The Employment Rights Bill represents a significant overhaul of the UK's employment law framework. In this article, we focus on how the Bill changes the rules on collective redundancies. This part of the Bill was amended significantly as it went through the House of Commons, and our article explains the latest position.
Current law on collective redundancies
Any employer that is proposing 20 or more redundancies at one “establishment” within a period of 90 days must go through a process of collective redundancy consultation before the redundancies can go ahead. This means informing and consulting appropriate representatives of the affected employees. Failure to comply can result in claims for a “protective award” of up to 90 days’ uncapped pay for each affected employee.
Employers must also file Form HR1 with the government, giving advance notice of the redundancies. It is a criminal offence not to do so, and the penalty is an unlimited fine.
Consultation with representatives must begin in good time, and at least 30 days before the first dismissal (for under 100 dismissals) or 45 days (for 100 or more dismissals).
Redundancy has a broad meaning, extending to any termination of an employment contract for a reason unrelated to the employee (so covering “fire and rehire” situations). It excludes dismissals that are due to the ending of a fixed-term contract on the planned end date.
“Establishment” means (broadly) site or workplace.
Planned changes under the Employment Rights Bill
The original version of the Bill scrapped the establishment test altogether and would have required collective consultation when an employer proposed 20 or more redundancies across the whole company regardless of location. This would have had a very significant impact on large multi-site employers, many of whom would propose 20 redundancies in 90 days in the normal course of business if all small-scale redundancies across the whole company are counted together.
New threshold test
The latest version of the Bill keeps the establishment-based threshold but adds an additional one. As a result, under the amended Bill, collective redundancy consultation will be required if:
- the employer proposes 20 or more redundancies at one establishment (the current threshold); or
- some other threshold test is met which will involve counting proposed redundancies across the employing entity as a whole, regardless of the location of those redundancies (the new threshold).
The details of new threshold will be defined in regulations. There’s no draft of those regulations and the government has not given any indication of where the new company-wide threshold will be set.
It seems likely that the new company-wide threshold will involve a number between 20 and 100, but it could also involve a percentage test (e.g. the lower of 100 or 10% of the employees across the employing entity as a whole).
No change to consultation periods
The Bill does not change the 30/45 day consultation periods. This means that if, for example, 100 company-wide redundancies trigger the new threshold then a 45 day consultation would be required.
Separate consultations allowed
The amended Bill also states that, in carrying out collective consultation, the employer does not need to:
- consult all employee representatives together or
- try to reach the same agreement with all of the representatives.
This concession applies to any collective consultation exercise (even one that takes place at a single establishment) but is most relevant to collective consultations spanning batches of different redundancies across multiple establishments. It addresses a concern raised by many employers that the Bill would otherwise require representatives to be physically brought together and consulted as a central group over batches of unconnected local redundancies.
New maximum protective award
The Bill would also double the maximum protective award for failure to collectively consult on redundancies, from 90 to 180 days. The new award has been written into the Bill after a consultation on strengthening penalties. The government has dropped plans to introduce an uncapped award and “interim relief” however.
Practical impact for employers
Taken together, these changes will have a significant impact on employers.
More redundancies will involve collective consultation
The additional company-wide threshold test will impact employers with more than one site.
Although the Bill now sets the threshold higher than 20 company-wide redundancies, the end result will still mean that collective consultation requirements can be triggered by small numbers of redundancies across different sites being counted together to tip the employer into collective consultation.
Much depends on exactly where the new threshold is set, but the new company-wide test is going to mean more collective redundancy exercises, and collective redundancy exercises lasting for longer.
The risks of non-compliance will go up significantly
The increased protective award means that non-compliance will become extremely expensive for employers.
It is already risky to attempt to “buy out” collective consultation or allow the early release of employees (even if requested by employees themselves) but the new penalty will make this materially more so.
Employers with multiple employer entities are advantaged
The law looks at redundancies within each employing entity separately. The Bill does not change this approach. This means that redundancies at site A and site B will only be counted together for the purposes of the new threshold test if the employing entity is the same. If employees at site A and B are employed by separate operating companies then they are not counted together.
Larger multi-site employers will need to implement tracking systems
It is relatively easy to track numbers of actual redundancies but, at that point, it is too late. Employers need to track proposals to avoid being in breach. The introduction of the new threshold test will make this into a more challenging exercise, as employers will need to keep track of proposed redundancies across all of their sites.
Very small local redundancies could be caught up in collective consultation exercises
For a multi-site employer, when numbers are counted across sites, a single proposed redundancy at one site could end up as part of a collective redundancy exercise.
This will have several practical consequences. First, small numbers of redundancies may end up being delayed by collective consultation. Second, all affected employees need to be represented by an appropriate representative in a collective consultation exercise, even if their redundancy is unique and unconnected to the others in scope of that exercise. Employees can be their own representative for this purpose, or they could be represented by another appropriate representative (see below).
More standing bodies of employee representatives?
If you do not recognise a union then, before collective consultation can begin, you must organise elections for employee representatives - unless you already have a standing body of representatives with sufficient authority to be consulted.
If you are organising elections, only employees who are affected by the proposed redundancies can stand for election as a representative.
We may see more larger employers setting up standing bodies, so they are “ready to go” as and when needed, to avoid the need for continual time-consuming elections of employee representatives for smaller batches of redundancies that are aggregated together and/or employees having to be “their own rep” to avoid being represented by employees involved in unrelated redundancy exercises.
Consulting with a standing body is not risk-free. There may be circumstances in which its authority is challenged, if it is not sufficiently representative of the affected employees. Having a standing body, however, would mean you are able to progress collective consultation much more quickly, and the representatives have time for regular training and to gain experience.
A new batch of redundancies risks putting an employer in breach over an earlier batch
In the Marclean case, the European Court of Justice ruled that the EU Directive requires employers to look both forward and backward in counting the numbers of redundancies. One problem with this approach is how to handle existing or earlier batches once the threshold is crossed. Must employers go back and start a collective consultation exercise with earlier/ongoing batches of redundancies?
The Bill does not resolve this ambiguity despite many employers and experts flagging it as a serious concern. This is a missed opportunity to clarify the law. The issue may be addressed in newly-promised government guidance but that will not be binding on courts and tribunals so legal uncertainty looks set to remain.
New questions over overseas employees and territorial scope
According to current caselaw, the territorial scope of the collective consultation rules turns on the relevant establishment and its location and connection to Great Britain. Under the new threshold test, the test for which employees are in scope clearly can’t turn on the “establishment” so will presumably be a test which looks at the individual affected employees and whether (if they are employed by the same entity but outside Great Britain) they are sufficiently connected to Great Britain and British law.
Next steps
The Bill is expected to pass this year – probably in the summer. The government will need to define the new threshold test in accompanying regulations and produce the promised guidance. It’s not clear when the new threshold test and increased protective award will actually take effect but it seems likely to be some time in 2026. Employers should bear this in mind if considering any major restructuring in the short term.
