By Peter Talibart and Adrian Hoggarth
Lawyers, Norton Rose
Companies must consult with workers before planning layoffs
Following a landmark legal ruling this week, employers will now need to consult trade unions before they make a decision to close a workplace in the UK.
Consultation on redundancies arising from the closure of a business needs to include discussion of the business reasons for making the closure prior to a final decision being made, the Employment Appeal Tribunal has held in a significant new case on redundancy consultation, involving UK Coal Mining and the National Union of Mineworkers (NUM).
This is because in most cases it is not possible to distinguish between a proposal to close a workplace and the redundancies that will inevitably flow from that decision.
Previous cases had held that UK employers were not legally required to consult with trade unions over the business rationale for closing a workplace.
Unlike in Europe, where businesses are already required to consult with employee representatives at a much earlier stage - and before making decisions that may lead to redundancies - employers in the UK have, until now, only needed to concentrate on discussing ways of reducing the impact of a closure once that decision had been taken.
This is now no longer the case, and the future impact of the decision may have significant implications.
Whilst the UK Coal case dealt with the complete closure of a colliery, the wider obligation to consult could apply where there is any proposed business decision that will inevitably result in the dismissal of 20 or more employees in one workplace, whether or not that workplace is to close.
A key change brought about by the case is that consultation will need to be commenced much earlier than previously assumed.
It will be too late to start consultation if a final decision has been made to close a business.
Talks must be held before a factory is closed
Instead, employers will need to start discussions with trade unions as soon as they have formed a clear but provisional intention to close a business.
If employers fail to do this, they could be hit with significant claims for compensation under the legislation. The claim was in excess of £2m in the UK Coal case.
The decision is likely to lead to lively debate between employers and trade unions when any mass redundancies are contemplated, because there is a clear conflict between the employer's overriding duty to consider its shareholders, on the one hand, and the trade union's duty to further the interests of its members, on the other.
It will also raise issues of confidentiality, with employers required to disclose potentially sensitive commercial information to trade unions at a stage when no decision on redundancies has been announced.
However, whilst this is likely to lead to longer, and more heated, periods of consultation prior to redundancies taking place, it is important to remember that in the UK trade unions cannot ultimately prevent employers from going ahead with redundancies even if the trade union continues to oppose the proposals.
The employer is under a duty to consult about ways of avoiding the dismissals "with a view to reaching agreement" with trade unions, but is not prevented from making the redundancies if, after meaningful consultation has taken place, agreement cannot be reached.
One point that employers may take some comfort from is that unless they give false reasons for the need to close a business - as was the case here, where the employer tried to use health and safety reasons as an excuse for not consulting with trade unions - an employment tribunal will not be able to examine the employer's business case for making redundancies and decide whether it was the right decision.
It should confine itself to looking at whether the employer properly consulted on the business reasons, rather than examining the reasons themselves.
Whilst there are fears that this decision will require a significant cultural change within UK businesses, the Employment Appeal Tribunal believes that "most employers will already inform union representatives why they are considering the need to close a plant and will respond to any union observations, even if they do not feel themselves legally obliged to do so."
As a result, the decision will have a far greater impact on businesses that fail to involve trade unions at an early stage of the decision making process.