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Collective redundancy consultation: new EAT guidance on the meaning of an establishment

12 September 2012

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At this time of significant change and restructuring in a number of sectors, including the education sector, it is helpful to note that the Employment Appeal Tribunal (EAT) has recently issued a judgement relating to the meaning of an “establishment” for collective consultation purposes.

Where an employer proposes to make 20 or more employees redundant within a 90 day period, at one “establishment”, there is a duty to consult for 30 (or in some cases 90) days with the recognised Trade Union or other elected representatives of the employees.  It is crucial to determine, therefore, what is meant by an “establishment”.  It is clearly implicit in the legislation that an establishment can be something smaller than the employer’s entire operation.  It will often be in the employer’s interests to argue that the establishment is small – so that there is no need for collective consultation even if 20+ employees of the employer are being made redundant across different “establishments”.  The employees and their Union are likely to argue that the establishment is larger, so as to trigger the need for collective consultation even if redundancies are spread over a number of sites.
Traditionally, the approach has been to seek to identify a self contained and relatively autonomous unit with its own management and control, rather than a mere satellite office without independent management.  If such exists, then it is likely to be an establishment.
The case of Renfrewshire Council v EIS considered redundancies within a number of schools.  The employment tribunal held that the “establishment” was the employer’s Education and Leisure Service, as it was the “unit” which was responsible for management and control.  Collective consultation should therefore have occurred.
The Council appealed, arguing that this must be wrong, and the correct unit would be the individual school (and as there were not 20 or more redundancies at any individual school, no collective consultation was needed).
The EAT agreed that the tribunal’s approach was wrong.  The tribunal had focussed too much on the powers of the Council’s Education Unit rather than considering whether the particular school was sufficiently autonomous and self-contained, with its own discrete identity, to be an establishment.  The tribunal’s error, essentially, was to take account only of the ultimate power and control exercised by the Council.    The correct approach would have been to consider whether the individual school amounted to an establishment, and if so whether the individual employees were assigned to it or (in the case of peripatetic staff) to some wider establishment.
We would suggest that if the tribunal’s approach was correct, it would in all cases mean that “establishment” would be very wide indeed, and in many cases would be the employer’s entire business.  The tribunal’s approach fails to recognise that there can be a whole range of “establishments” within an organisation, and just because they do not have 100% control over their own destiny, and are subject to direction and control by others, does not prevent them being an establishment.  
This remains an issue that, in any particular case, could be subject to argument, but the EAT’s decision does helpfully emphasise that in many cases it will be perfectly legitimate to treat the individual unit or site as an establishment when considering whether collective consultation is needed, rather than adding up potential redundancies across the workforce as a whole.


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