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What is an "establishment" in a collective redundancy situation?

01 May 2015

An establishment, the European Court has confirmed, is the business unit to which an employee is assigned.

Why does this matter? Because the test for whether collective redundancy consultation is triggered is whether 20 or more redundancies are proposed at one establishment within a 90 day period.

In two cases arising out of the collapse in 2008 of retail chains Woolworths and Ethel Austin, trade union USDAW challenged the UK legislation. Neither Woolworths nor Ethel Austin carried out collective redundancy consultation when they laid off thousands of staff after going into insolvency. They argued that the threshold of 20 redundancies was not reached at any one of their sites or stores, therefore collective consultation was not required. USDAW attempted to persuade the courts that “establishment” could mean the entire business, not just a site or location.

The European Court has rejected its arguments, clarifying that an establishment is a business unit: it can be a geographical unit or location, or it can be a functional unit.

The Court of Appeal in England now has to make a final decision in the case but, on the basis of the European Court’s decision, it seems that the law will return to the position it was in before the cases were brought. The consequence for the staff concerned is that they are not entitled to a protective award of up to 90 days pay for failure to consult.

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