Where an employer proposes to dismiss as redundant 20 or more employees at one establishment within a period of 90 days, it must inform and consult with appropriate representatives of affected employees for a certain period. Failure to do so can result in an employment tribunal ordering a 'protective award' of up to 90 days' pay per affected employee. Further details on these obligations are set out below.
In the recent case of Shanahan Engineering Ltd v Unite the Union, Shanahan argued that special circumstances excused it from the requirement to inform and consult.
Shanahan is an engineering construction contractor. In 2007 it won a contract for work on a power station being constructed by Alstom. The contract work involved the construction of two heat recovery steam generators, being built simultaneously on a busy site. The contract allowed Alstom to "instruct [Shanahan] to stop or not to start any work and...later instruct him that he may re-start or start it".
In April 2008 there was a problem on site caused by congestion and ground conditions. On 30 April, Shanahan submitted certain proposals designed to eliminate the difficulties. One proposal was that it would build the generators one after the other. Alstom accepted this proposal and gave a written instruction to Shanahan on 1 May 2008 to reschedule its remaining works with immediate effect, review its resources on site and optimise those resources in line with the new schedule. In terms of the contract, Alstom was in effect paying Shanahan the costs of the labour it used together with a fee. Alstom therefore noted that it expected the revised schedule to result in the immediate reduction of labour, subject to consultation in line with statutory requirements. It asked for confirmation that the required actions had been implemented by close of business on 1 May. Shanahan proceeded to make some 50 employees redundant with effect from 2 May 2008.
The employment tribunal claim
Shanahan did not inform or consult with representatives of the affected employees. As a result, Unite the Union brought a claim to the employment tribunal seeking protective awards on their behalf. Shanahan argued that it was excused from the requirement to inform and consult as special circumstances existed.
The tribunal (and later the Employment Appeal Tribunal) found that special circumstances did exist, in that Shanahan had been faced with a situation whereby, suddenly, it no longer required as many employees as it had previously. These circumstances relieved Shanahan of the obligation to start consultation within the usual statutory timescales (in this case at least 30 days before the dismissals took effect) however, the special circumstances did not entirely remove the requirement to inform and consult: Shanahan should still have complied with its obligations to such a degree as was reasonably practicable in the circumstances. The tribunal suggested that Shanahan should have carried out a shorter consultation, perhaps over a few days.
As a result of Shanahan's failure, the tribunal ordered that it pay each of the 50 employees 90 days' gross pay. The Employment Appeal Tribunal has ordered that the original Tribunal reconsider the level of these awards, and it is likely that they will be reduced, although some award will certainly remain.
- Employers in a similar situation to Shanahan, who (for contractual reasons or otherwise) are faced with a sudden need to reduce employee numbers, may have grounds for arguing that they do not need to comply fully with the usual information and consultation obligations. However, it would be a high risk strategy to ignore the duty to inform and consult on the assumption that 'special circumstances' exist. As the Employment Appeal Tribunal noted in this case, special circumstances denotes something 'out of the ordinary, something uncommon', and the availability of the defence will turn on the facts of each case.
- As was made clear in Shanahan's case, even if special circumstances exist, they are unlikely to entirely excuse an employer from compliance with the information / consultation obligations. As regards those requirements affected by the special circumstances, employers must still comply with those to the extent reasonably practicable in the circumstances. Furthermore, employers must ensure that they comply fully with any requirements which remain unaffected by the special circumstances.
- Shanahan would have been aware, on account of the terms of its contract with Alstom, that it might at some time in the future be faced with a sudden requirement to reduce employee numbers. Employers in a similar situation should consider the following measures:-
- Have an agreed redundancy selection procedure in place. If special circumstances exist, it may be that, as in Shanahan's case, these circumstances relieve the employer of the need to consult for 30 / 90 days, but some consultation may still be required. Having an agreed procedure would allow consultation to be completed more quickly.
- Where employees are not represented by a trade union, arrange for a standing body of employee representatives to be appointed or elected by those employees who are likely to be affected, with authority to receive information and be consulted about the proposed dismissals on their behalf. Assuming this standing body still falls within the scope of the legislation at the actual time the redundancies come to be made, this will allow consultation to commence immediately, without the need for an election.
- Consider including indemnities in commercial contracts imposing liability on the other party for the value of protective awards, where that party implements a clause which necessitates a reduction in employee numbers.
As regards 'special circumstances' in general:-
- Insolvency is not of itself a special circumstance, although special circumstances may arise during an insolvency situation.
- The desire for commercial confidentiality is unlikely to amount to a special circumstance, unless there are peculiar and specific facts.The obligation for listed companies to announce 'inside information' to stock exchanges before it otherwise enters the public domain will not amount to a special circumstance. The London Stock Exchange disclosure rules expressly provide for information to be provided in confidence to representatives for the purpose of consultation. Indeed, the Stock Exchange announcement must usually be made simultaneously with communications to employees and their representatives unless there are legitimate grounds for delay.
Shanahan Engineering Ltd v Unite UKEAT 0411/09
The duty to inform and consult
Where an employer proposes to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less, it must:-
- Give written notification of the redundancies to the Department for Business Innovation and Skills ("DBIS") within a set time period. Failure to do so is a criminal offence, punishable by a fine of up to £5,000.
- Inform and consult with appropriate representatives of affected employees for a certain period. Failure to do so can result in an employment tribunal ordering a 'protective award' of up to 90 days' gross pay per affected employee.
Who are the 'affected employees' and 'appropriate representatives'?
If affected employees fall into a category in respect of which a trade union is recognised, the trade union will be their 'appropriate representative'. In other cases, the employer may consult with either:-
- Representatives elected by the affected employees (having followed statutory rules governing their election); or
- A standing body of representatives (subject to certain requirements).
What does consultation involve?
Consultation begins with the provision of written information on the proposals to the representatives. The legislation details certain minimum information which must be provided.
Consultation must be meaningful, and undertaken with a view to reaching agreement on ways and means of avoiding the dismissals, reducing the number of dismissals and mitigating their consequences.
Consultation must begin in good time, and at least 90 days before the first dismissal takes effect (where 100 or more redundancies are proposed), or at least 30 days before the first dismissal takes effect (where between 20 and 99 redundancies are proposed). For an analysis of recent case law regarding the timing of collective consultation, please follow this link to an article by Wendy Somerville, Associate at Brodies LLP, published in Personnel Today magazine.
Do these obligations always apply?
These obligations apply unless:-
- Employees fail to elect representatives within a reasonable time (in the situation where they have been invited to elect representatives). The employer's only obligation then is to give each affected employee the minimum information referred to above. Or,
- 'Special circumstances' render it not reasonably practicable to (i) consult within the above timescales; (ii) consult in the manner noted above; or (iii) provide the written information referred to above. However, such 'special circumstances' do not entirely remove the requirement to inform and consult: an employer must still take all such steps towards compliance as are reasonably practicable in the circumstances.
Are there any other consultation requirements in a collective redundancy situation?
In most situations, in addition to collective redundancy consultation, employers will also need to carry out individual consultation with potentially redundant employees, with a view to avoiding claims of unfair dismissal. Employers should also take care to adhere to the terms of individual contracts of employment, and the provisions of relevant internal policies and procedures.
Some employers may also have obligations in terms of an information and consultation agreement reached under the Information and Consultation of Employees Regulations 2004.