is already agreed is not acceptable.
In addition, an employer must consult specifically on the following issues:
Sanctions for failure to consult with representatives
If an employer fails to consult in accordance with its obligations, the employee representatives or the union or, if neither, the employee (as the case may be) may bring proceedings through the employment tribunal system.
If the tribunal finds the complaint well founded, it is entitled to award compensation as it thinks fair in the circumstances. Compensation will be calculated by reference to the number of affected employees that the employer failed to consult, and will also take into account the extent of the employer's failure to consult.
The award is an order that an employer makes payments for the protected period in respect of specified employees who have been dismissed, or whom it is proposed will be dismissed, as redundant, without complying with the statutory requirements for consultation. This award is known as a 'protective award'. The length of the period will be what is considered to be just and equitable by the employment tribunal in the circumstances, having regard to the seriousness of the employer's default but subject to a cap of 90 days in all cases.
The Court of Appeal has recently issued guidance for tribunals on assessing protective awards:
Special circumstances
It is not possible to avoid the information/ consultation process unless the employer can show 'special circumstances' that make it not reasonably practicable to consult. Special circumstances should be 'sudden' and 'unforeseen' and must be special to the particular case. It is not enough for an employer to argue that an industry is special. An employer must show that in the particular case, it was impracticable to consult fully. The 'special circumstances' defence is only available where all such steps to inform and consult as are reasonably practicable in the circumstances are taken.
The expression 'special circumstances' has been interpreted narrowly by the courts and tribunals. The box below sets out examples from case law of what may amount to special circumstances and what has been rejected.
Consultation over a number of jurisdictions
Increasingly, restructuring involves an international dimension, with large employers making redundancies in a number of European countries.
As the rules on consultation come from Europe, there will be consultation obligations in all European countries that are Member States of the European Union, which at the very least must comply with the Collective Redundancies Directive on which the UK legislation is based.
The obligations in these countries are outside the scope of this guide, but the table below gives a snapshot of the situation in three European countries.
As the table illustrates, the obligations vary enormously from country to country, with criminal sanctions in some countries for failure to consult, as many countries have much more onerous requirements than the minimum specified in the directive. Employers should always seek advice on the relevant rules in each country.
Multinational companies may also have a EWC or other transnational consultation body in place, which will need to be informed and consulted. See section 6 .
Individual consultation
Somewhat confusingly, there are two separate obligations to consult in redundancy situations. Collective consultation obligations are triggered where 20 or more redundancies are proposed within a 90-day period, but employers should not lose sight of the requirement to undertake individual consultation with all those employees at risk of redundancy. Failure to do so increases the risk of successful unfair dismissal claims.
A fair redundancy selection process requires that employees know the proposed method by which employees are to be selected for redundancy, the selection results and the proposed method of carrying out the dismissals.
Each employee should have the chance to comment on the process and contest his or her selection. The possibility of alternative employment should also be fully explored. In practice, this means that employees must be consulted individually although, exceptionally, it may be possible for consultation on the individual selections to be handled via representatives.
This consultation must be real - the mere issue of a warning or an offer to discuss the matter is not enough. The employee must have a fair opportunity to understand the matters on which they are consulted and to express their views, particularly on ideas for avoiding the redundancy (for example, job reorganisation or alternative work), what help is available from the employer in finding a new job, the length of notice to be given and the giving of a reference. The employer must give genuine consideration to any points raised.
COLLECTIVE REDUNDANCIES WORKING EXAMPLES
SCENARIO 1
Chips R Us plc is a US-based multinational that manufactures computer chips and other electronic equipment. It has operations based in the UK, Europe and other parts of the world.
Due to an over-ambitious expansion plan implemented by Chips' aggressive new chief executive, 'Hank Gung-Ho', Chips has massively over-estimated demand for its products and 'Gung-Ho' has decided to close down part of Chips' UK operations.
'Gung-Ho' is planning to close down the part of Chips' UK operation that manufactures computer chips. This will involve the redundancy of 40 employees and will result in the duties of the remaining employees at the factory being altered to take account of the cessation of production.
Chips has just completed a previous redundancy exercise affecting 70 employees.
