Where employers are proposing to dismiss 20 or more employees at one establishment within 90 days, they must consult collectively with employees or their representatives (Section 188, Trade Union and Labour Relations (Consolidation) Act 1992). In order to be meaningful, consultation must begin in good time before the redundancies take effect. Identifying when an employer is “proposing” dismissals may be difficult in practice, particularly in fast-moving and highly pressured insolvency situations. Case law has established that the duty to consult over a business closure will not arise when the closure is mooted as a possibility, but only when it is fixed as a clear, albeit provisional, intention.
Ellard and Others v Alliance Transport Technologies Ltd
In Ellard and others v Alliance Transport Technologies Ltd, the Employment Appeal Tribunal (EAT) held that the duty to collectively consult may arise where redundancies are a likely outcome of a developing situation, even if the employer is still pursuing alternatives such as a potential sale of the business.
Facts of the Case
Alliance Transport Technologies Ltd employed 51 employees. Due to serious financial pressures, administrators were appointed, and 15 non-critical employees were dismissed as redundant with immediate effect. Three days later, it became clear that a buyer would not be found, and most of the remaining employees were also dismissed as redundant. The administrators then started to wind down the company.
Employment Tribunal Decision
The Employment Tribunal ruled that the employees dismissed in the later tranche of redundancies were entitled to a protective award as the employer had failed to consult collectively. However, the Tribunal held that three employees who had been dismissed in the first tranche were not entitled to a protective award because, at that point, efforts to sell the business as a going concern were ongoing and there was no “proposal” to make redundancies.
Employment Appeal Tribunal Decision
On appeal, the EAT held that the Tribunal’s analysis was flawed and substituted a finding that the three employees were entitled to the maximum 90 days’ protective award. The Tribunal had wrongly focused on whether there was a single, fixed proposal at a particular point in time, rather than considering whether there was a proposal to dismiss 20 or more employees within a period of 90 days. This required a forward-looking assessment of what dismissals were being contemplated over that period, even if this was uncertain.
The EAT also rejected the Tribunal’s argument that the prospects of selling or rescuing the business were irrelevant. When administrators were appointed, there was at least a provisional intention that the business would close if no buyer could be found, so further redundancies were highly likely. Collective consultation should therefore have commenced at that point.
Key Takeaways
This decision is consistent with previous case law, which established that the duty to consult collectively is triggered where there is a clear intention to make redundancy dismissals, even if this is provisional. Employers must look ahead to ensure that consultation is meaningful and begins in good time. As this case illustrates, in insolvency situations, exploring a sale or rescue of the business may still mean that the duty to consult collectively arises. It is vital to consider the legal and financial implications of failing to comply, particularly since the maximum protective award has now increased from 90 days’ pay to 180 days’ pay.
