Gant, JLL

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CoLLECt ivE  REdUndanCiESJEnnifER L. L. GantNottingham Trent University,Centre for Business andInsolvency LawThe CJEU has recently ruledin the case of  USDAW and B.Wilson v VW Realisation 1 Ltd(in liquidation), Ethel Austin Ltd,and the Secretary of state forBusiness, Innovation and Skills1on how the meaning of“establishment,” as used in theCollective RedundanciesDirective,2 should be interpretedin the EU. The Directive is aimedto approximate Member Statelaws on procedures for makinglarge scale redundancies to affordgreater protection to workersthrough consultation obligationswhen at risk of  redundancy due toan employer’s financial problems.However, the Directive is alsodesigned to take into account theneed for balanced economic andsocial development within theEU.3Collective redundancies areoften required in corporate rescueand insolvency situations; as such,the application of  the Directive isa relevant consideration forinsolvency practitioners. Its effectscan impact on insolvencyoutcomes due to the social costsof  the Directive and, at times,compensation for failure tocomply with its obligationsrequired from the company infinancial distress.The Directive allowed for twodifferent frameworks inimplementation. MostContinental jurisdictions havechosen to implement the Directiveby utilising some version ofArticle 1(1)(a)(i), in which case theDirective would apply if  at least10 redundancies were to be madeover a period of  30 days inestablishments employing between20 and 100 workers; at least 10%of  the workers in establishmentsemploying between 100 and 300workers; or at least 30 workers inestablishments employing 300 ormore workers. In the other optionprovided in Article 1(1)(a)(ii), theDirective would apply if  over aperiod of  90 days at least 20employees were to be maderedundant, regardless of  thenumber of  employees at theestablishment in question. TheUK opted for the second versionof  the Directive’s provisions. The Directive wasimplemented in the UK throughthe Trade Union and LabourRelations (Consolidation) Act of1992 and it specifies that for theprovisions to apply, the relevantredundancies must occur at oneestablishment. The singleestablishment requirement wasadded in the UK implementationand has come to causecontroversy in the meaning of“establishment.” In theWoolworths Case,4 a UKEmployment Appeal Tribunal(EAT) sought to mitigate therestrictive nature of  the UKimplementation in the light ofwhat it perceived were thepurposes of  the Directive. During the Woolworthsinsolvency, redundancies weremade at a number of  individualstores, but no consultation wasundertaken. An EmploymentTribunal (ET) application wasmade for a protective award forfailure to consult with the affectedemployees. The ET found that theindividual stores were“establishments” for the purposeof  the collective redundanciesprovisions. However, as many ofthe individual establishments weresmall, fewer than 20 redundancieswere made, so that collectiveconsultation provisions would notapply. The result was that theredundancy of  approximately4,500 Woolworths and EthelAustin employees would bedeemed not to requireconsultation and would notbenefit from a protective award. The EAT found that the ETdefinition of  establishment wastoo restrictive and led to resultsthat failed to satisfy the purposesof  the Directive to protectemployees at risk of  redundancy,applying the Marleasing5interpretative requirements. TheEAT proceeded to define“establishment” in such a way asto ensure that the Directive wouldhave the broadest effect. Itaggregated the establishments ofa company, ignoring the “oneestablishment” wording in theAct, thereby bringing moreemployees under the protection ofcollective consultation andsatisfying the purposes of  theDirective as the EAT perceivedthem. The opinion of  the AdvocateGeneral (AG)6 in three casesdealing with the definition of“establishment,” including thebroad interpretation the UK tookin Woolworths, was that it musthave a consistent meaningregardless of  the impact that thismay have on the Directive’seffectiveness to protect employees.The AG noted that“establishment” had previouslybeen defined in the Rockfon case7and followed in Athinaiki,8 as theunit to which the redundantemployees are assigned to carryout their duties, a definition thatbenefitted the affected workers inthose cases. The AG noted that while thisprevious case law has onlyconsidered Article 1(1)(a)(i), adifferent