Collective redundancy consultation: Special circumstances defence

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Collective redundancy consultation: Special circumstances defence

Published 11 November 2021

The EAT has held that an employer could not rely on its compulsory liquidation as a “special circumstance” allowing it to defend a claim of failure to collectively consult about redundancies.

THE FACTS

Employers who propose to make more than 20 employees redundant in one establishment within 90 days are required to consult collectively about the redundancies. Employers who fail to do so are potentially liable for a protective award of up to 90 days’ pay per employee who is dismissed. In rare circumstances, employers can defend their failure to consult collectively for the required period by pleading that there were “special circumstances which render it not reasonably practicable” for it to have complied with the requirements.

The Carillion group began to face serious financial difficulties in around July 2017 and it went into liquidation on 15 January 2018. A large number of employees were dismissed, and around 1000 employees brought claims against Carillion Services Ltd for protective awards for failure to comply with its obligations to consult collectively.

Carillion relied on a “special circumstances” defence. It contended that, until the weekend of 13 and 15 January 2018, the board believed that short term lending facilities would be made available by stakeholders and that they would be able to continue to trade and implement its business plan. However, the stakeholders made an unexpected decision not to approve the lending arrangements, and the board had no option but to place various group companies into compulsory liquidation. This meant it was inevitable and unavoidable that the large majority of the group’s employees would be made redundant.

The employment tribunal found that there were no special circumstances as at 14 January 2018.

Carillion appealed to the EAT, which upheld the tribunal’s finding. The EAT referred to existing case law which gives, as an example of where the special circumstances defence can be used, a “sudden disaster” befalling a company. A gradual financial decline could not be regarded as amounting to special circumstances. It was not enough that Carillion’s board believed that the Government would not allow it to fail and that insolvency was therefore likely to be avoided. There was no evidence to suggest that the Government had given the board cause to believe this and the board’s belief that this was the case was not sufficient to make the circumstances special. The refusal of support by the Government and by the banks was not something out of the ordinary or uncommon.

The EAT held that the fact that compulsory liquidation always resulted in dismissals, so Carillion could not have complied with its collective consultation obligations, did not mean that there were special circumstances.  Even where avoiding dismissals is impossible, consultation on mitigating the consequences is still valuable, and an employer could still comply with its provision of information requirements which will be of assistance to employees facing redundancy.

WHAT DOES THIS MEAN FOR EMPLOYERS?

The insolvency of an employer may, in some circumstances, amount to “special circumstances”: whether or not it does so depends on the circumstances surrounding the insolvency. On its own, however, an insolvency will not be considered to be an uncommon event.

This case shows how difficult it will be for employers to rely on the special circumstances defence, even where redundancies are inevitable.

Carillion Services Ltd (in compulsory liquidation) and others v Benson and others

Authors

Hilary Larter

Hilary Larter

Leeds

+44 (0)113 251 4710

Zoë Wigan

Zoë Wigan

London - Walbrook

+44 (0)20 7894 6564

Joanne Bell

Joanne Bell

Manchester

+44 (0) 161 934 3179

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