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Redundancy: What is an establishment?

Admittedly, it is not a particularly festive topic to write about, but the sad fact is that this can be one of those times of year when employers are likely to consider making redundancies.

Some may opt to go down the formal statutory process for making redundancies, whilst others may opt for a more informal route and offer each individual employee a “settlement agreement” (what used to be known as a “compromise agreement”) on a without prejudice, subject to contract basis.

If the employer chooses the formal statutory route then, as a starting point, it will likely need to consider the number of employees that it needs to make redundant and possibly also where they are based.  It will also need to consider whether a recognised trade union or an elected employee representative is available (or otherwise hold impartial elections for an employee representative to be appointed).

This is because there is a statutory requirement that employers consult with trade union or elected employee representatives:-

  • Where the employer is aiming to make between 20 and 99 employees redundant in an establishment and the first redundancy is due to happen in 90 days or less.  If so, the employer will need to set aside a minimum of 30 days for those consultations to take place, or
  • Where the employer is looking to make 100 or more employees redundant in an establishment and the first redundancy is due to happen in 90 days or less.  The employer will then need to ensure that a minimum period of 45 days is set aside so that the consultations can take place.

This then encourages the question of what is or could be an establishment?

This is a recurring issue in cases decided by the tribunals and the courts. 

For instance, back in 2015 (although it may seem longer), Woolworths (including Ethel Austin) – one of the most recognisable retailers on the high street – closed its stores in this country.  The resulting claims arising out of the redundancy situation warranted a referral to the European Court of Justice (ECJ) to decide the meaning of the word “establishment” for redundancy purposes.  The ECJ held in that case that an establishment is a local employment unit.  When the case returned to the Court of Appeal, it was held that each Woolworths and Ethel Austin store was a local employment unit and, therefore, a separate establishment for redundancy purposes.

On this basis, if a well-known supermarket chain has 1,000 stores nationwide and is seeking to make redundancies across the board, then each store may be considered to be an establishment in its own right, rather than focusing on the national brand as a whole.  Therefore, if less than 20 employees are to be made redundant in one particular store, the obligations to consult trade union or elected employee representatives may not come into play.

The Court of Appeal has recently added an interesting spin to this logic in deciding in the case of Seahorse Maritime Ltd v Nautilus International that even ships at sea (provided that they are governed by the relevant laws) could qualify as being individual establishments for redundancy purposes.

Although Lord Justice Underhill, in the leading judgment of the Court made it quite clear that his decision was tailored to the circumstances of this specific case and could not be used as a yard stick for all cases, he explained that he had come to this decision as:-

“...each ship was indeed an establishment.  It is clearly a self-contained operating unit of the kind described in the case-law”.

Each individual ship therefore qualified as being an establishment for redundancy purposes on the basis of being a local employment unit.   

Comment

From these judgments, clearly it is possible that, whilst a business may be looking to make 20 or more employees redundant across its overall structure, it is possible that less than 20 employees may be at risk of being made redundant at each individual establishment. 

This would therefore mean that the employer may not be required to enter into consultation with a recognised trade union or employee representatives at those sites (or local employment establishments, if you prefer).

For an employer, this can be a handy tool.  However, for employees, this can make the redundancy process seem all the more unfair and unbalanced.

Nevertheless, if there are 20 or more employees being made redundant at a single establishment and the employer fails to enter into consultations, the consequences can be dire including, but not necessarily limited to, a payment to each affected employee of up to 90 days’ gross pay (i.e. before deductions for income tax and National Insurance Contributions are made).

This article is not a substitute for legal advice on specific facts and circumstances. It is designed as a free update on the law at the time of publishing. Knight Polson Limited trading as QualitySolicitors Knight Polson accepts no responsibility for reliance on this article and recommends that you seek independent legal advice on your specific circumstances prior to taking any steps.

If you have any questions or would like to discuss the contents of the above article, please do not hesitate to contact us on knightpolson@qualitysolicitors.com or 023 8064 4822.

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