Vol 13 (2016) - Issue 1

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Woolworths and the ECJ

A central feature of many insolvencies is the need to make a significant proportion, if not all, of the workforce redundant. Economic pressures within the insolvency typically require those redundancies to be made over a very short time scale. Collective redundancies potentially engage the requirements, as implemented into individual Member States, of Directive 98/59 on the approximation of the Law of Member States on Collective Redundancy. In USDAW v WW Realisation Ltd (In Liquidation) and Ethel Austin Ltd, Lyttle v Bluebird UK Bidco 2 Ltd. and Raba Cañas v Nexea Gestión Documental SA Case c-80/14, Case C-182/13 and Case c-392/13, the ECJ has considered the obligations under the Directive with important practical consequences for collective redundancy in insolvency, particularly in the United Kingdom. The case, in part, arose out of the insolvency of the retail chain 'Woolworths'.
In the United Kingdom the Directive has been implemented through the requirements of S.188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), which provides that the obligation to collectively consult on redundancies arises where there are 20 or more dismissals 'at one establishment' within a period of 90 days or less. If engaged the employer, and an insolvency practitioner as agent of the employer, is required to consult with representatives of the workforce before the redundancies are implemented. If there are no existing employee representatives, such as a recognised trade union or works council, the Act requires the election of employee representatives before the consultation can commence. The period of the consultation is determined by the number of the redundancies. The consultation period should not be less than a period of 30 days, if between 20 and 100 redundancies are proposed, and a period of 45 days if more than 100 employees are being made redundant.
The need to pay staff through the consultation period has meant that in insolvent situations, certainly in the UK, the obligation has frequently not been complied with. The remedy in the UK in the event of breach is the making of a Protective Award which requires payment
of remuneration for the employees for a period of time up to a maximum of 90 days. The insolvent employer may not be in a position to pay this, as the liability does not rank above the claims of any secured creditors. Partial recovery of the award can however be achieved by the employees in the UK against the Redundancy Payments Office which provides a state backed security for some liabilities of an insolvent employer. It should be noted that it is a defence to a claim that there has been a breach of the consultation obligation that there were 'special circumstances' which rendered it not reasonably practicable for consultation to have taken place. Insolvency is not of itself a special circumstance and it has practically proved difficult for the defence to be successfully argued.