In the UK there are two legal definitions of insolvency. The first is where an individual or...
Maximum award ordered by tribunal via employer unaware of its legal obligations
When an employer proposes to make 20 or more employees redundant within a period of 90 days, it must fulfil its consultation obligations under S.188 of The Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).
The aim of consultation is to reach agreement on the volume of redundancies, where possible reducing the number of employees to be dismissed and mitigating the consequence of those dismissals.
The defence of “special circumstances” applies where it is not reasonably practicable for the employer to comply with the consultation requirements; however, the employer must still take all further steps that are reasonably practicable. Should the employer use the “special circumstances” defence, it must demonstrate proof of the existence of those special circumstances and must establish what steps were taken to comply with the procedural requirements.
When the employer breaches this duty to consult, the employment tribunal can make a protective award, the maximum of which is 90 days’ gross pay for each dismissed employee.
Unlike unfair dismissal and similar legislation, the protective award is punitive and not based on loss of earnings. The tribunal will consider the seriousness of the employer’s fault and, in cases where there has been no consultation at all, it will be likely to impose the maximum award and then consider whether there were any mitigating circumstances that might lead to a reduction of that award.
In a recent case school governors decided to close their school at the end of the 2013 summer term due to declining pupil numbers. They gave staff notice of dismissal on 29 April 2013. No collective consultation was carried out because the governors were not aware of their legal obligations. The employees brought claims under TULRA.
The school argued that there were “special circumstances” in that the possible closure of the school could have been leaked, and this could have resulted in parents removing their children, thus sealing the school’s fate. The governors claimed that they waited until early 2013 to give the school the best chance of survival. The tribunal refused to accept this argument, saying that potential leaks about the school’s closure could have been avoided by making it clear to employees that the planned closure was confidential and specifying that any breach of confidentiality would constitute gross misconduct. The tribunal concluded that no mitigating factors and no consultation meant that the school had to pay each employee a 90 day protective award.
The school went to the Employment Appeal Tribunal (EAT). It said that as the governors had been unaware of their legal obligations to consult, it followed that no evaluation regarding the consultation had taken place; therefore the school’s assertion that special circumstances existed was purely hypothetical. The school also argued that the length of the protective award (90 days) was too long. It claimed that the tribunal had not considered a mitigating factor, namely that the employees had suffered no actual loss because a consultation carried out in February 2013 would still have led to employment being terminated in August of that year. The EAT looked to case law in order to reach its conclusion; quoting from cases where the Court of Appeal had made it clear that a protective award is not designed to compensate employees for a loss suffered in consequence of a breach of the rules and, therefore, it could not consider that point as a mitigating factor.
Despite the fact that the school argued that there had been no deliberate attempt to breach its duty or fail to consult with its employees, it did agree with the employment tribunal that its ignorance of the law arose from a failure to seek legal advice.
This case illustrates that, certainly as far as consultation duties are concerned, ignorance of the rules is no defence! It also illustrates how a tribunal will treat an employer where it fails to seek legal advice before taking action against employees. The tribunal and the EAT took a very dim view of this school’s behaviour, describing its failures as “reckless”.