The Government has announced its intention to reduce the minimum consultation period for collective redundancies involving more than 100 employees from 90 days to 45 days.
However, employees working under a fixed term contract will be excluded. ACAS have been asked to produce a non-statutory code of guidance and both the changes in legislation and the new code are due to come into force on 6 April 2013.
The current law
The current law regarding collective redundancies is contained within the Trade Union and Labour Relations Consolidation Act 1992 and provides the following:
- Under 20 employees: No mandatory time scales for collective consultation, however case law has confirmed that consultation must be reasonable.
- Between 20 and 99 employees: At least 30 days consultation.
- Over 100 employees: At least 90 days consultation.
The obligation to consult only arises where there are more than 20 dismissals proposed at “one establishment”. There have been a number of confusing and conflicting decisions in the courts regarding the meaning of establishment and within the new legislation the government have tried to rectify this.
The changes – reducing the 90 day period to 45 days
Where an employer plans to make 100 or more employees redundant, the period for consulting with those employees and / or their representatives will be reduced from 90 days to 45 days.
Although, employers should consult for more than 45 days where it is necessary to do so. The government have not defined the latter part of this consultation caveat.
By reducing the consultation period by half the government has said that employers will be able to restructure more effectively providing them with greater flexibility. It will also have an impact on costs as employers will no longer need to meet the wages of the employees for 90 days and then make redundancy, notice and annual leave payments.
Employees may also benefit from the reduction as this will reduce their period of uncertainty and further limit the impact on morale and productivity.
The 30 day consultation period for the proposed redundancies of 20 to 99 will remain at 30 days.
ACAS Code of Practice
ACAS will produce a non-statutory code of practice to provide guidance on meaningful consultation and how to effectively deal with difficult issues. The code cannot be statutory due to the nature of redundancy and the individual needs which would need to be covered in collective consultation. The code will be produced to address:
• When consultation should commence.
• What should be covered during that period of consultation.
• Who should be consulted and what should be discussed.
• How the consultation should be conducted including unusual circumstances.
• When consultation has concluded.
• The meaning of establishment.
What is “establishment?”
Due to the wide range of factors that affect the meaning of establishment the government has chosen not to define it within the legislation, however the ACAS code will provide guidance on the definition and provides a number of factors to be considered; including:
• Autonomy (financial and managerial).
• Cohesion of the workforce.
• Nature of the work undertaken.
• Contractual relationship between the employer and employee.
These factors are already considered by the Employment Tribunal in defining “establishment” however ACAS will place them formally within their code to assist employers in their decision making process.
Exclusion of fixed term contracts
Due to the changing nature case law the government has expressly excluded the expiration of fixed term contracts from the legislation. Any employee whose contract is due to end will not be included in any collective consultation. Employees who are not due to end their contract in the near future should still be included within the consultation.
How does this affect employers?
If employers are considering making large scale redundancies, this legislation may significantly reduce the costs burden imposed on them at a time when they need to save money. It does not reduce the cost burden on any employer proposing to dismiss under 100 employees.
It is unlikely to have any significant effect on the majority of businesses as they are unlikely to have to make more than 100 people redundant at one time and may be seen as mere publicity by the government to give the illusion of making significant changes in the employment law but having minimal impact.
By specifically excluding employees on fixed term contracts, employers could start to use them more often and collective consultation could fall below the 45 day requirement or even fall outside the collective consultation requirements altogether, allowing them more flexibility and ease to restructure the workforce effectively.
Employers must also consider the caveat that consultation should exceed the 45 days where necessary as merely complying with the statutorily required timescale does not automatically mean that reasonable and meaningful consultation has taken place and does not negate any claim for unfair dismissal.
For further information on the changes above, please contact our Employment team.