Where an employer proposes to make redundancies of 20 or more employees within a period of 90 days, there is a statutory duty to consult with representatives of the affected employees. Consultation should be with a view to reaching agreement on avoiding the need for dismissals, reducing the number of employees to be dismissed and/or mitigating the consequences of the dismissals.
The penalty for failing to follow a proper collective consultation process is a protective award of up to 90 days’ gross pay for each employee affected. This is based on the employees’ actual gross pay and, unlike redundancy pay or compensation for unfair dismissal, is not subject to any cap. A failure to consult properly can therefore be very expensive for an employer.
In the recent case of E Ivor Hughes Educational Foundation v Morris (2015) the question being considered was whether a protective award was due, and if so how much. The facts of the case were quite simple. It concerned the closure of a private school in Peterborough operated by the Foundation. The pupil numbers at the school were falling, and in February 2013 the school governors reviewed the projected number of students for the forthcoming year and discussed various options for keeping the school open. A further governors’ meeting was held in April 2013 at which it was made clear that the projected numbers would not be achieved and that it was not viable to keep the school going. A further meeting of the governors took place and the decision was made to close the school at the end of the summer term in 2013. The Foundation gave staff notice of dismissal on 29 April 2013, four days after the decision to close the school had been taken. Under their contracts of employment the staff were entitled to one term’s notice of termination, and accordingly notice expired on 31 August 2013. No collective consultation was carried out. It appeared that the governors had no knowledge of the legal obligations they were under. The employees brought claims for breach of the obligation to enter into any collective consultation, as well as claims for unfair dismissal.
At first instance, the Employment Tribunal had to decide when exactly the collective consultation obligation arose. Under the relevant legislation, the obligation to consult arises as soon as the decision to make the redundancies has been made, but that has been subject to a number of cases which have left the law in a state of uncertainty. Some cases have suggested that the obligation is only triggered when the decision has actually been made; others when the decision is contemplated. In the E Ivor Hughes Foundation case, the Tribunal found that the obligation was triggered in the February governors’ meeting in which it had been decided that the school would close if pupil numbers did not increase.
The Foundation also argued that the “special circumstances” defence applied to them. This is a potential defence employers can use to avoid being required to pay protective awards, but it only applies where it was not ‘reasonably practical’ to consult. The Foundation argued that if they had consulted, then they would have had to keep all the staff employed for a further term, and that amounted to a “special circumstance”. They also argued that if it was leaked that they were in consultation with staff about the possible closure, then parents would have been likely to remove their children from the school, thus increasing their financial problems. The Employment Tribunal rejected both these reasons and held that as there had been a total failure to consult and no mitigating circumstances the employees should be awarded the maximum 90 days’ pay each. The Foundation appealed to the Employment Appeal Tribunal (EAT).
The EAT rejected the appeal. On the question of whether the Tribunal was correct to treat the February meeting as the trigger for consultation, they found that it was within the Tribunal’s power to do so and as this was a question of fact it was not something which it could interfere with. It also gave short shrift to the “special circumstances” defence. The Tribunal had found that the governors had no knowledge of the obligation to consult, and as such they could not have considered whether there were any special circumstances which rendered the collective consultation unnecessary.
They also upheld the Tribunal’s decision to award the maximum 90 days’ pay for each employee. The EAT considered that the Court of Appeal in earlier cases had held that the purpose of a protective award is not to compensate employees for any loss they have suffered in consequence of the breach, but rather it is designed to punish the employer for its failure to consult. They did find that the decision not to consult had not been made as a deliberate act to ignore the legislation, but did agree with the Tribunal’s conclusion that the Foundation’s ignorance of the law arose from what they described as a reckless failure to seek legal advice. It held it was therefore appropriate for the Tribunal to have awarded the maximum protective awards.
The consequences for the Foundation of failing to consult were very expensive indeed. If ever there were a case for an employer to obtain specialist legal advice before embarking on a significant course of action, this must be it!
We have many years’ experience of advising a number of different employers on redundancies, including collective redundancies. If you would like to talk through a situation you are dealing with, or if you need advice on any aspect of employment law, please contact any member of the Pure Employment Law team (01243 836840 or [email protected]).