Learn how to use redundancy as a last resort when all alternative approaches have been considered
Employers who propose to make 20 or more employees redundant ‘at one establishment’ over a period of 90 days or less must consult a recognised independent trade union. If no trade union is recognised, consultation must take place with other elected representatives of the affected employees (see section 188(1A) of the Trade Union and Labour Relations Act (TULRCA) 1992).
If there are no employee representatives, representatives must be elected solely for the purpose of the redundancy consultation. Detailed requirements govern the election procedures.
The consultation should include:
- ways of avoiding the redundancies or reducing the number of employees to be made redundant
- mitigating the effects of redundancies, and
- the reasons for redundancy.
The employer must consult with appropriate representatives with a view to reaching agreement. This duty applies even when the employees to be made redundant are volunteers.
It was previously thought that the duty to consult concerned only how a redundancy programme would be carried out, not if there should be redundancies at all. However, in UK Coal Mining Ltd v National Union of Mineworkers and the British Association of Colliery Management (2008), the Employment Appeal Tribunal ruled that when a business is closing down the obligation to consult over avoiding the redundancies must involve consultation over the reasons for the closures.
The basic obligation to consult originally came from EU law, but the UK has added the limitation about redundancies being ‘at one establishment’ before the need to consult applies.
For a general overview of the legislation governing redundancy, see our Redundancy Q&As.
What is meant by ‘at one establishment’?
The ‘20 or more employees at one establishment’ rule has been the subject of lengthy litigation. Employers must consider whether 20 or more employees are facing redundancy at an individual workplace – if so, collective consultation provisions will apply. Collective consultation may be avoided if 20 or more redundancies are happening across the employer’s establishment as a whole, but at multiple workplaces.
The definition of ‘establishment’ is important because collective redundancy consultation can lead to an extra award for employees (the protective award). This is payable only to those who are part of a redundancy of 20 or more at one establishment and where there has been a failure to properly consult.
Various courts and tribunals have grappled with the meaning of ‘establishment’ in a collective consultancy context.
Points for employers
Employers can assume that consultation obligations are triggered on an establishment-by-establishment basis where 20 or more redundancies are being implemented. In view of the relatively clear ECJ case law, individual stores in a chain are separate establishments. Organisations should be cautious and keep track of all redundancies proposed across the whole business. It remains challenging for employers to avoid collective consultation obligations, and when in doubt it may be safer to collectively consult anyway.
Does collective consultation apply only to redundancies?
The collective consultation provisions referred to in the overview apply only to redundancies. However, there may be a need for collective consultation in other circumstances, for example under the Information and Consultation of Employees Regulations 2004 and the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).
Information and Consultation of Employees Regulations 2004
Employees in the UK rights to be informed about:
- the business’s economic situation
- anticipatory measures where there is a threat to employment
- decisions likely to lead to substantial changes in work organisation or in contractual relations*
- employment prospects.
*This category clearly includes redundancies and transfers of undertakings already covered by other statutory obligations to consult employee representatives. Employers do not need to consult under these provisions if they are consulting under the legislation on collective redundancies or business transfers.
Employers may be familiar with the need for consultation with respect to redundancies, but unused to consulting on other decisions which may lead to substantial changes in work organisation. The key points are that:
- the Regulations apply to businesses with 50 or more employees
- an enforced information and consultation arrangement will arise only if ten per cent of the workforce requests such an arrangement (or the employer chooses to initiate negotiations)
- if there is no request from the workforce, and the employer does not wish to put an arrangement in place, there is no obligation to do anything
- if ten per cent of the workforce do put in a request, and if the employer fails to agree an arrangement after six months, an automatic statutory scheme will apply
- obligations imposed by the statutory scheme provide both employer and employee representatives with a degree of flexibility to tailor the arrangements
- if the statutory scheme applies there must be one representative for every 50 employees, subject to a minimum of two representatives and a maximum of 25
- under a negotiated scheme there can be as many or as few representatives as the organisation and the representatives choose
- under a negotiated agreement it can be decided that the employer communicate directly with employees, dispensing with the need for employee representatives.
