Collective consultation duty arises earlier than point of final decision in insolvency context

Background

In the case of Ellard and others v Alliance Transport Technologies Ltd, the employer entered administration following financial difficulties and a failed attempt to secure further investment or a sale as a going concern. A total workforce of around 51 employees was affected.

Shortly after the administrators were appointed, 15 employees were dismissed as redundant. A further larger group of employees was dismissed a few days later after attempts to secure a sale proved unsuccessful.

Some employees succeeded in claims for a protective award on the basis that the employer had failed to comply with its collective consultation obligations. However, three employees who had been dismissed in the earlier tranche of redundancies were unsuccessful before the Employment Tribunal. The Tribunal concluded that, at the point of their dismissal, the employer was not proposing to dismiss 20 or more employees because efforts to sell the business were ongoing.

The claimants appealed.

EAT decision

The Employment Appeal Tribunal allowed the appeal and substituted a finding that the claimants were entitled to a protective award.

The EAT emphasised that the correct legal question is whether the employer was proposing to dismiss 20 or more employees within a 90-day period, not whether there was a single, fixed proposal at a particular point in time. The statutory language requires a forward-looking assessment of what dismissals are being contemplated over that period.

The Tribunal had erred by focusing narrowly on the 15 dismissals in the first tranche, in isolation. It failed to consider whether, at that point, further dismissals were likely within the following days as part of the same developing situation.

The EAT also confirmed that the duty to collectively consult does not require a final decision to dismiss. However, the obligation arises at a point later than redundancies merely being discussed as a possibility. The relevant question is whether there is a clear, albeit provisional, intention that redundancies may occur.

Importantly, the EAT rejected the Tribunal’s conclusion that the prospects of rescuing or selling the business were irrelevant. The likelihood of a sale was directly relevant to whether further redundancies were being proposed. On the evidence, by the point at which the administrators were appointed, there was at least a provisional intention that the business would close if no sale could be secured, making further redundancies highly likely.

In those circumstances, the duty to collectively consult had already arisen. The EAT substituted its own decision and awarded the claimants a 90-day protective award.

Learning points for employers

This decision highlights that collective consultation obligations may arise before redundancies become certain, particularly in insolvency or business distress situations. Employers should take a forward-looking approach and consider whether there is a clear, albeit provisional, intention that further redundancies may follow within a 90-day period. Exploring a potential sale or rescue will not necessarily delay the duty to consult where business closure remains a realistic outcome.

For more information or advice, please get in touch with Sharmin Chowdhury in our Employment team.