Under redundancy legislation, employers must collectively consult with unions or employee representatives if they are proposing to make 20 or more employees redundant at one establishment within 90 days or less. They must also submit a HR1 form to the Secretary of State.
However, when a business is in financial difficulty, it is not always easy to tell when the possibility of redundancies becomes a proposal that triggers collective consultation obligations. A recent EAT decision provides useful guidance.
What happened in this case?
Three Claimants worked for Alliance Transport Technologies Limited, which had 51 employees. On 2 May 2023, the company entered administration. Although there was still hope of a sale as a going concern, fifteen employees, including the Claimants, were made redundant as a cost-cutting measure. On 5 May 2023, the last potential buyer withdrew their interest, most of the remaining staff were dismissed and the administrators began winding down the business.
The Claimants brought claims for protective awards, arguing that the collective consultation duty had already arisen by 2 May 2023 because business closure and collective redundancies were already being proposed.
The Tribunal held that only the employees dismissed on 5 May 2023 were entitled to a protective award. In its view, the collective consultation obligations were only triggered when the last potential buyer withdrew and it became clear the business would close. The Tribunal stated that it did not matter how likely a rescue or sale had been on 2 May 2023.
What did the EAT think?
The EAT disagreed. They held that the collective consultation obligations covered consideration of likely future redundancies within the 90-day period, even if the position is not yet certain. The duty to collectively consult does not arise when closure is only being floated as a possibility, but it can arise where there is a clear, though provisional, intention to close.
The EAT also said the chances of rescue or sale were relevant. That was an important factor in deciding whether there was already a clear but provisional intention to close. On the evidence, including the administrators’ report, sale as a going concern was unrealistic by 2 May 2023.
Therefore, the EAT upheld the Claimants’ appeal and granted them protective awards.
Takeaways for employers
This case is a useful reminder that the duty to consult on collective redundancies can arise before a final decision to close has been made. A clear, albeit provisional intention to close and make collective redundancies is enough. Employers in financial difficulty will need to keep this in mind, especially where the position is changing quickly and redundancies may follow at short notice.
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