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Do You Need to Consult the Workforce When A Company Goes Into Liquidation?

on Friday, 15 October 2021.

Employers remain bound by their duties to consult the workforce when going into liquidation or administration. The case discussed below looks at when the 'special circumstances' exemption might apply.

What Does The Law State?

Under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (the Act), employers who are proposing to dismiss as redundant 20 or more employees at one establishment within 90 days or less have a duty to consult representatives of the employees who may be affected.

However, where there are 'special circumstances' which render it not reasonably practicable for the employer to comply with this duty, the employer is only required to take such steps as it reasonably can in the circumstances.

The Carillion Case

Carillion Group was a British multinational construction and facilities management services company headquartered in Wolverhampton. By July 2017, Carillion was experiencing serious financial difficulties and went into compulsory liquidation on 15 January 2018, resulting in a large number of employees being dismissed. Carillion failed to consult representatives of these employees regarding their dismissal.

Carillion's position was that there were 'special circumstances' under s188 of the Act as there had been 'sudden intervening events'. Over the preceding weekend of 13-14 January 2018, when the company's financial stakeholders refused to approve lending arrangements unless the Government provided guarantees - which the Government confirmed they would not. Carillion argued that, up to that point, it had expected such funding to be provided and to continue trading.

Did This Amount to 'Special Circumstances'?

The Employment Tribunal rejected Carillion's argument that the liquidation amounted to 'special circumstances'. On the facts of the case the liquidation did not amount to something 'out of the ordinary' or 'uncommon'. The Tribunal pointed to previous decisions which established that it depends on the causes of insolvency as to whether insolvency is a special circumstance.

In this case the Tribunal found that the liquidation was the result of a gradual run-down of Carillion's business since July 2017. The events of 13-14 January were not 'sudden intervening events', as they had followed a history of decline over a number of months during which the Government had given no indication that it would provide the required support to the company.

Carillion's appeal to the Employment Appeal Tribunal was rejected. The Tribunal had made no error of law when assessing the factual background of the case. 

What Does The Outcome Mean for Employers?

There must be something 'uncommon' or 'out of the ordinary' to be able to rely on the special circumstances defence. Insolvency itself will not be enough - there must be something else , such as a sudden disaster requiring the immediate closure of a business, to satisfy the test. 

Employers in financial difficulty and considering redundancies will need to be careful to ensure they consider their obligations under s188. This is a complicated area and taking advice early may prevent significant liabilities accruing. 

For specialist legal advice on your insurance benefits, please contact Michael Halsey in our Employment Law team on 07554 432 829, or please complete the form below.

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