The Central Arbitration Committee provides guidance for employers as to its role and issues arising under the Regulations.
Transfer of Undertakings (Protection of Employment) Regulations 2006
Where a relevant transfer of an undertaking is proposed (such as the sale of a business) and the employer will be taking measures in relation to affected employees, there must be a consultation seeking the employees’ agreement to the intended measures.
It can be complicated if the TUPE and redundancy consultations overlap.
The Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 have made it clear that pre-transfer consultation can count towards the requisite number of days’ redundancy consultation, as long as both the transferee and transferor agree. Agreement may be less likely if the transfer is a service provision change, and the current and prospective employers are rival contractors.
See also the Transfer of undertakings (TUPE) Q&As.
When should collective consultation take place and how long should it continue?
Consultation should begin as early as practicable and, if possible, employers should allow for longer than the statutory period of consultation. There is no fixed time for the overall length of the consultation, although there are time limits covering when consultation must start before any dismissals can take effect.
Acas and case law guidance focuses on the need for consultation to be meaningful, and held in good faith, rather than actual time periods. Acas emphasises that usually a number of collective consultation meetings will be needed. A meaningful redundancy consultation involves more than simply informing the employees of a decision already made, and must include ways of avoiding the dismissals if at all possible; for example, job sharing or agreed reductions in hours.
Start of the consultation
At the very least collective consultation must begin:
- 30 days before the first dismissal takes effect if 20 to 99 employees are to be made redundant at one establishment over a period of 45 days or less.
- 45 days before the first dismissal takes effect if 100 or more employees are to be made redundant at one establishment over a period of 45 days or less.
The provisions apply where an employer is proposing the redundancy of 20 or more employees at one establishment within a period of 90 days or less. Even if the redundancies are proposed in two stages, an employer proposing to dismiss a total of 20 or more employees at one establishment must complete the consultation before any employees are given notice.
Consultation often takes place many months before proposed redundancies are implemented but there needs to be a balance, as excessively extended consultations often cause disruption and poor morale.
Individual consultation must always take place too. This should never take place before the start of collective consultation, but can sometimes run concurrently. For example, employee representatives may already have agreed to the overall number of redundancies and the selection criteria but may still be collectively consulting on the level of redundancy payments.
When does dismissal take effect?
No time is specified for the overall length of the consultation although it usually will have to be at least 30 or 45 days. The dismissal will then not usually take effect until the length of the notice period required for each employee has expired.
If collective (and individual) consultation is genuinely concluded before the end of the 30- or 45-day period, notice of redundancy termination can be given at this earlier time. However, the dismissal itself cannot take effect until the 30- or 45-day period has expired.
Employers making large scale redundancies are at an increased risk of litigation and should take careful legal advice.
Points for employers
- Although the trigger point for larger collective redundancies is only 15 days before the minimum consultation period required for smaller-scale redundancies, in practice this will not give larger organisations enough time to consult meaningfully on 100+ redundancies. Employers should remember that these frameworks only specify the latest that consultation can start.
- Although the minimum consultation period prior to the first redundancies has been altered by legislation over time, the period over which redundancies are made is still calculated over a 90-day period, and the penalty for breaching the rules reflects this, providing a maximum protective award of 90 days’ pay for each employee where there was failure to comply with consultation requirements.
- Case law has defined ‘proposing collective redundancies’ as more than mere contemplation, but falling short of a final decision. It is not clear if ‘proposing’ and ‘making a proposal’ are one and the same. As there has already been EU and UK case law about when the obligation to consult arises, the safest approach is for employers to start talking to employee representatives as early as possible (see What does case law say about when collective consultation should actually start in practice?).
- The government declined to insert a definition of ‘establishment’ into the legislation as it believed that it would be technically impossible to define the meaning to cover every circumstance and there is case law suggesting that redundancies do not have to take place ‘at one establishment’ anyway.
