Employment Rights Bill unpacked: substantial changes to collective redundancies

24 October 2024

Laws requiring employers to go through collective consultation and notify the government before making redundancies are in for a major shake-up, under the government’s plans. Our article looks at what’s changing and why it will have such a substantial impact.

The Employment Rights Bill represents a significant overhaul of the UK's employment law framework. We’ve written about the planned changes to unfair dismissal laws, the new regime for zero hours contracts and other changes elsewhere. In this article, we focus on the planned changes to the rules on collective redundancies.

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 criminal 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

Establishment in this context essentially means “site” or “workplace” – i.e. the place to which employees are assigned to work. This site-by-site approach came in for criticism following the collapse of the Woolworths chain and failure of its administrators to go through collective consultation. The resulting claim went to the European Court of Justice, which essentially confirmed that the UK regime was compatible with EU law in taking this site-based approach. On the facts of that case it meant that staff in stores with under 20 people did not qualify for the protective award.

Territorial scope

Employees who ordinarily work outside Great Britain do not need to be included on Form HR1. However, the law is silent on the territorial scope of the collective consultation obligations.

The Court of Appeal has ruled that, when deciding whether the collective consultation rules apply to cases where some employees may work overseas, the focus must be on the establishment. If the establishment is in Great Britain - or sufficiently connected to it - then the collective consultation rules will apply.

Planned changes under the Employment Rights Bill and accompanying consultation

The Bill removes references to "at one establishment” from the relevant legislation, meaning that employers would need to count redundancies across all sites/workplaces when deciding if the trigger for collective consultation and filing Form HR1 has been reached.

In other words, the “site by site” approach will be abolished. Employers would need to look across their business as a whole when calculating the number of proposed redundancies and whether they meet the 20 or 100 thresholds.

In a separate consultation document published after the Bill, the government is also seeking views on whether to:

increase the protective award from 90 days to 180 days or even abolish the cap altogether to deter employers from trying to “buy off” potential employment claims about the lack of collective consultation; and
allow employees claiming a protective award to ask for “interim relief” (essentially enabling them to remain employed or at least paid until a tribunal hearing).

On top of this, the government has said that it plans to consult next year on extending the 45 day collective consultation period to 90 days if an employer is proposing 100 or more redundancies.

In the wake of the P&O Ferries situation, the Bill also makes various changes to collective redundancy obligations for a ship’s crew, which we won’t cover further here.

Practical impact for employers

Together, these changes look set to be transformative and will have a significant impact on employers.

More redundancies will involve collective consultation

When the collective consultation obligation is no longer limited to redundancies at each site or workplace, more redundancy exercises will be caught by the rules. You will need to go through collective consultation more often and, in some cases, for a longer period.

This will have a significant impact on the timescales for redundancies and risks of non-compliance. This appears to be very much the government’s intention.

The government’s impact assessment says that larger employers, which often operate in multiple locations, may currently be exempt from collective redundancy obligations to a greater extent than smaller employers.

In fact, however, applying blanket thresholds in the way proposed is going to make matters materially more challenging for larger employers where small numbers of redundancies will be combined.

Larger multi-site employers are likely to be making small numbers of local redundancies as part of normal business and, as a result, are likely to reach the 20 or 100 trigger points simply due to their size. The Bill essentially means that local redundancies become a company-wide issue. The largest employers may find themselves in repeated successive collective redundancy consultations.

The Bill would set a much lower threshold for collective consultation than the EU Directive on which the UK rules were originally based. It will result in stronger collective consultation requirements than exist in many EU countries where the “establishment” test still applies - and where thresholds are often based on the overall number of employees at the establishment in question as well as the number of proposed redundancies.

The risks of non-compliance will go up significantly

If the government goes ahead with the increased protective award then – as the government intends – non-compliance will become extremely expensive for employers. Settling claims for protective awards is legally problematic, but the government has clearly been influenced by the P&O Ferries case where employees accepted the generous payments on offer rather than pursuing less financially valuable claims over the failure to go through collective consultation.

