USA v Nolan: When must redundancy consultation start?

The European Court of Justice has balked at a decision that is urgently needed to clarify the requirements imposed on employers to consult workers’ representatives before making staff redundant.

In the case of United States of America v Nolan (Case C-583/10 ECJ), the court decided it had no jurisdiction to rule on the matter. Christine Nolan worked for the US Army in Britain and the relevant EU Directive “does not apply to workers employed by public administrative bodies or … by equivalent bodies” – including the US Army.

Nevertheless her case (which has returned to the Court of Appeal – see note below) epitomises the issue. Redundancies are governed by the EU Directive 98/59. Article 2 of that directive provides:

1. Where an employer is contemplating collective redundancies, he shall begin consultations with the workers’ representatives in good time with a view to reaching an agreement.

2. These consultations shall, at least, cover ways and means of avoiding collective redundancies or reducing the number of workers affected, and of mitigating the consequences by recourse to accompanying social measures aimed, inter alia, at aid for redeploying or retraining workers made redundant. [Emphasis added]

Furthermore to enable workers’ representatives to make constructive proposals, an employer is bound, in good time during the course of the consultations, to supply them with all relevant information and to notify them in writing of the matters specified in subparagraph 2.

But what does “contemplating” mean and hence what is “in good time”? Section188 of the Trade Union and Labour Relations (Consolidation) Act 1992, which is intended to transpose the Directive into British law, requires consultation when the employer is “proposing” redundancies. What does “proposing” mean? Is it different from “contemplating”?

The Act sets a minimum of 90 days consultation when 100 or more workers are to be made redundant or 30 days for less than 100 – but how far down the line of decision-making can management already be before it activates the statutory consultation period? “Contemplating” seems to be something you would do rather earlier in the process than “proposing”, so unions have argued that consultation must come at that earlier stage.

USA v Nolan

In USA v Nolan Christine Nolan worked at a US army base in Britain with about 200 civilian staff. By March 2006, the US had decided to close the base at the end of September 2006 (six months or so ahead). On 21 April 2006 plans for closure became public and in June staff representatives were told all employees were at risk of redundancy. The US Army considered consultation on the redundancies started on 5 June (more than 90 days before closure was planned).

On 30 June, the Army gave the employees notices of dismissal, to take effect at the end of September. Nolan, a worker representative, brought a claim on behalf of those employees on the basis that the US had failed to comply with its collective consultation obligations by not consulting before 5 June.

The USA argued that: “no employer has an obligation to consult with its employees about a proposed operational decision to close a workplace that will lead to redundancies: it is said that the consultation obligation only arises after the employer has made such decision and is then proposing to dismiss the employees as redundant”.

Nolan, however, succeeded in a claim for a protective award (a penalty paid to each worker affected if there is not proper consultation) at an Employment Tribunal and at the Employment Appeal Tribunal. The Court of Appeal, however, sought guidance from the ECJ on when consultation should start.

Legal background

The law stated in R v British Coal Corporation and the Secretary of State for Trade and Industry, ex parte Vardy (1993) suggested consultation was to do with how to institute redundancies, in other words discussing what criteria to use, what alternative work there might be rather than whether there should be redundancies.

But in UK Coal Mining Ltd v National Union of Mineworkers (2007) the Employment Appeal Tribunal held that Vardy was “no longer good law in the light of changes to the statutory provisions”. There is now a duty on employers to consult on the business reasons for making redundancies as part of the obligation to consult on ways in which the redundancies can be avoided. UK Coal had been guilty of serious and deliberate failures over collective consultation because it gave a false reason for the closure, according to the findings of the original Employment Tribunal. It had claimed safety reasons for a mine closure when in fact it was a purely economic decision. It had consulted on redundancy payments, alternative work and such matters but ignored requests from the union for information that could be used to challenge the closure.

The EAT found that in giving false reasons for the closure UK Coal was in breach of s.188(4) of TULRCA on the basis of the implementation of the EU Directive. Since Vardy, obligations to consult about avoiding dismissals had been introduced implying a need to consult on the (real) reasons for the job losses.

