Woolworths and Ethel Austin were companies active in the high street retail sector throughout the United Kingdom, operating chains of stores under the trade names ‘Woolworths’ and ‘Ethel Austin’ respectively. They became insolvent and went into administration, which resulted in the dismissal on grounds of redundancy of thousands of employees across the United Kingdom.

Against that background, USDAW, in its capacity as a trade union organisation, brought claims before the Liverpool Employment Tribunal and the London Central Employment Tribunal against those two companies on behalf of several thousand of its members, former employees of those companies, who had been dismissed on grounds of redundancy.

Mrs Wilson was employed at one of the stores in the ‘Woolworths’ chain in Saint Ives (UK), and was the USDAW representative on the national employee forum (known as the ‘Colleague Circle’) created by Woolworths to deal with various issues including consultations prior to collective redundancies. USDAW and Mrs Wilson sought protective awards against the employers in favour of the dismissed employees on the ground that, prior to the adoption of the redundancy programmes, the consultation procedure provided for in the Trade Union and Labour Relations (Consolidation) Act 1992 (‘TULRCA’) had not been followed. TULRCA was intended to implement the United Kingdom’s obligations under Directive 98/59.

Part XII of the Employment Rights Act 1996 (‘ERA’) is intended to implement the United Kingdom’s obligations under Directive 2008/94/EC on the protection of employees in the event of the insolvency of their employer Under the relevant provisions of the ERA, if protective awards were made against Woolworths or Ethel Austin but they were not in a position to satisfy them, an employee could require the Secretary of State for Business to pay, and he would be required to pay that award, up to the statutory maximum, as arrears of pay. If the Secretary of State were to fail to pay the amount due, the employment tribunal would judicially compel him to do so, on application by the employee concerned.

The Liverpool Employment Tribunal and the London Central Employment Tribunal made protective awards in favour of a number of employees dismissed by Woolworths and Ethel Austin. However, approximately 4 500 former employees were denied a protective award on the ground that they had worked at stores with fewer than 20 employees, and that each store was to be regarded as a separate establishment.

USDAW and Mrs Wilson appealed against those decisions to the Employment Appeal Tribunal, which held that a purposive reading of section 188(1) of the TULRCA compatible with Directive 98/59 required the deletion of the words ‘at one establishment’. The Employment Appeal Tribunal also held that USDAW and Mrs Wilson could rely on the direct effect of rights under Directive 98/59 on the ground that the Secretary of State for Business was a party to the case, and that he was responsible for payment of the protective awards to all of the employees. It is further apparent from that judgment that the prior consultation obligation applies whenever an employer is proposing to dismiss as redundant 20 or more employees within a period of 90 days or less, regardless of the particular establishments at which they work.

 The Secretary of State for Business applied for permission to appeal to the Court of Appeal (England & Wales), which permission was granted by the Employment Appeal Tribunal. The Court of Appeal referred a number of questions to the Court of Justice of the European Union (CJEU) for a preliminary ruling on the interpretation of Directive 98/59.

Consideration by CJEU

The CJEU noted that, when transposing Directive 98/59, the United Kingdom opted for the threshold for its application set out in Article 1(1)(a)(ii) of that directive. Under the applicable national law, where an employer is proposing to shed at least 20 jobs at an establishment within a period of 90 days, he is required to comply with a procedure for informing and consulting workers in connection with that proposal. However, it should be stated from the outset in this connection that, in accordance with the case-law of the CJEU, the term ‘establishment’, which is not defined in Directive 98/59, is a term of EU law and cannot be defined by reference to the laws of the Member States.

The CJEU has already noted that an employment relationship is essentially characterised by the link existing between the worker and the part of the undertaking or business to which he is assigned to carry out his duties. On that basis, ‘establishment’ in Article 1(1)(a) of Directive 98/59 must be interpreted as designating, depending on the circumstances, the unit to which the workers made redundant are assigned to carry out their duties. It is not essential in order for there to be an ‘establishment’ that the unit in question is endowed with a management that can independently effect collective redundancies. Where an ‘undertaking’ comprises several entities meeting the relevant criteria, it is the entity to which the workers made redundant are assigned to carry out their duties that constitutes the ‘establishment’ for the purposes of Article 1(1)(a) of Directive 98/59.

As regards the question raised by the referring court as to whether Article 1(1)(a)(ii) of Directive 98/59 requires that account be taken of the dismissals effected in each establishment considered separately, interpreting that provision so as to require account to be taken of the total number of redundancies across all the establishments of an undertaking would, admittedly, significantly increase the number of workers eligible for protection under Directive 98/59, which would correspond to one of the objectives of that directive. However, it should be recalled that the objective of that directive is not only to afford greater protection to workers in the event of collective redundancies, but also to ensure comparable protection for workers’ rights in the different Member States and to harmonise the costs which such protective rules entail for EU undertakings.

Interpreting the term ‘establishment’ on the basis that dismissals effected in each establishment be considered separately would be contrary to the objective of ensuring comparable protection for workers’ rights in all Member States. It would also entail very different costs for the undertakings that have to satisfy the information and consultation obligations under Articles 2 to 4 of that directive in accordance with the choice of the Member State concerned, which would also go against the EU legislature’s objective of rendering comparable the burden of those costs in all Member States.

The CJEU added that such an interpretation would bring within the scope of Directive 98/59 not only a group of workers affected by collective redundancy but also, in some circumstances, a single worker of an establishment — possibly of an establishment located in a town separate and distant from the other establishments of the same undertaking — which would be contrary to the ordinary meaning of the term ‘collective redundancy’. In addition, the dismissal of that single worker could trigger the information and consultation procedures referred to in the provisions of Directive 98/59, provisions that are not appropriate in such an individual case.

The CJEU held that:

1. The term ‘establishment’ in Article 1(1)(a)(ii) of Council Directive 98/59/EC must be interpreted in the same way as the term in Article 1(1)(a)(i) of that directive.

2. Article 1(1)(a)(ii) of Directive 98/59 must be interpreted as not precluding national legislation that lays down an obligation to inform and consult workers in the event of the dismissal, within a period of 90 days, of at least 20 workers from a particular establishment of an undertaking, and not where the aggregate number of dismissals across all of the establishments or across some of the establishments of an undertaking over the same period reaches or exceeds the threshold of 20 workers.

Why is this decision important?

The recent financial recession and the growth of online shopping has resulted in the insolvency of a number of well known high street retailers with branches across the United Kingdom. This judgment limits the rights of redundant workers depending on the number of persons employed in the establishment in which they were employed when their employer is insolvent.