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The CJEU confirms meaning of “establishment”

The CJEU confirms meaning of “establishment”

By Jacques Algazy QC & Claire McCann

In the Woolworths case, the CJEU has confirmed that under the EU Directive on Collective Redundancies an employer’s obligations are triggered in respect of the single employing unit to which the affected employees are assigned and has declined to deal with the question of vertical direct effect.

Background

In USDAW and Anor v WW Realisation 1 Ltd and Ors (the Woolworths case), the Respondent employers – a chain of retail stores with branches at a number of locations across the UK – went into liquidation and a large number of employees were made redundant.  The redundant employees, who were members of the trade union USDAW, claimed protective awards under s.189 TULR(C)A on the basis of an absence of consultation prior to dismissal.  The employment tribunals upheld some of the claims for protective awards but excluded claims in respect of some 4400 employees made redundant in stores where fewer than 20 employees were proposed to be dismissed as redundant in each store. 

Appeals on behalf of those employees were determined by the EAT (in a characteristically brave judgment of HHJ Jeremy McMullen) in May 2013, which held that “establishment” had to be construed so as to pursue the core objective of the Collective Redundancies Directive (98/59) – namely, to afford greater protection to workers in the event of collective redundancies.  Consequently, in construing s.188 TULR(C)A pursuant to the obligation placed on the national court by the judgment in Marleasing to interpret national law in the light of the wording and purpose of the directive which it implements, “establishment” should be taken to mean the retail business of each employer, and thus all the stores within the business; and that, further, to avoid a fact-sensitive approach, “at one establishment” should be deleted from s.188. 

The Secretary of State for BIS had been encouraged (but chose not) to be represented at the EAT because the consequence of employees succeeding in obtaining a protective award in relation to an insolvent employer is that ultimately the Secretary of State may have to underwrite their entitlement as a “debt” pursuant to Part XII ERA.  Nevertheless, the Secretary of State was permitted to appeal to the CA which decided to refer two questions to the CJEU, in large part because a similar case was due to be considered by the Court in a reference from an ET in Northern Ireland (in Lyttle v Bluebird).

Reference by Court of Appeal to CJEU

The two questions referred by the CA in the Woolworths case were:

1. Does the phrase “at least 20” in Article 1(1)(a)(ii) of the Directive refer to the number of dismissals across all of the employer’s establishments in which dismissals are proposed within a 90 day period, or the number of dismissals proposed in each individual establishment to which the affected employees are assigned?

2. In circumstances where an employee claims a protective award against a private sector employer who is insolvent such that the Secretary of State would be liable to pay that award under domestic legislation implementing EU Directive 2008/94, can the employee assert that the Directive imposes directly effective rights because the Secretary of State has, in effect, become a party to the case?

Advocate General Wahl gave his opinion on 5 February 2015 in respect of three cases (Lyttle v Bluebird; the “Woolworths” case; and a similar case referred from Spain, Cañas).  He concluded that “establishment” has the same meaning in Article 1(1)(a)(i) and (ii) of the Directive such that it denotes the individual unit to which the redundant workers are assigned and not the business as a whole.

Judgment of the CJEU

The CJEU handed down judgment only in the Woolworths case on 30 April 2015, no doubt because – as observed by AG Wahl – the three cases from Northern Ireland, England and Spain had not been formally joined.

Protection of workers versus internal market aim

The CJEU had regard to what it considered to be the two key objectives of the Directive:  (1) to provide minimum protection with regard to the information and consultation of workers in the event of collective redundancies (i.e. the social protection aim); and (2) to ensure comparable protection for workers in the different Member States and to harmonise the costs which such protective rules entail for undertakings in the EU (i.e. the internal market aim).  The EAT, in its judgment, had focussed entirely on the former but not the latter objective.  The CJEU considered that the two objectives could both be met but only by ensuring that “establishment” was given the same meaning in both Articles 1(1)(a)(i) and (ii) of the Directive. 

The CJEU observed that the term “establishment”, although not defined in the Directive, was a term of EU law and so could not be defined by reference to the laws of the Member States.  It pointed out that an “establishment” is different to an “undertaking” which might consist of several establishments.  The CJEU had already interpreted the term “establishment” (as used in Article 1(1)(a)(i) of the Directive) in its judgments in: (1) Rockfon, as meaning the unit to which the workers made redundant are assigned to carry out their duties and, (2) Athinaïki, as meaning a distinct entity – having a certain degree of permanence and stability – which performs one or more tasks and which has a workforce, technical means and a certain organisational structure allowing for the accomplishment of those tasks; but which need not have legal, economic, financial, administrative or even technological autonomy in order to be regarded as an “establishment”.  It is not, therefore, essential, in order for there to be an “establishment”, for the unit in question to have management that can independently effect collective redundancies.