The proposals arguably fail to take account of the fact that, in many cases, it is the employees and their representatives wanting an employer to speed up the redundancies and preferring a cash payout to a prolonged period of employment where the eventual redundancy is inevitable.

Enabling employees to claim interim relief would also significantly increase the risks of non-compliance, and will add to the strain on a creaking employment tribunal system.

Employers with multiple employer entities are advantaged

It will no longer be relevant to ask if redundancies are confined to one establishment but it will remain relevant to consider if they are confined to one employer. There is no change to the principle that redundancies are not aggregated across a group of companies involving multiple employers.

In practice, if a large group of companies plans 15 redundancies at site A and another 15 at site B, the Bill means that it would need to go through collective consultation if employees are employed by the same group company but not if they are employed by separate operating companies.

Larger employers will need to implement tracking systems

The Woolworths case involved a single largescale redundancy exercise, which is the classic type of situation the rules were seemingly designed for. However, as explained above, employers frequently need to make small numbers of redundancies for different unconnected reasons. The Bill means they must aggregate numbers of proposed redundancies across all sites and carry out collective consultation once the numbers cross the threshold of 20 within a 90-day period, and a longer consultation if those numbers reach 100

There was a time between 2013 and 2015 when the “one establishment” test was considered removed from UK law (during the Woolworths litigation). Many large employers implemented complex reporting and tracking processes to try to manage and monitor compliance across their multi-site operations during this time. We are likely to see a return to those systems. Judgments such as those in the Adecco European Works Council case suggest that tribunals will have little sympathy for employers who say that it was too hard to monitor compliance and that a breach was therefore inadvertent.

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. This means you must go through a 30 or 45 day collective consultation about a batch of redundancies if, taken together with an earlier batch, the numbers have tipped over 20 or 100 in a 90-day period.

One problem with this approach is how to handle existing or earlier batches once the threshold is crossed. For example, suppose an employer plans 5 redundancies in Team A then unexpectedly loses a major contract and now plans an additional 15 new redundancies in Team B. Has it now crossed the threshold? If so, must it delay the redundancies in Team A and go through a statutory collective consultation exercise with both groups, even if the Team A redundancies are quite advanced? What if Team A have already been served notice or even left the business?

Marclean itself is now a less reliable authority (post-Brexit) although it is still being applied in tribunal cases. Even before Marclean, UK law was unclear in several respects. The UK legislation includes an exclusion allowing employers to disregard redundancies where consultation has already begun. An old 1970’s case was helpful in saying that employers shouldn’t have to aggregate two batches if the second wasn’t intended when the first was proposed – at least if the first set of employees have already left. However, the law was never clear on what kind of consultation counted for the purposes of this exclusion and the 1970’s case was of very limited authority.

Clearly, there is nothing employers can do in practice to go back and start a collective consultation exercise with employees who have already left employment, and little that can be done usefully if employees are about to leave employment. Employers need more clarity, however, on these key questions which will become more urgent if all the reforms go ahead:

When counting proposed redundancies, must employers look backwards as well as forwards as per Marclean?
If so, what (criminal and protective award) sanctions do employers face in respect of earlier/ongoing batches of redundancies when new batches result in them crossing a threshold? Do those sanctions apply when the new batch was not intended when the first was proposed?
If earlier/ongoing batches of redundant employees have not left, when should employers delay their planned redundancies (even if this achieves no practical purpose)?
What kind of consultation or form-filing (if any) in respect of those earlier/ongoing batches would avoid a breach? For example – would the government accept a Form HR1 in respect of the 5 Team A redundancies in the example described above? What if the employer had carried out extensive individual consultation with Team A before Team B redundancies were proposed?
How are employers supposed to deal with constantly evolving numbers when sending forms HR1 to the government?

Employers will need to manage multi-site unconnected collective consultation exercises

Take the example of 5 redundancies at site A, and 15 redundancies at site B, over 200 miles away, for unconnected reasons, in different circumstances and with different time pressures.

