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Collective redundancies – employers must now consult on underlying reasons for closure

21 January 2008

 

For the first time employers must consult about the reasons for closing a workplace where proposed collective redundancies are inextricably interlinked with the closure. This is the effect of the recent Employment Appeal Tribunal's (EAT) ruling in the case of UK Coal Mining Limited v NUM [2008] IRLR 4.

 

Traditionally case law has not obliged employers to consult with the employees' representative about the reasons for closures leading to redundancy; the duty was interpreted as a requirement simply to consult about the manner of the dismissals. The EAT has now clearly rejected the old authorities and has imposed on employers a wider obligation to consult, including as to whether the site should close.

 

The case concerned the Ellington Colliery in Northumberland, which had for years faced numerous problems, potential redundancy and closure. In 2004 it received aid funding and agreed to continue operating so long as it could meet targets and supply demand. In 2005 a massive flood suspended coal mining and caused a significant profit loss because of the cost and time involved in pumping the water out of the mine. Management decided that closure was inevitable and gave safety concerns as the reason for redundancies. In less than one month from the first announcement 158 men were made redundant. 

 

The Union sought protective awards against the employer for failure to comply with the 90-day consultation requirement. It alleged that the safety reasons were not the real reason for the closure of the colliery and that closure on this ground was unjustified as this issue was being resolved. It could understand the need for closure on financial grounds but these were not the reasons cited by the company. The employer contended that it did not have any duty at all to consult over the closure because the unexpected flooding, which exacerbated the economic difficulties, constituted "special circumstances" under the legislation. It was therefore immaterial that it had given a false or misleading reason for the closure. 

 

Employment Tribunal decision

 

The Employment Tribunal found, on the basis of existing case law, that there was no obligation to consult the Union about the reason for the closure. However, it held that there was no credible evidence that the reason for the dismissal was safety concerns. The real reason for closing the pit was economic and consequently the employer had failed to comply with its requirement to consult. The Tribunal awarded the maximum compensation of 90 days pay under the protective award. 

 

EAT decision

 

The EAT agreed with the Tribunal in that the reasons for the closure were actually economic. They made a point of stating that the Tribunal had been correct in "taking a grave view about the deliberate deception that was perpetrated by the employer" in making the maximum protective award. 

 

As for the question whether the employer was obliged to consult about the closure, not just about the dismissals themselves, the EAT refused to follow the earlier cases. It referred to the obligation to discuss ways of avoiding the redundancies, agreeing that it made a mockery of this obligation if the decision to close down the plant was beyond discussion. The obligation to consult about avoiding redundancy inevitably involved engaging with the reasons for the dismissals, which in turn required consultation over the reasons for the closure. Only in exceptional cases where a closure was planned but the employer believed redundancies could be avoided, would there be no duty to consult because in such a case closure and dismissal were not inextricably interlinked.

 

Impact of the decision for employers

 

Although this is a dramatic departure from the previous interpretation of the legislation, in reality it is unlikely to alter the situation for employers very much. As the EAT noted, "most employers will already inform union representatives why they are considering the need to close a plant and will respond to any union observations, even if they do not feel themselves legally obliged to do so". It is true that when announcing the possibility of redundancies, it is almost impossible for an employer not to provide any explanation as to why. However, the interesting point about this case is that it is now clear employers must ensure that information given during any consultation is truthful.  If it is not, the protective award will reflect the deceit. 

 

Issues for consideration

 

• When contemplating a site closure employers must now consult on the reasons for the closure if redundancies appear inevitable.
• Reasons given for the closure must be truthful and genuine; otherwise the employer will be financially reprimanded when it comes to making any protective award.
• Companies intending to rely on "special circumstances" to justify a decision not to consult will need to show that:
  a.   It is not reasonably practicable to comply fully with the duty to consult but
  b.  They will need to take all reasonable steps to provide some kind of consultation in these circumstances
• The closure of the site may not be sufficient as a reason for the redundancies that are subsequently made

 

For more information or advice, please contact Helen Badger.

 

The content of this bulletin is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.