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European Court of Justice gives guidance on collective redundancy procedure

20 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 companys executive directors decided to recommend to the board of the parent company that the Kilo factory be closed. On 14 December 1999, the parent companys 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, FSCs 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 employees 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 ECJs 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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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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