'Gung-Ho' wants to effect the redundancies immediately and his UK HR manager has suggested that a generous severance package is offered to employees in return for them signing compromise agreements releasing Chips from claims. Chips does not recognise a trade union but has set up a EWC.
Key issues
Chips' obligation to consult
As Chips is proposing to make more than 20 employees redundant within a 90-day period, there will be an obligation to inform and consult with employee representatives.
Chips does not recognise a trade union and it may be necessary for it to arrange for employee representatives to be elected before consultation can begin.
However, as the company has just completed a previous redundancy exercise involving 70 employees, it would be worth exploring what, if any, arrangements were put in place for consulting with employee representatives in relation to that exercise and whether it would be appropriate for those representatives to be used for the current exercise. If, for example, the representatives currently in place are not drawn from the pool of employees affected by the current redundancy proposals, it will not be appropriate for Chips to use this group of representatives.
It is important to note that Chips will be required to inform and consult not only with representatives of the employees who may actually be made redundant, but also with representatives of other employees affected by the redundancies. As 'Gung-Ho's' plan will result in other employees' duties being altered to take account of the cessation of production, representatives of those employees will have to be involved in the consultation process.
If Chips does need to arrange for representatives to be elected, it must build into its consultation timetable sufficient time for the election before consultation begins (see suggested timeline above).
Length of consultation period
Chips is proposing to make 40 redundancies over a 90-day period. The minimum length of the collective consultation period would generally be 30 days. However, Chips has recently completed a redundancy exercise affecting 70 employees. Will the two exercises be counted as one in terms of determining the appropriate length of the consultation period? This would result in the minimum consultation period being 90 days rather than 30 days.
The issue will turn upon whether the two redundancy exercises genuinely stem from separate decisions by the employer. If Chips had no idea that the current redundancy exercise would take place at the time it took the decision to make the earlier redundancies, and if Chips has consulted in relation to those dismissals, the two exercises will not be treated as one and the appropriate consultation period will be 30 days.
Consultation with the EWC
It is unlikely that Chips will have to consult with its EWC before effecting the dismissals. This is because an employer will only generally be required to call a meeting of its EWC in circumstances where its proposals will have 'trans-national' consequences. If the proposals will only impact on employees in one country, in this case the UK, there will not be any general requirement to convene a meeting of the EWC. However, it would be sensible for Chips to check the constitution of its EWC to ensure that it has not built in any special requirement to call a meeting in these circumstances.
Compromise agreements
Compromise agreements are often used by employers as a tool to exit employees quickly and/or in circumstances where the employer recognises that there will be an exposure to unfair dismissal or other claims in respect of the dismissals. However, it is important to note that the Trade Unions and Labour Relations Act 1974 (TULRA) requires consultation with employee representatives to take place for a minimum of 30 days before the first dismissal can take effect.
The courts have confirmed that volunteers will be included in determining when the first dismissal takes effect and any employees entering into compromise agreements would be counted as volunteers.
Accordingly, Chips will be in breach of the collective consultation obligations under TULRA if employees are exited using compromise agreements before the end of the 30 days' consultation period. It is not possible for Chips to compromise potential claims for a failure to inform and consult with employee representatives and there will, therefore, be some exposure even if all employees sign compromise agreements.
Whether or not an employment tribunal is likely to make any protective award in respect of such failure may depend upon what amounts are payable under the compromise agreement. If employees are compensated for the full period of the collective consultation, it may be that the tribunal will decide that employees have not been prejudiced by the employer's failure to observe the collective consultation obligations and will not, therefore, make a substantial, or indeed any, award (see above in relation to penalties).
SCENARIO 2
Cut Price Computing Services plc is a successful provider of IT services. Its business has grown significantly over the last few years as a result of outsourcing deals in which companies have outsourced their IT functions and transferred associated employees to Cut Price.
These deals have resulted in Cut Price's workforce doubling in size to 5,000 employees as a result of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) transfer of employees from its customers.
Cut Price has recently reviewed the operation of its business and decided to restructure to eliminate overcapacity resulting from carrying out similar services for a number of clients. These proposals will potentially affect all employees as no decision has yet been taken as to who to make redundant. Ultimately, Cut Price believes that it may make up to 200 employees redundant.
