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European Court of Justice gives guidance on collective redundancy procedure
19 October 2009
The ECJ has handed down important guidance in a Finnish case
which could have a major impact on when UK employers have to
undertake a collective redundancy consultation, with notable
consequences for subsidiary companies where the final decision over
redundancies has been made by a parent or holding company.
Background to the case
In Akavan Erityisalojen Keskusliitto AEK ry v Fujitsu
Siemens Computers Oy, Fujitsu Siemens Computers Oy (FSC), a
subsidiary of Fujitsu Siemens Computer (Holdings) BV (the parent
company) ran a factory in Kilo, Finland. On 7 December 1999, the
parent company’s executive directors decided to recommend to the
board of the parent company that the Kilo factory be closed. On 14
December 1999, the parent company’s board decided that it would
support the proposal, but did not make any specific decisions about
the factory. Consultations took place between 20 December 1999 and
31 January 2000. On 1 February 2000, FSC’s board of directors took
the decision to shut the factory. FSC began making redundancy
dismissals on 8 February 2000, eventually dismissing 450 of its 480
employees.
Some dismissed employees complained that the company had taken
the decision to dismiss for redundancy by 14 December 1999 at the
latest, before any consultation had taken place. The Finnish
Supreme Court referred certain questions to the ECJ regarding when
the duty to inform and consult arises.
When is the duty to inform and consult
triggered?
The relevant EU Directive says that “Where an employer is
contemplating collective redundancies, he shall begin
consultations…in good time with a view to reaching agreement.” In
implementing the Directive, UK law sets out minimum periods of
consultation (30 or 90 days, depending on the number of employees
involved) by reference to the date of the first dismissals for
redundancy.
The ECJ held that the obligation to consult with employee’s
representatives arises when there is adopted "within a group of
undertakings, strategic decisions or […] changes in activities
which compel the employer to contemplate or plan for collective
redundancies…"
It will be welcome relief for employers that the Court did not
decide that the obligation to consult arose before the adoption of
such strategic decisions.
What if the necessary information cannot yet be
given?
Section 188 of the Trade Union and Labour Relations
(Consolidation) Act 1992, which implements the Directive, sets out
the information which must be given to the employees’
representatives. The Court held that the fact this information was
not yet available had no bearing on whether the duty to undertake
consultation had arisen. The information can be provided during the
course of the consultations and not necessarily at the time that
they start.
What about when the parent company makes the
decision?
The Court held that:
- It is the subsidiary which is the employer who has the duty to
undertake the consultation
- The obligation to undertake the consultation falls on the
subsidiary only once it has been identified by the parent, even if
that subsidiary has not been properly informed by the parent. In
this case, the Finnish national court will have to decide when the
obligation to consult arose. On the basis of the ECJ’s ruling, we
would suggest that it occurred on 14 December 1999, but the ECJ
left it to the national court to decide
- That subsidiary must conclude the consultation procedure before
dismissing for redundancy, even if the dismissal is done under the
instructions of the parent company
Timing
What is not clear is whether the ECJ was saying consultation had
to start immediately measures are planned which could lead to
redundancies. The wordings of all the different language versions
of the judgment suggest immediacy; and there would have been no
point in the questions if consultation did not need to start
immediately after measures were planned. Which is odd, because the
Directive only requires consultation to start "in good time", not
"at the earliest opportunity".
Practical steps for employers
If you are a multinational employer and your parent company is
based outside of the EU, ensure that those who might potentially
make decisions which could lead to dismissals for redundancy in the
EU know about the timetable for collective redundancy consultation.
Remember that you may need to build in time for the election of
employee representatives. An obligation to inform and consult may
be quite alien to some employers outside of the EU.
Follow the collective redundancy consultation requirements
strictly. Remember that failure to do so can lead to claims of
unfair dismissal and / or a "protective award" of up to 90 days pay
for all affected employees.
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