WRC issues highly anticipated decision in Debenhams test case

Note: Since publication of this insight, it has been reported that the joint liquidators of Debenhams Retail (Ireland), Kieran Wallace and Andrew O’Leary, respondents this case, are appealing the decision of the WRC to the Labour Court.

The decision will be of significant interest to employers in Ireland as it provides an insight into how the WRC views employers’ collective redundancy obligations under the Protection of Employment Act 1977 (the Act).The decision will be of particular interest in the current economic climate where collective redundancy announcements are reported in the media with increasing frequency, particularly in the tech industry.

In this article, we consider the WRC’s decision and identify some of the key points employers should be aware of when contemplating collective redundancies, in particular given that the law in this area is very high level and open to interpretation. We also look at the Government’s proposed reforms to the collective redundancy obligations for insolvent employers.

Background to the case

The background to this case was the well-publicised collective redundancy process in 2020 following the announcement by Debenhams Retail (Ireland) Limited that it was closing all its stores in Ireland, with the loss of nearly 1,000 jobs. It emerged that the company would not be paying staff any redundancy and that they would have to depend on the State for their statutory entitlements. This resulted in a picket of Debenhams’ premises for over 400 days by affected employees before a settlement on redundancy payment terms was ultimately reached in 2021.

A large group of the former employees (between 750 and 800) then brought complaints under sections 9 and 10 of the Act over the manner in which they were made redundant, arguing that both the management of the company and the business’s liquidators failed to provide information or meaningfully consult with their trade union representatives over their redundancies.

The duty to inform

The Act sets out certain prescribed information that must be provided to employees’ representatives in writing in a collective redundancy situation. In addition to this information, employees’ representatives must be provided with “all relevant information” relating to the proposed redundancies. The WRC put par ticular emphasis on this point in the Debenhams decision.

In particular, the employees’ representatives had sought information in relation to matters such as the profitability of each store; the value and ownership of stock; the possibility of trading online and landlord lease arrangements.

The WRC noted that, although an employer does not have to provide “all” information, it must provide “all relevant” information. It concluded that the specific information requested by the employees’ representatives was “relevant information” in the context of a retail store and was necessary for the employee representatives to formulate any constructive proposals in relation to the proposed redundancies. It took the view that not having the information sought by them frustrated the representatives’ capacity to do this. The WRC specifically said that it is not a defence that the employer is unable to get the information from the parent company.

The WRC awarded the employee four weeks’ pay for Debenham’s failure to provide the relevant information, which was the maximum it could have awarded under the Act for this breach.

The duty to consult

The Act provides that where an employer “proposes” to effect collective redundancies it must initiate consultations with employees' representatives. Consultation must be initiated “at the earliest opportunity” and, in any event, at least 30 days before the first notice of dismissal is given. Consultation with employees’ representatives must be with a view to reaching an agreement, but there’s no requirement that agreement be reached.

Commencing consultation

The WRC stressed the importance of commencing consultations at the earliest opportunity, and said that the consultation process must begin when a strategic or economic decision is made that means it is intended or contemplated that collective redundancies will take place (regardless of whether the decision is made by a parent company).

In this case, the consultation process began on 17 April 2020 when the liquidators were appointed. However, the WRC said that it should have begun on 9 April 2020, the day after the decision was made by the UK parent company that it was no longer in a position to fund the Irish operations. and the day the Irish entity made the decision that it was going to appoint liquidators and informed staff that the stores would be closing. The WRC said that because of this two-week delay, and the appointment of the liquidators during this time, there were less options available to reduce the number of redundancies and to mitigate the consequences of the redundancies.

It was also interesting to note that the WRC said that not having all of the relevant information to hand is not a reason to delay the commencement of the consultation.

The decision highlights the importance of starting consultation as early as possible after a decision is made which means that collective redundancies are contemplated. It will not be sufficient to simply commence the process 30 days prior to the dismissals being effected. However, the WRC did also note that the context of the fragility of the business was relevant in this case, given that the delay in commencing the process narrowed the options open to the parties during the consultation period. Therefore, there may be circumstances where the WRC might be willing to give more latitude to an employer in terms of the timeline for commencing the process, depending on the particular factual scenario, and where the employer is not facing an insolvency situation.

Consultation must be meaningful

The WRC said that consultation must be meaningful, which it said was not possible where relevant information was not provided to the employees’ representatives. The WRC also noted that there was no evidence of any material change to what was proposed at the outset of the consultation and what was implemented and found that, because of this, (although this won’t always be the case), it was likely that meaningful consultation did not occur. Debenhams argued that it was not possible to make changes to the proposals given its stark financial situation, but the WRC said that this contention could never have been truly tested as relevant information was not shared.

The WRC said that Debenhams had failed to comply with its consultation obligations and awarded a further four weeks’ pay to the complainant for the breach of the consultation obligations. The complainant, therefore, received eight weeks’ pay in total.

Although the award against the company is only eight weeks’ pay in total for that employee, this was the main test case for around 750 similar complaints brought by other former Debenhams employees. As such, the implications are potentially significant.

Proposed reforms

The Debenhams situation highlights some of the difficulties that can arise when collective redundancies are effected as a result of an employer’s insolvency. In 2021, the Government issued a Plan of Action on Collective Redundancies following Insolvency setting out its commitment to draft legislation enhancing protections and ensuring transparency for employees in insolvency situations. Earlier this month, the Government issued the heads of the General Scheme for this.

The General Scheme proposes a number of changes to the current collective redundancy legislation including:

• Removing the exemption for notification to the Minister when the employer is insolvent and insolvent businesses will also be subject to the restriction that redundancies cannot be effected until 30 days have elapsed since the date of notification to the Minister.
• Employees will be able to bring a claim to the WRC where the employer makes them redundant before the 30-day notification period finishes (this will apply in any situation not just an insolvency situation). At present, this only results in a potential fine of €250,000 in a non-insolvency situation. This could also give rise to an award of up to four weeks’ pay. Therefore, if the employer fails to comply with its information and obligations requirements, in addition to effecting redundancies before the 30 days have elapsed, it could be required to pay 12 weeks’ pay in compensation per employee.
• The employer’s obligations will also need to be complied with by a liquidator and the liquidator will be required to continue any process that was commenced by the employer. This is in accordance with the WRC decision in the Debenhams case.
• Measures to improve the quality and circulation of information to workers.

Implications for employers

There is no doubt that this decision sets a higher standard for employers in terms of their information and consultation obligations by clarifying what information and consultation entails. It also appears that it might no longer be sufficient for an employer to have commenced consultation 30 days prior to the first notice of redundancy issuing. Instead, consultation will need to begin as soon as possible after a decision is made which means collective redundancies are contemplated.

In addition, employers will need to very carefully consider their information obligations to ensure they furnish employee representatives with all relevant information in relation to the proposed redundancies and must meaningfully consult with employees’ representatives on the proposals. It will not be acceptable for employers to run a consultation as a box-ticking exercise and it is clear from the Debenhams case that this will be carefully scrutinised by the WRC in the event of complaints by employees. Employers will need to properly engage with employees’ representatives to find ways to avoid redundancies, reduce the number of redundancies and mitigate the consequences of redundancies.

Jane Crowe v Debenhams Retail (Ireland) Limited & Debenhams Retail (Ireland) Limited (in Liquidation) – link to WRC decision available here.