Resignation in Response to Pay Cut can be a 'Redundancy' for the Purpose of Collective Consultation
In Pujate Rivera v Gestora Clubs Dir SL and another, the European Court of Justice (ECJ) held that where an employee resigns from their employment in response to a pay cut which is not their fault, it is a redundancy.
In Pujate Rivera v Gestora Clubs Dir SL and another, the European Court of Justice (ECJ) held that where an employee resigns from their employment in response to a pay cut which is not their fault, it is a redundancy for the purposes of the employer's collective consultation obligation.
Collective Redundancies
Under the European Collective Redundancies Directive (the Directive), when a prescribed number of workers, depending on the size of the company, are made redundant in one establishment over a period of 90 days, there is an obligation on the employer to consult with the workers' representatives with a view to reaching an agreement. The definition of a redundancy in these circumstances also has a wider meaning than redundancy for the purposes of statutory redundancy.
Facts
In Spain, the Workers' Statute adopts the Directive and also states that an employer is permitted to unilaterally make changes to a worker's working conditions if it is for an objective reason. However, if the worker suffers a detriment, the worker is entitled to resign and receive compensation.
At Gestora Clubs Dir SL (Gestora), a Spanish company, during a 90 day period, ten employees were dismissed for economic reasons, including Mr Rivera. A number of other employees were dismissed due to the expiry of fixed term contracts. One employee also resigned following a unilateral reduction in her salary by 25%.
Mr Rivera brought proceedings disputing the validity of his dismissal because Gestora failed to carry out a collective redundancy consultation process. He argued that if all the terminations during the relevant 90 day period, including the employee who resigned, were taken into account, the total number would trigger the duty to collectively consult.
The Spanish court referred various questions to the ECJ, including whether an employee's resignation in response to a unilateral and detrimental variation to their contract amounted to a redundancy for the purposes of collective consultation obligations.
ECJ's Decision
The ECJ held that a redundancy, which would trigger the collective consultation obligations, can include an employee's resignation in response to a unilateral change to an essential element of their employment contract for a reason not related to them as an individual, which is substantial and detrimental. Since the purpose of the Directive was to give workers protection, a 'redundancy' can include any termination of an employment contract initiated by a worker due to a significant and detrimental change imposed to their contractual terms.
Best Practice
This decision could have far reaching implications for employers contemplating unilateral variations to their employees' terms and conditions, especially when the number of potential dismissals is already close to the threshold (of 20 under UK law), which triggers the obligation to collectively consult.
In order to reduce the risk of incurring a protective award, employers are advised to always consider collectively consulting with their employees when there is a significant change to their employment contract or working conditions. This is relevant not only in the case where there is a legal duty to do so, but also to maintain good working relations with their employees.