approach to (ii) should24 SUMMER 2015Establishing interpretation in the Collective Redundancies DirectiveJennifer Gant comments on the implications in the UK of a recent ECJ rulingDURING THEWOOLWORTHSINSOLVENCY,REDUNDANCIESWERE MADE AT A NUMBER OFINDIVIDUALSTORES, BUT NOCONSULTATIONWASUNDERTAKEN“”not be necessary, and wouldindeed create legal uncertainty.Following the AG’s opinion, theCJEU also opted in favour ofcoherency over perceived fairness.Uniformity of  interpretation aidsin increasing transparency andforeseeability for employers whochoose to restructure. The CJEUalso determined that if  a differentdefinition were applied, this wouldcause a major difference betweenjurisdictions opting for differentimplementation frameworks,which would be contrary to theneed to promote approximationof  Member State laws in this area.The diverse interpretation ofestablishment would result inworker protection that was notcomparable among otherMember States.The UK Court of  Appeal isexpected to overturn the EATdecision and revert back to theoriginal ET decision. Thus theWoolworths and Ethel Austinworkers will be left with norecourse under the CollectiveRedundancy Directive. Whilethese companies and theiradministrators and liquidatorsmay be breathing sighs of  relief  atthis result, this brings into thespotlight the fact that EUMember States retain verydifferent views on how muchsocial protection should exist incorporate insolvency. Manyjurisdictions have implementedthe Directive within the firstframework, but with far lowerthresholds which, were theyapplied in the UK cases, wouldbring those employees within theremit of  the Directive. Thus while the CJEUdecision adds legal certainty to thedefinition of  establishment, it mayalso mean quite differentoutcomes for workers dependingon their jurisdiction’s choice ofimplementation. The UK hasbeen given great flexibility on howto apply its collective redundancyprovisions, pending the result ofthe Court of  Appeal. For crossborder insolvencies, particularlyfor large retail companies, thosejurisdictions that haveimplemented the Directiveaccording to Article 1(1)(a)(ii), orotherwise have higher thresholdsfor the Directive’s applicationthan other Member States, willbenefit from greater flexibility inthe dismissal of  employees duringrestructuring. The thresholds of  theDirective were also intended tooffer some relief  for SMEs. Itwould be difficult to classify eitherWoolworths or Ethel Austin as anSME. Thus there is a question asto whether or not the thresholdshave been used to benefit thewrong entities. If  the underlyingaim is to strike a balance betweenthe protection of  employees andreduced social costs for smallerbusinesses, is it not unfair to allowlarge companies to benefit at theexpense of  thousands ofemployees?Differences inimplementation affect proceduralmatters relating to employees indifferent jurisdictions, but can alsonegatively affect employee moraleand cooperation, leading topotential obstacles to what mightotherwise be smooth restructuringprocesses. A more cohesive EUlaw of  collective redundanciesmay indeed be called for tomitigate these potential adverseeffects on the Common Market,as well as the potentially unfairuse of  the available thresholds toprotect large retail establishmentswho happen to have small shopsunder their wing that can sneakunder those thresholds.  Footnotes:1 Case C-80/14.2 Council Directive 98/59/EC of  20 July1998 on the approximation of  the laws ofthe Member States relating to collectiveredundancies.3 Recital 1, Preamble of  the 4 USDAW v Ethel Austin (in administration)UKEAT/0547/12/KN and USDAW andMrs B Wilson v (1) Unite the Union, (2) WWRealisation 1 Ltd, and (3) Secretary of  State forBusiness Innovation and SkillsUKEAT/0548/12/KN.5 Case C-106/89.6 Opinion of  the Advocate General WAHLdelivered on 5 February 2015 in Case C-182/13 Lyttle and Ors v Bluebird Bideo 2 Ltd,Case C-392/13 Cañas v Nexea GestiónDocumental SA and Case C-80/14 USDAW andB Wilson v (1) WW Realisation, in liquidation, (2)Ethel Austin Ltd, and (3)Secretary of  State forBusiness Innovation and Skills.7 C-449/93, EU:C:420, at paragraph 32.8 Case C-270/05 Athinaiki ChartopoiiaEU:C:2007:101, paragraph 25..CoLLECt ivE  REdUnd a n C iE SSUMMER 2015 25Share your views!EU MEMBERSTATES RETAINVERY DIFFERENTVIEWS ON HOWMUCH SOCIALPROTECTIONSHOULD EXIST IN CORPORATEINSOLVENCY“”

Establishing interpretation in the collective redundancies directive

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