Ex-Woolworth’s employees lose compensation battle in European court

The European Court of Justice (ECJ) has given its ruling in a case brought by former employees of Woolworths and Ethel Austin, and found in favour of the UK Government. The ECJ has upheld the traditional position that the rules requiring consultation with employees in a redundancy situation do not apply to individuals who work on a site where there are fewer than 20 staff employed, even where the site is operated by a much larger business.

While the decision means that over 4,000 former Woolworths and Ethel Austin staff will not receive a protective award payment, the decision has been praised as giving certainty for businesses.

Understanding protective awards

Woolworths collapsed in 2008 during the financial crisis, with the result that all staff across its 815 sites were made redundant. In 2012, 24,000 former staff were awarded a protective award – and received compensation equivalent to 60 days’ pay, as the retailer’s stores had been closed without consultation. As Woolworths was in administration, the compensation payments were made using taxpayer’s money through a branch of the Insolvency Service. However, payments were not made to 3,200 staff as they were deemed not to be eligible, as they had been based in stores that employed fewer than 20 people. A similar situation arose when Ethel Austin went into administration in 2010 and 1,200 former staff failed to receive a protective award.

The law requires businesses in redundancy situations to consult with employees, or their trade union representatives, prior to making any dismissals. Businesses must discuss the reasons for redundancies and any measures that could be taken to limit the number of them. A failure to do so can mean the dismissal of employees is unfair and an employment tribunal can then make a protective award to the redundant employees, up to the value of 90 days’ pay. However, these rules only apply where there is to be 20 or more dismissals. Any fewer than that and there is no legal requirement to consult.

Through the union USDAW, those ex-Woolworths and Ethel Austin employees who failed to receive a protective award challenged their lack of eligibility in the Employment Appeal Tribunal (EAT).

USDAW argued that each site should not be regarded as an individual business, but that the stores were part of a much larger organisation that had made more than 20 redundancies. It was asserted that it was unfair and somewhat arbitrary that those individuals who worked in a larger store received a payment, but that employees who worked in a smaller store, but carried out the same roles, did not. The point was stressed that the decision to shut all sites was taken centrally, without any assessment of the viability of each individual store.

In 2013, the EAT agreed with the arguments raised by USDAW and found that the retailers should have consulted with all staff, and accordingly a protective award should be made to all ex-employees. The payment would have been worth £5 million to the 4,400 former staff of Woolworths and Ethel Austin – however, the British government appealed the decision to the ECJ.

Employment law for employers: Restoring certainty for businesses

Reinstating the law to its previous position, the ECJ found against the former employees. Each of Woolworths’ and Ethel Austin’s individual sites were to be regarded as one “establishment” and accordingly, at premises where fewer than 20 staff are employed, there was no requirement to consult. The ruling follows the opinion issued in February of the Advocate General, which said that the European Collective Redundancy Directive and UK law were compatible.

As no protective award will be made to the ex-employees, USDAW’s general secretary, John Hannett, expressed his disappointment at the decision. He stated:

“Our case is morally and logically robust, so today’s verdict is a kick in the teeth. It is unfair and makes no sense that workers in stores of less than 20 employees were denied compensation, whereas their colleagues in larger stores did qualify for the award”.

However, in reversing the decision of the EAT, the ECJ has been praised as restoring certainty for businesses. In the interim period before the judgment was made, businesses had been cautiously undertaking consultation exercises whenever the number of redundancies exceeded 20, in order to avoid later repercussions. This was particularly problematic for large, multi-national firms who have hundreds of sites across the UK.

As collective consultations often delay redundancies by at least 30 or 45 days, the ECJ’s decision will help businesses avoid time-consuming and expensive processes that drain already strained resources.

For advice on issues relating to employment and corporate and commercial matters, contact an expert employment solicitor by calling us on 01895 207892, or email your details to employment@ibblaw.co.uk. Alternatively for more redundancy advice for employers please visit.