Case Law: Collective Consultation

Keeping Kids Company (in compulsory liquidition) v Smith and ors

Employment Appeal Tribunal – February 2018

Was a company required to carry out collective consultation before being placed in compulsory liquidation?

Facts

Keeping Kids Company (KKC) was a charity that relied heavily on substantial donations and corporate sponsorship. In 2014, the charity was encountering significant financial difficulties and the government provided funding to the charity, subject to conditions, in early 2015 to help stabilise KKC. Financial difficulties continued, however, and there were concerns around funding with possible voluntary redundancies being mentioned.

On 12 June 2015, KKC made an application to the government for a one-off grant of £3 million. The application included a business plan outlining a restructure of the company to take place by September 2015. As part of the restructure, it was proposed that staff costs would be reduced by 58 per cent, with the proposed closure of the Bristol base and three groups in London, but no specific posts were identified for redundancy.

The government approved a grant for the reorganisation on 29 July 2015. The following day, the 30 July, it became public knowledge that there was a police investigation in to allegations against KKC involving safeguarding issues. The government informed KKC the grant agreement was terminated and demanded repayment of the unspent money on 3 August 2015.

Staff were sent emails informing them KKC was closing and all employees were dismissed on 5 August 2015.

Employees from London and Bristol brought claims for protective awards under the Trade Union and Labour Relations (Consolidation) Act 1992 due to KKC’s failure to carry out collective consultation.

Tribunal

It was accepted that the claimants were dismissed by reason of redundancy and KKC had not gone through the collective consultation process.

The tribunal found, as a majority, staff reduction proposals were set out in the 12 June application for government funding and there were no guarantees KKC could remain solvent even with this funding. Redundancies were considered inevitable by the 12 June and there was a sufficiently firm redundancy proposal to trigger the obligation to consult promptly from this date.

When considering whether there was a special circumstance which made it not reasonably practicable to consult, the majority of the tribunal found the uncertainty around KKC remaining solvent in July may have prevented further consultation taking place but did not affect the pre-existing breach.

The tribunal awarded the claimants a protective award of 90 days’ pay.

EAT

The EAT highlighted that the duty to consult arises when an employer is “proposing to dismiss” the requisite number of employees.

The first issue for the EAT to consider was whether the tribunal majority had erred in finding the obligation to consult was triggered by 12 June 2015. The EAT held the tribunal was correct to find the June proposal affected any or all of KKC’s employees as there were only two outcomes due to KKC’s precarious finances; immediate insolvency where all employees were at risk or large-scale redundancies where half would be dismissed. It was open to the tribunal to consider plans were sufficiently advanced to engage KKC’s consultation obligations given the potential impact on all staff.

Turning to when the obligation to consult arose, the EAT commented that the requirement to consult “in good time” obliges the employer to look ahead and realistically assess the time-scale required to have meaningful occasions. Due to KKC’s position, “in good time” meant the tribunal was correct to find consultation had to start promptly from 12 June due to the events in the preceding months.

On consideration of the special circumstances defence, the EAT rejected KKC’s argument that the grant application or the events of 30 July were special circumstances. Although the July events were unexpected, the defence could only be employed in relation to any future consultation obligation from this date.

The EAT did allow KKC’s appeal against the full 90 days’ protective award being granted. The tribunal’s decisions had not taken in to account the fact that the events of 30 July might have prevented further consultation taking place and this changed the circumstances of the case because it brought everything to an end. The issue of the protective award was remitted to the tribunal.

Note for employers

This decision demonstrates that the obligation to collective consult will be triggered as soon as there is a clear proposal to dismiss 20 or more employees for redundancy, even where the proposal is subject to future events, such as funding applications, or where the specific roles at risk of the redundancy haven’t been identified.

The case also highlights the narrow interpretation tribunals will give to the application of the special circumstances defence. It shows the special circumstances have to exist at the time the obligation to consult is breached, although a later special circumstances can be taken in to account when deciding the amount of the protective award.

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