What is an ‘establishment’?

James English reports on the Court of Justice of the European Union’s long-awaited ruling in relation to collective redundancies and employee consultation.

The Court of Justice of the European Union (CJEU) has delivered its judgment on the Ethel Austin/Woolworths case (USDAW & Wilson v Ethel Austin, Secretary of State for Business, Innovation and Skills & Ors). This concerns the requirement on an employer to consult with employee representatives when they are considering collective redundancies of 20 or more employees in a particular ‘establishment’. 

When Ethel Austin and Woolworths went into administration, thousands of employees were dismissed by reason of redundancy without the appropriate consultation. About 4,500 former staff were refused compensation because they worked at stores with fewer than 20 employees – the individual store was the establishment so the employer argued that the need to consult was not triggered. As the businesses were insolvent, BIS might be liable to pay the compensation.

The case progressed to the Court of Appeal, which referred the matter to the CJEU to clarify the definition of establishment. Does it mean a single store, or an economic or business unit? If it meant more than one store, and different establishments were aggregated, the need to consult would be triggered more often and for more employees. The employees argued that the establishment was the whole of the retail business, rather than each store.

The CJEU has ruled that the term ‘establishment’ means the entity to which the workers are assigned. Each establishment must be considered separately. The CJEU pointed out that aggregating the total number of redundancies across all locations would bring an establishment of only a single worker into the scope of collective redundancy, which was clearly not what the regulations were aimed at.

It will be for the courts and tribunals in the UK to decide what the establishment is – the clear guidance from the CJEU is that different sites, locations or stores are more likely to be separate establishments. The alternative approach, that different departments, activities or services across different locations can be a single establishment, is not altogether ruled out but it will be far harder to establish in future. The final decision of the Court of Appeal, based on the CJEU’s guidance, will follow in due course and we expect them to follow the CJEU’s lead.

James English is a Senior Solicitor at Hempsons. He can be contacted on 0191 230 6054.