‘Does the employer’s obligation to consult about collective redundancies, pursuant to Directive 98/59, arise (i) when the employer is proposing, but has not yet made, a strategic business or operational decision that will foreseeably or inevitably lead to collective redundancies; or (ii) only when that decision has actually been made and he is then proposing consequential redundancies?’ Court of Appeal question in Nolan

The EAT held that in situations of closure there is little to distinguish “contemplation” from “proposals” since redundancies are almost inevitable. The employer must consult on reasons for dismissals and hence reasons for closure, providing necessary information for unions to challenge those reasons if they can. Both sides are duty-bound to seek agreement, but the implication is that they can only do this if they are seeking agreement on the factual reason for redundancies, not a false reason.

In 2009 a European Court of Justice case Akavan Erityisalojen Keskusliitto AEK Ry and others v Fujitsu Siemens Computers Oy [2009] IRLR 944 ECJ the question asked (by a Finnish court – and it perhaps loses something in the various translations it has gone through) was: “Is Article 2(1) of Directive 98/59 … to be interpreted as meaning that the obligation under that provision to embark on consultations when ‘contemplating collective redundancies’ of employees and ‘in good time’ requires consultations to be started when it is established from the strategic decisions or changes that have been made relating to the activity that a need for collective redundancies of employees follows? Or is the provision in question to be interpreted as meaning that the obligation to start consultations already arises on the basis of the employer contemplating measures or changes affecting the activity, such as a change in production or a concentration of production, as a consequence of which a need for collective redundancies is to be expected?”

The Advocate General seemed to suggest the latter, that is that an employer triggers the duty to consult employees when it contemplates making decisions or changes in activities that compel it to contemplate or plan for collective redundancies. This was the meaning of “is contemplating collective redundancies” in the Directive.

The ECJ judgment concluded: “The obligations of consultation and notification imposed on the employer come into being prior to the employer’s decision to terminate employment contracts. In such a case, there is still a possibility of avoiding or at least reducing collective redundancies, or of mitigating the consequences.” It adds: “It follows that the obligation to hold consultations laid down in Article 2 of Directive 98/59 is deemed to arise where the employer is contemplating collective redundancies or is drawing up a plan for collective redundancies.”

The Court noted: “As is clear from the first subparagraph of that Article 2 (2), the consultations must cover, inter alia, the possibility of avoiding or reducing the collective redundancies contemplated. A consultation which began when a decision making such collective redundancies necessary had already been taken could not usefully involve any examination of conceivable alternatives with the aim of avoiding them.”

That seems to be the key point. The intention of the Directive is greater protection for the workers from unemployment and that can best be achieved by representatives having the full facts at the earliest stage – when redundancy is being “contemplated” – “once a strategic or commercial decision compelling him to contemplate or to plan for collective redundancies has been taken”.

The judgment notes that the information can be supplied during consultation and throughout the consultation rather than necessarily at the beginning if that information only becomes available during the time of consultation. So consultation can (and should) begin even if the employer does not have the full information necessary to making the decision. “Any new relevant information must be supplied up to the end of the process.”

The Court of Appeal in Nolan, however, saw flaws in the way the Advocate General had expressed his view and found his reasoning “quite difficult to follow”, so it considered the matter needed a definitive statement from the ECJ. It sought a preliminary ruling from the Luxembourg Court on the following question: “Does the employer’s obligation to consult about collective redundancies, pursuant to Directive 98/59, arise (i) when the employer is proposing, but has not yet made, a strategic business or operational decision that will foreseeably or inevitably lead to collective redundancies; or (ii) only when that decision has actually been made and he is then proposing consequential redundancies?”

In effect scenario (ii) could allow the company to do a review and put together its strategic plan based on the number of redundancies it wants and then start the redundancy consultation process. Scenario (i) brings the unions in at an earlier stage – before and during the formulation of the plan into which the unions may have an input to avoid redundancies.