- A fixed-term contract coming to its natural end does not constitute a ‘dismissal’ for calculating the numbers of affected employees for consultation purposes (see Should part-time, temporary and fixed term staff be included in a redundancy consultation and should they receive a redundancy payment? in the Redundancy Q&As).
What does case law say about when redundancy collective consultation should start?
Redundancy consultation must begin in ‘good time’ when the proposals are still at a formative stage, to ensure there is reasonable time for meaningful consultation.
However, this is a grey area of law and confusion can arise over whether consultation should begin when proposals start being considered, when significant thought has already been given, or when plans are underway.
This problem has not yet been fully resolved by case law. However, the trend seems to suggest that consultation is required when there is either a fixed, clear but provisional intention to close a business, or a strategic decision on changes compelling the employer to contemplate, or plan for, collective redundancies.
Should collective consultation be completed before notices of dismissal are sent out?
Collective consultation should be completed before notices of dismissal are sent out.
The Collective Redundancies (Amendment) Regulations 2006 state that employers dismissing 20 or more employees ‘at one establishment’ by reason of redundancy must make the requisite notification of collective redundancies before giving notice to any of the employees. This increases the time it takes for redundancy dismissals to take place.
A notice of dismissal issued by an employer during the consultation period will be invalidated. It will still be invalid even if it does not expire until after the end of the consultation period.
Should part-time, temporary and fixed-term staff be included in a redundancy consultation and should they receive a redundancy payment?
Although some temporary and fixed-term staff must be included in a redundancy consultation, some will not need to be included (depending on their employment status). It is very important to assess the employment status of all staff accurately, because an incorrect assumption and failure to include the individual could lead to a successful claim for unfair dismissal.
If temporary or fixed-term workers have employee status they are likely to enjoy many statutory employment rights, including the right to be included in the consultation process and to a redundancy payment.
As an employer, you should have a written redundancy procedure in place. Most well-drafted redundancy procedures will cover ‘Scope’. In this section there will be an explanation of which employees are included. All relevant full-time and part-time employees must be included. This usually includes those on fixed-term contracts and temporary employees. It may be possible to exclude genuinely short-term casual workers who are not employees and may be on very short-term contracts.
Just because a member of staff has been included in a consultation does not mean they will qualify for a redundancy payment.
Points for employers
If there is no express policy in place, you must decide carefully which members of staff must be included in the consultation process. If you are in doubt, err on the side of caution and include the individual in the consultation. Bear in mind that:
1. ‘Employees’ are protected from unfair selection for redundancy. Therefore those workers who do not have employee status (for example casual workers) need not be included in the consultation process unless you are unsure of their status (see the Terms and conditions of employment Q&As).
2. Part-time employees must be included in the redundancy process in the normal way. It is a breach of the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 to choose employees for redundancy, or to treat them any differently in the redundancy process, just because they are part-time (see the Part-time work Q&As, particularly the Q&A on part-time work and redundancy).
3. Fixed-term employees must also be included in most of the redundancy process in the normal way. Under the Employment Rights Act 1996, the expiry of a fixed-term contract counts as dismissal for redundancy purposes. If they are not included there may also be a breach of the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002.
4. Every temporary, part time and fixed-term worker (whether an employee or otherwise) has the right not to be discriminated against or otherwise victimised on grounds of sex, race or disability. For example, if most of your part-time workers are women, excluding them from a redundancy process may give rise to a discrimination claim.
5. Temporary or fixed-term employees enjoy the same statutory employment rights, including the right to be included in the consultation process and to a redundancy payment, as their permanent counterparts.
6. Some special rules apply to fixed-term workers as far as collective consultation is concerned. They have a general right to be included in the redundancy process and must be individually consulted. However, the government has excluded fixed-term contracts that have reached their agreed term from the obligation to consult collectively.
7. Zero hours contracts. Some workers may not enjoy the same statutory employment rights as permanent staff, including the right to be included in the consultation process and to a redundancy payment. If the worker is engaged under a genuinely casual relationship and is not an ‘employee’, they may not be covered by redundancy legislation. However, they may be entitled to other protection or be able to establish employment status.
