The duty of an employer to consult workers' representatives when collective redundancies are being considered

4 March 2010

The recent Employment Appeal Tribunal (EAT) judgment in Shannon Engineering Ltd v Unite the Union has clarified and reminded all of the extent of the duty to consult with employee representatives in collective redundancy cases.

Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRA) states that where an employer is proposing to make redundant twenty or more employees at one establishment within a period of 90 days or less, the employer must consult with the appropriate representatives of any of the employees who may be affected by the proposed dismissals or who may be affected by measures taken in connection with those dismissals. The duty to consult is not absolute. Section 188(7) of TULRA provides:

“If in any case there are special circumstances which render it not reasonably practicable for the employer to comply … the employer shall take all such steps towards compliance with that requirement as are reasonably practicable in those circumstances.”

Facts of case

Shannon Engineering (S) was awarded a contract for work by company (A) on the construction of a power station. S employed staff to work on the project but was suddenly told by A that a revised schedule of works meant that some of the work that S had been asked to do was not required. This would necessitate an immediate reduction in staff employed by S on the project site, something that A was empowered to order under its contract with S. S made a number of employees redundant without consulting staff for the obligatory 90 day period. The case was referred to an Employment Tribunal (ET).

S appealed against a “protective award” of the ET, ordering S to pay 90 days pay to those employees it had dismissed as redundant without consultation. S stated that it was not reasonably practicable to have consulted given the sudden and unexpected change of plan by A. Neither was it reasonably practicable to consult staff given the explicit direction of A and the urgency of implementing its directive, to dispense with employees. The ET stated that although special circumstances existed, S should still have consulted staff and the protective award of 90 day pay maximum award pay per affected employee, was reasonable.

EAT judgment

The EAT agreed with the ET that S should have consulted staff and that s.188 TULRA had been breached. The sudden, unexpected order by A to cease work on the project and to cut project staff, was mitigating circumstances of considerable importance. However, while S had shown that there were special circumstances, it did not follow that these circumstances made it not reasonably practicable for S to consult staff. If, as was the case in this matter, it was reasonably practicable to consult; such consultation should have taken place. In this case there was an opportunity consult over 2 days.

The purpose of the protective award was to punish an employer not to compensate employees. There was no link between the 90 day maximum award and the length of time consultation would have taken. However, the seriousness of an employer’s default in not consulting would depend on mitigating or special circumstances. The ET should have taken into account all the special circumstances in this case and reduced the amount of the protective award to a just and equitable amount.

The case was remitted to be reconsidered by an ET with a view to reducing the amount of the protective award.

Comment

Where a protective award is made, remuneration must be paid to all employees who have been, or are to be, made redundant and who are of a description specified by the Tribunal. The rate of remuneration is one week’s pay for each week of the protected period as determined by the Tribunal.

The present state of the construction industry has led to a number of redundancies in similar circumstances to S’s case. It is important to note that ETs will often start with imposing a maximum protective award for failing to consult and work down from that level. This case will encourage them to impose lower levels of protective awards, if “mitigating circumstances” apply.

Remember that in those industries which recruit staff to meet peak periods and then terminate their employment at the end of the peak period, the obligation to collectively consult will arise if 20 or more employees are to be dismissed at one establishment within 90 days.