Comment

In practical terms, the matter of redundancy consultation is clearer than the Lord Justices and the US Army seem to think. If the plan out of which redundancies will inevitably occur is already ready to go, one can see that talks with the unions would not be taking place in good faith. Management would already be on its own track, knowing how many workers it needed to lose and probably knowing pretty well which ones it wanted to leave. The management representatives would not be talking “with a view to reaching an agreement” – except in terms of getting the workers’ representatives to agree with what management had already decided. Nor would they be negotiating or consulting in good faith a “means of avoiding collective redundancies or reducing the number of workers affected” – because the plan they already have would require certain numbers to go and certain people to go.

At this stage the management representatives would not even be able to have realistic talks about how people will be selected for redundancy. Managers will already have in mind the application of selection matrices to the affected areas of the business. In particular they will know the skills they want to retain and hence the individuals they will want to lose. No alternative suggestions from the unions are likely to be entertained. There would be no point the union suggesting last-in-first-out or any other system that doesn’t fit in with the plan.

The rationale for bringing the staff representatives in earlier, before the plan is consolidated in management minds, is that a different and better plan might result in “reducing the number of workers affected” – as intended by the Directive. Talks in good faith require management to enter those talks without too many preconceptions about the best way out of its difficulties.

The law, if it is finally established that talks should start earlier rather than later, would be acknowledging that modern workplaces are sophisticated places. Redundancies aren’t just a matter of slashing more or less undifferentiated groups of workers but of reorganising the workplace – which can be done in different ways and probably should be done with the maximum worker participation to achieve a sustainable company.

Human resources organisations are left in some uncertainty by the ECJ’s refusal to clarify the position. And the Court of Appeal is in a difficult position. The ECJ preliminary reference procedure is intended to ensure conformity around the European Union in interpreting its legislation. Such conformity should apply to Britons working for emanations of governments as to anyone else, one would have thought. The rationale for the exclusion is that the EU is concerned with creating level playing fields between private companies within the EU, something that is not a consideration regarding state organisations.

As to advice for HR people, the ECJ stressed that the Directive was intended to improve protection of workers as well as the functioning of the internal market. One commercial barrister has said that while the matter is unresolved “employers may be well advised to begin the consultation at the earlier stage rather than risk having a protective award made against them which for certain employers could be a very large sum”.

Many companies would welcome the first of their number to put its head above the parapet and take a case through the legal system to extract a preliminary ruling from the ECJ. Most will prefer to avoid the legal costs and the possibility of paying out protective awards amounting to up to 90 days’ pay per worker affected by the failure to properly consult.

Note: The Court of Appeal has found (February 2014) that the USA was not exempt from the collective redundancy obligations under UK law. The issue of whether it was right for the USA to consult after the decision to close the base will be considered at a later hearing.

Materials
Court cases are in the embedded URLs in the text. Thanks to BAILII.

EU Directive 98/59 Article 2
3. To enable workers’ representatives to make constructive proposals, the employers shall in good time during the course of the consultations:
a) supply them with all relevant information and
b) in any event notify them in writing of:
(i) the reasons for the projected redundancies;
(ii) the number of categories of workers to be made redundant;
(iii) the number and categories of workers normally employed;
(iv) the period over which the projected redundancies are to be effected;
(v) the criteria proposed for the selection of the workers to be made redundant in so far as national legislation and/or practice confers the power therefor upon the employer;
(vi) the method for calculating any redundancy payments other than those arising out of national legislation and/or practice.

TULRCA: Section 188 (4)
For the purposes of the consultation the employer shall disclose in writing to the appropriate representatives—
(a) the reasons for his proposals,
(b) the numbers and descriptions of employees whom it is proposed to dismiss as redundant,
(c) the total number of employees of any such description employed by the employer at the establishment in question,
(d) the proposed method of selecting the employees who may be dismissed,
(e) the proposed method of carrying out the dismissals, with due regard to any agreed procedure, including the period over which the dismissals are to take effect, and
(f) the proposed method of calculating the amount of any redundancy payments to be made (otherwise than in compliance with an obligation imposed by or by virtue of any enactment) to employees who may be dismissed.

 

Advertisement