Appeal No. UKEAT/0375/12/LA
EMPLOYMENT APPEAL TRIBUNAL
FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON EC4Y 8JX
At
the Tribunal
On
5 April 2013
Before
HIS
HONOUR JUDGE SEROTA QC
MR D NORMAN
MR M WORTHINGTON
AEI
CABLES LTD APPELLANT
(1) GMB
(2) UNITE
(3)
INDIVIDUAL CLAIMANTS RESPONDENTS
Transcript of Proceedings
JUDGMENT
HIS HONOUR JUDGE SEROTA QC
Introduction
1.
This is an appeal by the Respondent from a decision of the Employment
Tribunal at Newcastle-upon-Tyne in front of Employment Judge Hargrove and two
lay members. The decision was sent to the parties on 18 April 2012. The
Employment Tribunal held that the Respondent had failed to comply with the
requirement section 188 of the Trade Union and Labour Relations (Consolidation)
Act 1992 known as TULRCA to consult on the requirement to dismiss 100 or
more employees. The dismissal took place on 27 May 2011. The Employment
Tribunal concluded that it was appropriate in the circumstances to make a
protected award of 90 days wages having regard to the seriousness of the
Respondent’s default in relation to its failure under section 188.
2.
The Claimants were the two trade unions who represented their members
and a number of individual employees. Those individual employees are parties,
they do not appear today, obviously they will be bound by the decision and they
are no doubt wisely content to rely upon the submissions that Ms Davies has
made.
The factual background
3.
The Respondent’s at the material time were manufacturers of copper
wiring and cable. They manufactured items predominantly from copper which they
purchased on the stock market. As I have said there were essentially two parts
to their business; there was domestic wiring and commercial cable which used
significantly more copper than domestic wiring, much of which was rubber. The Respondent’s
business was hit by a steep increase in the price of copper between September
2010 and February 2011 when the price of copper rose from £5,000 a metric ton
to £6,250 a metric ton. At the same time as the Respondents were faced with
the significant increase in the cost of copper there was downward pressure on
prices as a result of cheap imports and also inferior quality products
competing with theirs. It was clear from about February 2011 that the business
was in trouble and would have to undergo some form of restructuring and
redundancies and general discussions with trade unions began in early 2011 and
there were also discussions among the directors as to what might be done.
There were some issue for the Employment Tribunal as to when the relevant
trigger date was which would oblige the Respondent to consult under section 188.
The obligation arises under section 188 when the employer first contemplates, I
think that is the language of the English legislation, or proposes, which I
think is the language of the European Directive. It does not matter because
there is no challenge to the finding made by the Employment Tribunal, which I
shall come onto shortly.
4.
Various dates were canvassed before the Employment Tribunal as to when
the trigger date, as I shall call it, occurred. The Claimants were seeking the
earliest date which was about 31 March 2011 and the Respondent was seeking the
latest, that is 25 May 2012. The Employment Tribunal however fixed on a date
between 17 and 20 May. As there is no appeal against that decision it is
unnecessary for us to consider it further.
5.
The significance of the dates really is that between 17 and 20 May,
having been warned by well known accountants (Messrs Hacker Young) who
specialise in what is known as company reconstruction (it used to be called
insolvency), that unless the Respondent reduced its costs quickly or presumably
acquired new funding there was a risk of it trading while insolvent. The
consequences of a company trading while insolvent are of course that the
directors of the company incur personal liability for obligations assumed by
the company during that period and in addition if the company while insolvent
contracts credit in circumstances where it may be unable to secure repayment
the directors are at risk of being prosecuted for fraudulent trading.
6.
On 25 May 2011 a meeting took place between the directors and the
company’s bankers, the Bank of India. The Bank of India refused to extend the
overdraft. A directors meeting took place following the visit to the Bank of
India and further advice was sought from Messrs Hacker Young. The directors
decided specifically on that date that the cable plant should be closed
immediately and approximately 124 employees working in the cable plant should
be made redundant. 189 employees were to be retained in the domestic
division. A proposal was made in accordance with the advice of Hacker Young
for a Creditors Voluntary Arrangement (CVA) and this was formulated on the
basis of the redundancies to which we have referred being made. Further advice
from Hacker Young was that the company should seek an immediate CVA and the
directors were warned of the consequences of continued trading.
7.
The following day Mr Scott of the Respondent, I believe he may have been
the HR manager or HR director, spoke with Mr Green, a regional officer of the
Unite Union, informing him that the company had to make immediate
redundancies. This conversation is referred to by the Employment Tribunal at
paragraph 5 and we have an attendance note at page 89 of our bundle. On 27 May
2011 letters went out summarily dismissing 124 employees in the cable division;
they were made redundant with immediate effect. Throughout the period from 17
to 20 May and 27 May there was very little communication or imparting of
information between the Respondent and the Claimants. The only other date that
I need to mention is that on 24 June 2011 the CVA was ratified and we have been
told that as a result of the CVA the Respondent has remained in business,
presumably producing domestic wiring, but none of the men made redundant have
been returned to employment.
8.
I now wish to say something about the Employment Tribunal’s decision.
No issues have been raised before us as to its self direction in law. The
Employment Tribunal found that there had been breach of the duty under section 188
of TULRCA to consult with the trade unions and employees about the impending
redundancies. There were no special circumstances upon which the Respondent could
raise to excuse non-compliance. There is no appeal against either of these
decisions so I need say nothing further about them.
9.