In particular, the CJEU emphasised that the fact that the Directive in Article 1(1)(a) offered Member States a choice between the options set out in sub-paragraphs (i) and (ii) indicated that the term “establishment” could not have a completely different meaning depending on which of the two proposed alternatives the Member State concerned happened to choose.  Indeed, if it were otherwise, this would fail to ensure comparable protection for workers’ rights in the different Member States and might entail very different costs for businesses in different Member States, according to the legislative choice which the State happened to have made.  This might undermine the internal market aim.

The CJEU concluded that it would be for the CA to establish, on the facts, whether the tribunals had been correct to take the view that the stores in which the affected employees were employed were separate establishments.

Gold-plating?

The Court went on to point out that the Directive only establishes minimum protection for employees and Article 5 specifically enables Members States to introduce more favourable provisions (i.e. ‘gold-plating’).  For example, a Member State would be permitted to enact legislation granting protection not only to the affected employees at one establishment but to all workers affected by redundancy in any undertaking, covering all the separate employment units of that undertaking.

Direct effect

On the second question as to whether the Directive would be directly effective in circumstances where the respondent employer was insolvent and so the claims for protective awards were made as against the Secretary of State, the CJEU declined to respond because it had concluded that s.188 TULR(C)A was not incompatible with the Directive.  Notably, Advocate General Wahl, whilst proposing that the vertical direct effect question should not be answered, nevertheless regarded the argument that the Directive had direct effect in these circumstances as ‘stillborn’.

Conclusion

National courts, notwithstanding the clear terms of the judgment, will still retain an important function in:

  • determining what is the relevant ‘establishment’, in accordance with CJEU case law, on any given facts; and
  • whether the affected worker was assigned to that local employment unit.

The answer to both questions may not always be obvious. Advocate General Wahl posits the example of one employer operating several stores in one shopping centre, leaving open the question as to whether the stores constitute a single local employment unit and so an “establishment”.

What is the appropriate test for assignment? Problems may arise with peripatetic employees, those with multiple or global responsibilities as well as those engaged by a holding or service company. The judgment at paragraph 47 refers to the case of Botzen in which the CJEU held – in a TUPE context – that “an employment relationship is essentially characterised by the link existing between the worker and the part of the undertaking or business to which he is assigned to carry out his duties”. The Botzen approach would seem to require evaluation of the employees’ contractual duties and their role in the organisation of the local unit in determining whether they are assigned to that unit.

The Judgment in the Woolworths case has divided commentators into two fairly obvious camps. Those who maintain that it fails to uphold the  ‘core objective’ of promoting greater protection for workers in the event of collective redundancies and those that argue that it is welcome news for businesses and will provide certainty and reduced costs.

In fact, close scrutiny of the Court’s reasoning reveals that the dual purposes of Directive 98/59 are at the centre of the Judgment.  At first blush, it may appear that these aims pull in opposite directions.  However, the desire to harmonise costs across Member States is not only for the benefit of employers. It also serves as a disincentive to pan-European employers from selecting the Member State in which the redundancy exercise will be cheapest to effect mass redundancies and this, of course, protects employees.

Postscript: Lyttle and Cañas

The CJEU handed down its judgments in Lyttle and Cañas on 13 May 2015. Unsurprisingly, in Lyttle the court reached the same conclusion for identical reasons as it did in Woolworths. The judgment in Cañas is less relevant to practitioners in the UK as the Spanish legislation does not use the concept of ‘establishment’ but refers only to ‘undertaking’. Consistently with Woolworths and Lyttle, the CJEU concluded in Cañas that where an undertaking comprises several entities, it is the entity to which the redundant workers are assigned to carry out their duties that constitutes the ‘establishment’ for the purposes of the Directive. Therefore, national legislation that introduces ‘undertaking’ and not ‘establishment’ as the sole reference unit is contrary to the Directive where the effect is to preclude the information and consultation procedure provided for in the Directive and when the dismissals would have constituted collective redundancies had ‘establishment’ been used as the reference unit.

This article was first published in ELA BRIEFING Vol. 22 No. 5. 

 

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