What information needs to be supplied to the employee representatives?
An employer is required to submit to the appropriate employee representatives for the purposes of collective consultation:
- the reasons for the proposals
- the numbers and descriptions of the employees at risk, including the total number in the pool for selection
- the method proposed for selecting employees to be dismissed, including agreed procedures and timescales for the dismissals
- if there are to be enhanced redundancy packages, the proposed method of calculating them.
Where closure of a workplace is for economic reasons, the consultation will necessitate the disclosure of sensitive economic information relating to the commercial basis for the decision.
Special rules govern the information on agency workers that employers are required to produce during redundancy consultations. Employers in redundancy (and TUPE) consultations have to tell employee or union representatives:
- how many agency workers are working for the employer
- the parts of the employer’s undertaking where those agency workers are working, and
- the type of work that the agency workers are carrying out.
The information can be important to employees or union representatives as it can be used to argue that instead of redundancies, cuts can be made to agency staff to allow employees to keep their jobs. Failure to provide this information is a serious breach of the legislation.
Is it easy to elect employee representatives for collective consultation over redundancies?
No – there has to be a detailed confidential election process.
Appropriate representatives will be either representatives of a recognised trade union or employee-elected:
- Where an independent trade union is recognised, the employer must consult with its representatives.
- Where there is no union recognition agreement, the employer must make a choice to consult with either employee representatives elected for another purpose, or new representatives selected specifically for the purpose of consulting on this issue.
A brief summary of some of the key points which apply where representatives need to be elected:
- the employer must try to ensure the election is fair
- the employer decides the number of representatives, which must be sufficient to represent all affected areas of staffing
- the employer determines the representatives’ terms of office, how long will they be elected for and so on
- all affected employees must be allowed to present themselves for election (no employee representative or employee must be unreasonably excluded)
- the employer will facilitate the election and must ensure that the voting is conducted in secret and the votes are accurately counted
- the representative’s term in office must be long enough to enable them to complete the consultation on behalf of their colleagues.
If no employees put themselves forward for election and they don’t participate in the employer’s attempts to collectively consult, the employer is required to give each individually affected employee the written information usually submitted to employee representatives (see What information needs to be supplied to the appropriate employee representatives in a redundancy situation?).
What rights do appropriate employee representatives have?
Appropriate employee representatives have the right to:
- access to affected employees
- office accommodation and facilities if necessary
- reasonable time off with pay to carry out their functions
- training in connection with those functions
- not be dismissed or suffer any detriment because of their status or activities
- automatically unfair dismissal if dismissed because of their status or activities as a representative.
What are the consequences of a failure to consult collectively?
An employment tribunal can make a protective award of up to 90 days’ pay (in practice the maximum will usually be awarded). This is in addition to any ‘normal’ redundancy payment.
A protective award requires employers to pay employees their normal week’s pay for what’s called the ‘protected period’. The tribunal has discretion in fixing the length of that period up to a maximum length of 90 days in all cases where 20 or more people are to be made redundant. The purpose of this award is to punish a defaulting employer, rather than to compensate employees.
The protected period begins either on the date on which the first of the dismissals takes effect, or on the date of the tribunal award – whichever comes first.
The maximum award against a solvent employer will be 90 days’ pay for each employee, regardless of the number of employees. The amount of the award may be less if the tribunal considers that it would be just and equitable in the circumstances.
The only defence to a failure to consult is if the employer can show that there were special circumstances making it impossible to comply with the statutory obligations. Insolvency on its own will not generally be considered a ‘special circumstance’.
Failure to allow a proper period of time for consultation will lead to other procedural failings, including a poorly formulated pool for selection and inadequate selection criteria.
Do all redundancies have to be notified to the government?
Employers who are obliged to collectively consult must notify the government of the proposed redundancies in writing on form HR1. This notice should also be supplied to the employee representatives. Failure to comply may lead to criminal proceedings and a fine.
The HR1 forms are required only if 20 or more redundancies are proposed within 90 days or less at one establishment.
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