17 July 2014 #Employment
Last month the Leeds Employment Tribunal found that Deloitte, the administrators of Comet, had failed to consult with redundant employees. The employees were entitled to awards of up to 90 days pay and it is expected that the total bill will be nearly £25 million.
The Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”) provides that employers proposing to dismiss more than 20 employees at one establishment are required to consult with appropriate representatives of the employees for minimum time periods. Specifically:
The compensation for failure to consult is called a protective award and is up to 90 days actual pay.
The law does provide a special circumstances defence where it has not been reasonably practicable to consult for the required time and the employer has consulted as best it could. However, in practice, this defence is very difficult to rely on.
Last summer, the tribunal in USDAW v Ethel Austin Ltd (the “Woolworths case”) held that the wording "at one establishment" in TULRCA was incompatible with EU law and so should be disregarded for the purposes of any collective redundancy involving 20 or more employees. Therefore, in Woolworths they had to count employees of the retail chains as a whole not store by store. This case has been appealed and referred to the European Court of Justice. However, in the meantime employers should be aware of the Woolworths case when making redundancies across a number of “establishments”.
What happened with Comet?
In November 2012 almost 7,000 Comet employees were made redundant by Deloitte. They submitted claims against Comet and Deloitte alleging that they were not properly consulted prior to its closure in 2012. Deloitte had defended the claims arguing that considerable efforts had been made to consult. However, the Leeds Employment Tribunal held that 6,889 workers were mistreated and were therefore entitled to protective awards of up to 90 days pay. The tribunal therefore followed the decision in Woolworths.
As Comet has no money to pay the sums due to the employees and Deloittes were only the administrators of the company, the employees will have to make claims against the National Insurance Fund (which is funded by national insurance payments). Therefore, the Government (and effectively the taxpayer) will be footing the bill for this award. The National Insurance Fund will cover claims for up to a maximum of eight weeks unpaid wages (a protective award is included within the definition of wages). Claims for arrears of pay from the National Insurance Fund are subject to a statutory cap on a week’s pay (£430 for Comet staff). Therefore, if all Comet staff get paid eight weeks’ pay the total bill to the Government will be nearly £25 million.
What’s happening next?
Vince Cable had already ordered an inquiry into Comet’s collapse because the redundancy costs and unpaid tax have already cost the taxpayer £50 million even before the decision last week.
A review is also being conducted by the Insolvency Service of pre-pack administrations, asking whether they are a viable rescue tool or an abuse of the insolvency process. A final report was due in Spring 2014 although there is no sign of it yet.