Having taken on the bulk of its workforce from customers as a result of TUPE transfers, Cut Price has a range of employee consultation mechanisms currently in place. Some groups of employees are represented by recognised trade unions (there are three different unions recognised). It has also recently established an employee forum to discuss the harmonisation of employee terms and conditions.
Cut Price's restructuring plans are being driven by its main shareholder, which owns 80 per cent of the company. This shareholder is paranoid about restructuring plans being leaked and has refused to provide information concerning the reasons for its proposals to Cut Price managers, who will be responsible for carrying out the consultation exercise.
Cut Price wants to know how it ought to go about complying with its obligations to inform and consult with employee representatives in relation to the proposed redundancies.
Key issues
It will be important for Cut Price to decide who it will consult in relation to the proposed redundancies. Different groups of employees will be represented by different representatives and Cut Price will need to decide how to manage the consultation process - will it consult separately with different groups of employee representatives, or will it decide to hold meetings attended by all employee representatives? Cut Price needs to decide whether or not it can use its existing employee forum to discharge its consultation obligations.
Cut Price will have to assess the impact of the decision by its main shareholder not to provide details of reasons for the restructuring exercise.
Will the shareholder's refusal allow Cut Price to avoid any obligation to inform and consult in relation to the reasons for its proposals?
Who should Cut Price consult with?
Cut Price will be obliged to consult with recognised trade unions in respect of those employees covered by the recognition arrangements. However, as these arrangements do not cover all employees, it will be necessary for Cut Price to inform and consult with employee representatives representing employees not covered by the recognition arrangements.
Cut Price's HR manager has suggested that it would make things much easier if it used the existing employee forum to represent the interests of non-union employees.
Whether or not Cut Price will be able to utilise the existing employee forum in this respect will depend upon the remit given to that body at the time that it was established. If it was established solely for the purpose of discussing Cut Price's proposals to harmonise terms and conditions of employment, it will not be appropriate for Cut Price to consult with the forum.
Legislation allows for the employer to consult with an existing employee forum but only if that body has authority from the relevant employees to receive information and be consulted about the proposed dismissals on their behalf. It might be possible for Cut Price to utilise the existing employee forum if it outlined details of its plans to employees asking them to let it know if any of them objected to this course of action. If it received no negative feedback from employees it would be able to argue that this amounted to authority for the employee forum to receive information and be consulted concerning redundancies. While this would not necessarily be compliant with the letter of the legislation, it is unlikely that a court would make any significant award in the event that Cut Price's actions were later challenged by employees.
If Cut Price decides not to use the existing employee forum, it will need to arrange for employee representatives to be elected in respect of non-union employees. Once representatives are in place, Cut Price will need to decide how to run the consultation exercise. In particular, it will need to decide whether to hold separate meetings with each trade union and other groups of employee representatives or whether meetings should be attended by all groups of representatives.
The employer may feel that the process will be easier to control if separate meetings are held. However, if separate meetings are held, it will be important to give exactly the same information/messages to all sets of representatives and to adopt a consistent approach in relation to the matters discussed at those meetings.
Clearly, if different issues affect different groups of employee, it may make sense for a number of separate meetings to be held to avoid wasting time discussing issues that are not relevant to some of the representatives present at the meeting.
Withholding information concerning reasons for restructuring
Employee representatives will, obviously, want to discuss Cut Price's reasons for carrying out the restructuring exercise. Can Cut Price rely upon its shareholder's refusal to provide this information as a reason for not discussing the reasons or will this automatically result in Cut Price being in breach of its information and consultation obligations?
There is a defence for an employer to a claim that it has not properly consulted, where there are special circumstances which make it not reasonably practicable for the employer to comply with its obligations (see box below on special circumstances).
However, Cut Price will not be able to rely upon its shareholder's failure as a special circumstance. This is because the legislation specifically provides that where the decision leading to the redundancies is that of a person controlling the employer, a failure on the part of that person to provide information to the employer shall not constitute special circumstances. Accordingly, Cut Price will be exposed if it is unable to persuade its shareholder to provide the relevant information.
