Hi-ho, hi-ho it’s off to Europe Woolies will go…

Dr Mark Butler

The case of USDAW v Ethel Austin Ltd (in administration) and another, which is more commonly referred to as the Woolworths litigation, continues to rumble on, with it having made a brief appearance before the Court of Appeal on 22nd January 2014, which concluded with the Court referring the matter to the Court of Justice of the European Union (‘CJEU’) through the preliminary reference procedure under Article 267 Treaty on the Functioning of the European Union.


The background to the dispute is relatively straightforward. The litigation concerns redundancies that took place when both Ethel Austin and Woolworths went in to administration. Both situations resulted in each entity making vast numbers of workers redundant, with Ethel Austin making a total of some 1,700 redundant, and the figures for Woolworths being in excess of 27,000. The making of redundancies was not in dispute; however, there are particular consultation requirements which employers must comply with when there is a process of collective redundancies, as opposed to individual redundancies.

The legal position in the UK is contained within section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (‘TULRCA’), which states that there is a duty placed on the employer to consult with worker representatives:

(1) Where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less, the employer shall consult about the dismissals all the persons who are appropriate representatives of any of the employees who may be affected by the proposed dismissals or may be affected by measures taken in connection with those dismissals.

(1A) The consultation shall begin in good time and in any event –

(a) where the employer is proposing to dismiss 100 or more employees as mentioned in subsection (1), at least 90 days, and

(b) otherwise, at least 30 days,

the first of the dismissals takes effect.

What this effectively means is that where collective redundancies are taking place, which amount to more than 20 redundancies, there is a legal requirement of consultation before any dismissals by reason of redundancy take place. Failure to comply with the s.188 consultation requirements will result in the employment tribunal being able to award a protective award pursuant to s.189 TULRCA, and it on this point which the matter reached tribunal.

In separate employment tribunal hearings protective awards were made with respect of 469 staff members employed at Ethel Austin’s head office and distribution centre, 21 staff members who were employed at Ethel Austin’s Edgeware store, and to 3,233 Woolworths staff members employed at various stores where there were 20+ workers. In reaching this conclusion the respective tribunals focussed on the wording of s.188 and concluded that “at one establishment” limited consideration to collective redundancies within individual stores, rather than a reading of the redundancies across the entire enterprise, which had the consequence of limiting protective awards to only those stores that individually satisfied the threshold requirement of 20 workers.

The EAT and Court of Appeal: Reference to Europe

The two cases were subject to a joint appeal by the union USDAW, with it being challenged whether the consultation requirements pursuant to s.188 implemented by the UK Government were in breach of their European obligations under the Directive from which the right originated.

Debate before the EAT, and which will be considered before the CJEU in due course, centred on whether s.188 was in compliance with Article 1 of the Collective Redundancies Directive (Dir 98/59/EC), which defines the scope of the consultation right as being:

(i) either, over a period of 30 days:

at least 10 in establishments normally employing more than 20 and less than 100 workers,

at least 10% of the number of workers in establishments normally employing at least 100 but less than 300 workers,

at least 30 in establishments normally employing 300 workers or more,

(ii) or, over a period of 90 days, at least 20, whatever the number of workers normally employed in the establishments in question.

It is not in dispute that the UK opted to transpose their collective redundancy obligations using the second of these two options. This has one particular significance in the context of the dispute – it only appears to be option 1 that links the number of redundancies with the number of workers at a particular location, whereas under option 2 the factual location does not appear relevant since it operates based solely on reaching a particular number of redundancies “whatever the number of workers normally employed in the establishments in question”. The use of the plural word “establishments” in the Directive may suggest that restricting consideration to “…one establishment…” as currently present in s.188, may offend the UK’s European obligation in this respect.

There were effectively three submissions made on behalf of USDAW before the Employment Appeals tribunal, which would have the effect of expanding the UK approach to cover all workers of an establishment so as to provide a protective award for those workers who did not receive one before the Employment Tribunal, with each submission having a European facet to it:

  1. Interpreting the term “at one establishment” broadly so as to be in line with the European Directive through the principle of indirect effect, or alternatively, deleting these words in their entirety so as to remove the offending aspect of the provision;
  2. Vertical direct effect against the Secretary of State. It appears to be submitted that since the Secretary of State becomes liable for a protective award when a debtor becomes insolvent by virtue of s.184(2)(d) of the Employment Rights Act then the Secretary of State must have some overall responsibility for compliance. Failure in compliance must thus allow the right to be directly effective against the Secretary of State, as an emanation of the state.
  3. Horizontal direct effect of Article 27 of the Charter of Fundamental Rights, which provides consultation rights for workers.

Although the EAT appeared to accept all three submissions, it is really only the first of these that appears to have any real merit, with an interpretation of “at one establishment” to cover the entire enterprise being feasible in these circumstances.

The key difficulty with the vertical direct effect approach as submitted is that there appears to be a misunderstanding surrounding the direct effect principle. Direct effect is a means of enforcing a European right before a national court, where it is clear, precise and unconditional. The two ‘rights’, namely the consultation right and the remedial right, must be considered separately. With regards the consultation right the problem here is that the Secretary of State only becomes a party to the dispute when the right to consultation no longer exists i.e the employer has become insolvent and redundancies have been made, and is therefore no longer justiciable before a national court, and as such cannot be subject to direct effect. Alternatively, the right to a remedy under the Directive fails to be clear, precise or unconditional to the degree required for the principle of direct effect to be invoked, with Article 6 of the Directive merely requiring all EU member states to ensure that appropriate judicial and/or administrative procedures are in place for the enforcement of these obligations. Consequently, any such submission will have great difficulties to overcome.

The third submission before the EAT incidentally has now been dropped following the recent decision by the CJEU of Case C‑176/12 Association de médiation sociale, where it is was expressly held that Article 27 of the Charter does not have horizontal direct effect.

Interestingly before the Court of Appeal neither party requested the Court to adjudicate on the substantive issues. Rather, the Secretary of State who was represented (this is only noteworthy from the point of view of the failure by the government to instruct counsel before the EAT) simply requested an adjournment to allow the CJEU to consider similar questions that have been referred to it by the industrial tribunal in Northern Ireland in the case of Lyttle and ors v. Bluebird UK Bidco 2 Ltd, whereas USDAW wanted the Court of Appeal to refer the matter to the CJEU with a view to this case and the Northern Ireland case being joined, which the Court of Appeal agreed to.

Although the wordings of the questions are yet to be made public, they will primarily cover two issues:

  1. How should the Directive be construed and what is the correct interpretation of an “establishment”; and
  2. Does the Directive have vertical direct effect.

A third issue in relation to state liability is also likely to be raised.

The practical impact of this decision could be extremely wide given that it could result in an enterprise having to understand all the workings of its individual undertakings when complying with this requirement to consult, even where parts of the enterprise are virtually separate enterprises in their own right. Ensuring communication between separate branches of an undertaking will become key should the CJEU adopt an expansive interpretation of the collective redundancy right.

Mark Butler (@m_butler1) is a Lecturer in Law at Lancaster University Law School, a fully qualified non-practising barrister, and the co-author of European Employment Laws.  His research interests are centred on UK employment law and EU Labour law, with a particular emphasis on employee rights.  He is currently conducting research in the area of age discrimination, viewing the protections afforded to workers through comparative analysis.

You can find out more about Mark’s research at http://www.lancaster.ac.uk/fass/law/profiles/mark-butler


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