Let’s assume they are proposed at the same time. The Bill requires the numbers to be aggregated for the purposes of triggering collective consultation. Does it follow that the representatives must be brought together for the purposes of a single collective consultation exercise? How far can they be handled separately?

In our view, an employer would probably convene all the representatives together initially, most likely in an online meeting, but aim to branch off into separate workstreams, given that there is likely to be little logic in consulting as a single group. However, there will be practical questions about whether and when those workstreams should come back together, such as to be consulted on what if any enhanced redundancy payments apply. Clarity that these meetings may be held online would also be helpful to avoid disputes over whether an employer must pay for numerous representatives to travel across the country to meet in one place, with resulting time and financial costs, as well as environmental impacts.

In our example, it does not follow that the employees would need to be pooled together for the purposes of selecting for redundancy or that the same selection criteria would need to apply, although both groups are likely to be interested in knowing how the other exercise is being handled.

In large scale redundancy exercises, employees could lose out on local representation

Moving on from the problem of batches of unconnected redundancies, what if a multi-site employer is planning a large-scale redundancy exercise impacting multiple sites, of the sort we saw (or should have seen) in the Woolworths case? One possible unintended consequence of the Bill is that employees may lose out on local representation, because the employer will look to carry out a single multi-site exercise and will inevitably be trying to limit the number of employee representatives to keep things manageable. Smaller sites may not have the opportunity to put forward a representative at all.

Some advantages in scrapping the establishment definition?

The definition of “establishment” has always been problematic and vague in some respects and, with more employees working remotely from home after the Covid-19 pandemic, it was becoming difficult to know how to attach a remote worker to any single “establishment” for collective consultation purposes, as we wrote about in our article on redundancy in a remote working world. To this extent, one upside of the Bill is that it modernises and clarifies the law.

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.

It’s possible that one consequence of the Bill is that we will 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.

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. This might be the case, for example, if the body contains representatives from various parts of the business but only a small team is affected by a redundancy proposal. 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.

New questions over overseas employees and territorial scope

As explained above, the territorial scope of the collective consultation rules turns on the concept of the relevant establishment and its location and connection to Great Britain. Under the current site-based test, employees working remotely for a company based in Great Britain can fall in scope of collective consultation requirements if they are assigned to the relevant site or affected by the redundancies there. In contrast, an employee living and working in Great Britain for an overseas company would not be able to claim any rights to collective consultation if impacted by a redundancy exercise at an overseas establishment.

When the establishment concept is removed from the law, the question of territorial scope will become unclear. If the focus shifts to whether the individual employee is sufficiently connected to Great Britain then, as the Court of Appeal has observed, different employees might have different degrees of connection, with the result that the "sufficient connection" test might be satisfied in the case of some employees but not others.

Next steps

The Bill is expected to pass some time in 2025. The consultation on the protective award and interim relief closes on 2 December 2024. The further consultation on lengthening the consultation period will happen in 2025.

In our view, the Bill needs amending to consider some or all of the following:

Higher thresholds or percentage-based thresholds, perhaps combined with a requirement for collective consultation if everyone at the establishment is being made redundant (regardless of its size) - or at least a system for distinguishing between single largescale redundancy exercises and batches of unconnected redundancies.
The introduction of clear and workable rules about what happens with earlier batches of redundancies when a later batch of redundancies is proposed.
A system for dealing with constantly evolving numbers when filing Form HR1.
Clarity on territorial scope.
Given that the additional burden will not just fall on employers but also employee representatives - who may constantly be involved in collective consultation exercises – the introduction of the ability to agree alternative thresholds that are more appropriate in a particular business sector, in a manner similar to how employers may currently agree certain variations to the Working Time Regulations by concluding workplace agreements

The government is not explicitly consulting on the proposals in the Bill, but its consultation on protective awards and interim relief includes a final question asking about more general reforms so there is some opportunity for employers to make wider points. We will be responding to the consultation - please do get in touch with us if you are a client or contact and would like to share your views.