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Proposed redundancies |
Located at same establishment |
Within rolling timeframe |
Consultation period |
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20 or more |
Yes |
90 days |
30 days before first dismissal |
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100 or more |
Yes |
90 days |
90 days before first dismissal |
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The Head Office of 2-Die-4 Shoes Limited is proposing to make 25 redundancies throughout its workforce. The head office is based in London. Human resources, accounts, stock control and management are centralised and are run from head office. The company has three retail shops spread over the Essex area. There will not be redundancies of 20 or more employees at any of the individual shops or the head office. The employees have mobility clauses in their contracts of employment, which requires work to be performed at any of the retail shops. It is common practice for the sales staff to cover absences in other shops at short notice. Are the consultation obligations triggered? Yes, 2-Die-4 Shoes is advised to consult collectively in these circumstances. Although the proposal is to make fewer than 20 employees redundant at any one location, 2-Die-4 Shoes is structured in such a way that the head office and the three shops are likely to be considered as 'one establishment'. The factors leading to this conclusion are:
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Curly Tops plc has an employee forum, which was constituted for the purpose of consulting on a wide range of workforce issues. It has not been consulted on redundancy in the past. Curly Tops plc is required to consult collectively in respect of 40 redundancies of secretarial staff and wants to use the employee forum, rather than elect new representatives. The fact that the employee forum has not been consulted in the past on redundancies is not fatal. If its remit is 'any' issues that affect the workforce and its members are representatives of the affected employees in the sales force, then it is possible to consult with the existing employee forum. On the other hand, it would not be
appropriate to use this body for consultation if it was made up of unelected
parent members of staff, set up specifically to look at the viability of
childcare vouchers. This type of body could not claim that consultation was
within its remit or that it represented the affected secretarial staff. |
EXAMPLES OF SPECIAL CIRCUMSTANCES
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ACCEPTED/REJECTED |
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The difficulty of predicting the end of contracts (for example, in the building trade) |
Accepted |
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An application for government financial assistance, if it is not possible to issue details of the application before the outcome is known |
Accepted |
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Where an employer's circumstances suddenly change (for example, where a prospective purchaser pulls out of negotiations) |
Accepted |
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The need to preserve confidentiality |
Rejected |
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The employer is not at fault in failing to comply due to wrong advice |
Rejected |
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Employee morale would be affected by delays caused by consultation |
Rejected |
Consultation over a number of jurisdictions: table 1
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Total workforce |
Number of dismissal |
Period within which dismissals take place |
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GERMANY | ||
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21-59 |
6+ |
None specified. Dismissals must be related to the same employer decision (which must involve a considerable change in business). |
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ITALY | ||
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5+ |
5+ |
120 days (extendable by agreement with trade union). |
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FRANCE | ||
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50+ |
2-9 |
30 days |
Consultation over a number of jurisdictions: table 2
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Minimum consultation period |
Obligation to inform authorities inform/consult |
Penalties for failure to inform/consult |
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GERMANY | ||
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No formal timescale, but reconciliation of
interests agreement must be reached with works
council. If no agreement reached, reconciliation board must be convened.
If there is still no agreement, employer may proceed with its plans.
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Inform unemployment authorities where
prescribed number of dismissals within 30 days (based on dates of expiry
of individual notice periods). |
If works council's rights not observed, it
may apply for injunction preventing dismissals. Compensation may also be
payable. |
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ITALY | ||
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Employer must provide information to trade
unions and within seven days, meet the trade union to review reasons for
dismissals, how they can be avoided etc. If unions do not seek
consultation within this seven-day period, employer can proceed with
dismissals. If they do, consultation must be completed over a minimum
45-day period. However, this can be extended by a further 30-day period,
on request by the labour office, if agreement is not reached.
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Inform National Social Security Agency and provincial/regional labour office if no agreement reached. They will mediate in negotiations. |
Dismissals ineffective. Reinstatement may
be ordered and compensation payable. If reinstatement refused by employee,
entitlement to additional 15 months' compensation. |
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FRANCE | ||
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One meeting (the provisions of the
Modernisation Sociale Act, which organise two
meetings, have been suspended). Two meetings separated by 14 days.
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Inform labour inspector within the eight
days following the notification of the dismissals where there are between
two to nine dismissals. |
Criminal offence where failure to
inform/consult works council. Fines for employer representative concerned.
Imprisonment is a theoretical penalty (but in our experience has never
been imposed). |
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Section 1: the changing
workplace
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