Favorable Opinion for Employers in Collective Redundancies

The Advocate General of the European Court of Justice recently delivered an interesting opinion on what qualifies as a “collective redundancy” and the obligations for employers in that respect. If the European Court adopts the AG’s opinion this will likely have positive consequences for European employers.

COUNCIL DIRECTIVE 98/59/EC

Under the Collective Redundancy Directive (enacted by the Council of the European Union in 1998) an employer can be obliged to inform and consult labor unions prior to effecting a collective redundancy plan. The purpose of the Collective Redundancy Directive (CRD) is to stimulate employers and labor unions to agree upon collective measures to mitigate the consequences of a collective redundancy for employees at an early stage. For example, a plan to redeploy redundant employees, or an agreement on the amount of severance fee to be granted to the redundant employees.

Not all collective redundancies trigger an obligation to consult labor unions. Under the CRD an employer only has such an obligation if the employer makes at least 20 employees redundant within a period of 90 days, “whatever the number of workers normally employed in the establishments in question”. The meaning of the quoted section is at issue in this specific case, which I will explain further on (see „Advocate General’s Opinion”).

Under the CRD EU Member States can also choose to apply a different threshold for the obligation to inform and consult labor unions, i.e.:

– If the employer makes at least 10 employees redundant within a period of 30 days in an establishment normally employing more than 20 and less than 100 workers;
– If the employer makes at least 10% of the employees redundant within a period of 30 days in an establishment normally employing at least 100 but less than 300 employees
– If the employer makes at least 30 employees redundant within a period of 30 days in an establishment normally employing more than 300 employees.

If the aforementioned threshold is met the employer must also inform the local competent public authority of its intention to carry out a collective redundancy.

The consequences of failing to meet the information and consultation requirements vary per Member State. In the Netherlands, for example, an employer cannot terminate an employment agreement before having met the information and consultation requirements (if, of course, these requirements apply in the specific case).

ADVOCATE GENERAL’S OPINION

The question presented to the Advocate General was, in short, whether a UK law, pursuant to which an employer has an obligation to consult labor unions when he intends to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less, is compatible with the CRD. In other words, is the numerical threshold of 20 employees met:

– when the employer dismisses 20 employees within a period of 90 days within its entire company (i.e. the legal entity), even if the employer in question runs several distinct establishments or businesses; or
– when the employer dismisses 20 employees within a period of 90 days within an individual business establishment of the employer, regardless of whether the aggregate of dismissals within the entire company of the employer amounts up to 20 or more.

This is an important distinction in cases where employers, for example, operate a large number of distinct and independent businesses or business units under the same legal entity. Should these businesses for purposes of the CRD be regarded as a) constituting a single establishment, or b) can they be regarded as separate establishments?

The Advocate General favors the latter interpretation (b), stating that the “establishment” should be interpreted as meaning “the unit to which the workers made redundant are assigned to carry out their duties”. The CRD does not require aggregating the number of dismissals in all the employer’s establishments for the purposes of verifying whether the employer has an obligation to consult the labor unions. The Advocate General goes on to state that it is up to the local courts to determine “how exactly the local employment unit is constituted in each situation”, which depends on:

– whether the joint entity in question can be said to have a certain degree of permanence and stability;
– whether it is assigned to perform one or more given tasks; and
– whether its workforce, technical means and organizational structure are adequate for the accomplishment of those tasks.

It is not necessary for the entity to have legal, economic, financial, administrative or technological autonomy in order to be regarded as an establishment.

AND NOW…

It is up to the European Court of Justice to decide on this matter. Usually, however, the Court follows the Advocate General’s opinion. If this happens, this will be favorable to European employers involved in collective redundancies.