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UK: Rules on collective redundancy relaxed

05 April 2013

Significant changes to the legislation requiring employers in the United Kingdom to consult over large-scale redundancies take effect on 6 April 2013.  These will have major implications, in particular, for employers planning downsizing projects affecting 100 or more employees at an establishment in the UK according to Richard Lister of Lewis Silkin LLP, the Ius Laboris member firm for the United Kingdom.

 The existing position is that employers must consult with worker representatives for at least 30 days when making between 20 and 99 employees at one establishment redundant and for no less than 90 days when proposing to dismiss 100 or more employees.  The 90-day minimum period is now being reduced to 45 days, while the rules where less than 100 employees are affected will remain unchanged.

The UK’s Coalition Government took the view that requiring special treatment for exercises involving 100 or more redundancies was “arbitrary” and impeded flexible restructuring.  It found no evidence that a long minimum period improved the quality of consultation.  Moreover, the 90-day period went beyond the requirements of the EU Collective Redundancies Directive (1998/59/EC), which does not prescribe minimum consultation periods.

Interestingly, the Government also justified its proposals by suggesting that the UK was at a competitive disadvantage in this area relative to other EU member states.  This is surprising, given that collective redundancy obligations in other European countries are generally significantly more onerous in other respects.

Nonetheless, the change will be welcomed by most employers as it will enable them to restructure more rapidly and achieve cost and management time savings.  It should also help them retain key workers who might otherwise be tempted to find work elsewhere during what is often a lengthy period of uncertainty and low morale.

There are two important caveats for employers.  Firstly, the Government has emphasised that the new 45-day period for 100+ redundancies is a minimum and employers should continue consulting beyond it where necessary.  Secondly, the remedy for breach of the consultation rules will still be a “protective award” of up to 90 days’ pay for each affected employee.  The Government decided not to reduce this in line with the shorter minimum consultation period, so that it remained an effective, proportionate and dissuasive penalty.

A further change to the legislation, also taking effect on 6 April 2013, excludes employees on fixed-term contracts from collective redundancy consultation obligations.  However, the exclusion will only apply where the contract expires at its agreed termination point.  This could be on the expiry of a set period of time, or alternatively on the completion of a particular task or the occurrence (or non-occurrence) of a specific event.

Accordingly, fixed-term employees will still fall within the scope of the collective consultation rules where the employer proposes to make them redundant before the expected termination date.

Finally, the Government has asked the UK’s Advisory, Conciliation and Arbitration Service (ACAS) to produce a non-statutory code of practice addressing key issues and concerns surrounding the collective redundancy process.  These include: when consultation should start; who it should cover; who should be consulted; what should be discussed; how the consultation should be conducted; and when consultation can be considered to be complete.

ACAS’s code will also offer guidance on the crucial issue of what amounts to an “establishment” for redundancy consultation purposes, considering factors such as geographical location, management structure and workforce cohesion.

For similar updates members should have a look at our monthly legs and regs briefings

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