ECJ delivers ruling in Woolworths case

Lydia Christie

The European Court’s decision in the mass redundancies case is good news for UK businesses downsizing, says Lydia Christie.

The European Court of Justice (ECJ) has confirmed that the UK has correctly implemented an EU directive protecting employees in mass redundancy situations.

The decision comes as a huge relief to multi-sited businesses previously concerned that redundant employees employed at sites with fewer than 20 employees could bring costly compensation claims.

UK legislation states that if an employer is proposing to make 20 or more people redundant “at one establishment” within a 90-day period it must consult with trade unions or elected employee representatives for a period of 30 days (or 45 days for 100 or more proposed redundancies). Failure to comply with these consultation requirements means that affected employees can claim from their employer a “protective award” of up to 90 days’ pay (per employee).

The European Court was asked to clarify the concept of “establishment” after thousands of employees of collapsed retailers Woolworths and Ethel Austin were denied a protective award on the basis they had worked at stores with fewer than 20 employees, as each store was regarded as a separate establishment.

The European Court has confirmed that “establishment” means the entity to which the workers made redundant are assigned to carry out their duties. An entity does not need to have any legal autonomy or any economic, administrative or technological autonomy to be regarded as an “establishment”.

The decision has come as a huge disappointment to those former Woolworths and Ethel Austin employees hoping it would pave the way for them to claim protective awards, in their case, from the Government’s National Insurance Fund after their employers became insolvent.

The Woolworths case must now go back to the UK’s Court of Appeal. The court will have to decide if it agrees with the Employment Tribunal’s original decision that employees carrying out their activities at different Woolworths stores were assigned to separate establishments.

The decision confirms that it is not necessary for businesses to tally up the number of proposed redundancies in all of their establishments to see whether the consultation obligations are triggered. The consultation obligations would therefore not be triggered at an employment unit where there are less than 20 proposed redundancies even if more than 20 redundancies are proposed across several of the business’ sites. The Court of Appeal may give further guidance on this when it reconsiders the facts in the Woolworths case.

Multi-sited businesses needing to downsize or restructure have now been relieved from the burden of the additional cost of employing staff during longer consultation periods before they can make redundancies.

Lydia Christie is a senior associate at Howard Kennedy.