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Insight

Retail administrations, collective redundancies and protective awards

Nick Thorpe
15/08/2014
As many of you know, the Woolies decision which removed the requirement for proposed collective redundancies to be "at one establishment" has been referred to the European Court of Justice (ECJ), As many of you know, the Woolies decision which removed the requirement for proposed collective redundancies to be "at one establishment" has been referred to the European Court of Justice (ECJ), leaving retailers (and UK employers more generally) uncertain as to the current position in the UK.

The case has yet to go before the ECJ and it is likely to be some time before it does so. But time stands still for no man. Over the Summer months, we have seen a number of retailers go into administration, with La Senza and Jane Norman both going into administration for the second time in the UK. We have also seen a number of protective award claims being made in favour of redundant staff, most notably in relation to the Comet liquidation (which resulted in the loss of 7,000 jobs) and more recently, in relation to the Barratts administration.

The Comet decision is worth considering, not least because it runs to 92 pages long. As in the Woolies case, the Tribunal was very critical of the collective redundancy process that the administrators followed. At best it found that Comet was going through the motions of consultation, but that Comet was not complying with its legal duty to consult properly or effectively, or at all. If anything, the judgment serves as an abject lesson as to how not to conduct a multi-site, collective redundancy exercise. As a consequence of Comet's many and serious breaches, the maximum award of 90 days was made for store based staff, with Head Office and support functions receiving a 70 day award as the Tribunal accepted that time was too short to allow effective consultation in relation to the redundancy programme at Head Office.

It is estimated that the costs to the taxpayer of the Comet liquidation could be up to £70 million pounds – with the redundancy payments costing the Insolvency Service £18 million, the National Insurance Fund having to pick up the tab for the protective award claims of up to £26 million, and unpaid PAYE and VAT at the time of the liquidation being in the region of £26 million.

Given the additional costs that the taxpayer is having to pick up as a result of the administrators' failure to consult the employee representatives regarding the proposed redundancies, it is perhaps understandable why the Business Secretary Vince Cable has expressed his concern and referred the administrators of Comet to their regulatory body for consideration as to whether disciplinary action should be taken.

The referral itself relates to a potential conflict of interest but appears to be driven by the concern that the administrators failed to consult employees properly.

In a strongly worded statement, Vince Cable said "The taxpayer now faces a multi-million pound compensation bill as a result of the failure to consult employees. There can be no excuse for failing to comply with the law which is very clear in this area. It is vital that the regulator establishes why this happened and whether disciplinary action against the administrators is appropriate".

While one might take issue with the suggestion that the law is this area is "very clear" following the Woolies decision, the message could not be clearer; employers will be given short shrift if they fail to comply with their collective redundancy obligations and do not consult employee representatives properly.

A number of large employers have decided to adopt a cautious approach pending the outcome of the Woolies case. However, it is important that all employers are mindful of the implications of the Woolies decision if they are proposing to make 20 or more employees redundant over a 90 day period, either at one site or across various sites, particularly given the increased awareness of staff (and their representatives) of the possibility to bring protective award claims if very little is done to consult properly or effectively, in time, or at all.

For more details on the Comet decision, and more generally on how to conduct an effective multi-site collective redundancy exercise, please do not hesitate to contact any member of the team, who would be very happy to advise and share their experiences on how best to conduct such an exercise and avoid costly protective award claims.

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