The issue which is the subject of the appeal is as to the length of the
protected award. The relevant statutory provision at section 188(2) provides
that as from the trigger date there should be a minimum of 90-days set aside
for consultation. Section 184 provides for disclosure of information by the
Respondent. By virtue of section 188(5) the Respondent is obliged to
individually notify each employee affected of the relevant circumstances.
10.
Section 189 of TULRCA provides:
“189 Complaint by trade union and protective award
(1) Where an employer has dismissed as redundant, or is
proposing to dismiss as redundant, one or more employees of a description in
respect of which an independent trade union is recognised by him, and
has not complied with the requirements of section 188, the union may
present a complaint to an industrial tribunal on that ground.
(2) If the tribunal finds the complaint well-founded it shall
make a declaration to that effect and may also make a protective award.
(3) A protective award is an award in respect of one or more
descriptions of employees–
(a) who have been dismissed as
redundant, or whom it is proposed to dismiss as redundant, and
(b) in respect of whose dismissal or
proposed dismissal the employer has failed to comply with a requirement of
section 188,
ordering the employer to pay remuneration for the protected
period.
(4) The protected period–
(a) begins with the date on which the
first of the dismissals to which the complaint relates takes effect, or the
date of the award, whichever is the earlier, and
(b) is of such length as the tribunal
determines to be just and equitable in all the circumstances having regard to
the seriousness of the employer´s default in complying with any requirement of
section 188;
but shall not exceed 90 days in a case falling within section
188(2)(a), 30 days in a case falling within section 188(2)(b), or 28 days in
any other case.”
11.
There is authority on how the courts should approach awards under section
189. Both counsel are agreed that the relevant passage, and I believe they
both refer to it in their submissions, is to be found in the Judgment of the
Court of Appeal in case of Susie Radin v GMB [2004] ICR 893:
“45 I suggest that employment tribunals, in
deciding in the exercise of their discretion whether to make a protective award
and for what period, should have the following matters in mind. (1) The purpose
of the award is to provide a sanction for breach by the employer of the
obligations in section 188: it is not to compensate the employees for loss
which they have suffered in consequence of the breach. (2) The tribunal have a
wide discretion to do what is just and equitable in all the circumstances, but
he focus should be on the seriousness of the employer’s default. (3) The
default may vary in seriousness from the technical to a complete failure to
provide any of the required information and to consult. (4) The deliberateness
of the failure may be relevant, as may the availability to the employer of
legal advice about his obligations under section 188. (5) How the tribunal
assess the length of protected period is a matter for the tribunal, but a
proper approach in a case where there has been consultation is to start with
the maximum period and reduce it only if there are mitigating circumstances
justifying a reduction to an extent which the Tribunal consider appropriate.”
12.
I draw attention to the way in which this matter is dealt with by the
Employment Tribunal and one finds the Employment Tribunal’s conclusion on page
18 of its decision, the latter part of paragraph 9. After the Employment
Tribunal has set out the passage to which I have already referred from the Susie
Radin case the Employment Tribunal went on to say:
“In the present case we found that there was a complete failure
to consult with either the trade union or with individuals. Calling trade
union representatives to a meeting to inform them that a large number of their
members are to be dismissed within a day or so does not amount to consultation.
We therefore consider that the appropriate starting point is the maximum period
and then to consider if there were mitigating circumstances justified a
reduction. It is to be emphasised, as was made clear in paragraph 43, that it
is not open to an employer to argue that consultation would in the
circumstances be futile or utterly useless. In the present case we have found
that there was a complete failure to consult with either of the trade unions or
with individuals. We therefore considered it appropriate to start with the
maximum period. It is correct that it may have been the case that at some
stage during the requisite 90 day period circumstances might have been reached
which were sufficiently special to have justified dismissal without further
consultation, but no information has been put forward to us to indicate when
that would have been and we are not prepared to engage in speculation. The
evidence goes nowhere near to show that consultation would have been useless or
futile, even if that were relevant. In these circumstances we have found that
it would be just and equitable to make an award for the maximum period of 90
days.”
13.
I pause there just to note that it is apparent that the Employment
Tribunal considered that it would have been appropriate for there to have been
a 90 day consultation period commencing, one assumes, between 17 and 20 May.
14.
The case for the Respondent has been put forward, in his usual lucid
way, by Mr Tatton Brown. He submitted that a study of the facts of Susie
Radin, and the language that was used, by the Court of Appeal suggested
that even though in that case there had been a complete failure to comply with
the section 188 and 189 duties it would nonetheless have been open to an
Employment Tribunal to have properly awarded less than 90 days. Mr Tatton
Brown also relied upon the judgment of Burton J, the former President of the
EAT, in the case of Amicus v GBS Tooling Ltd [2005] IRLR 683 at
paragraph 20 of the Judgment:
“…Peter Gibson LJ directs the tribunal to address the
seriousness of the breach. It appears to us clear that where, as here, there
was no consultation and no information provided, after the date of the
proposal, it must be relevant, in order to sanction or punish a company which is
in breach, to look to see what the nature of that breach is, what the
consequence of that breach is, and what the state of mind lying behind the
breach is. Peter Gibson LJ explained, by way of example, in the passage to
which we have referred at subparagraph 45(4), that the deliberateness of the
failure may be relevant. A company which has deliberately set out to be
secretive would appear to fall into a different category from a company which
has completely failed to disclose information through negligence or
misguidedness, or, as here, a company which has not completely failed to
disclosed information but has simply failed to disclose it at the right time
and in the right context. An assessment of the seriousness of the breach must
include those kind of questions.”
15.
As I say, there is no issue between Ms Davies, who appeared on behalf of
the Claimants and Mr Tatton Brown as to the appropriate law in this case, and
indeed both relied upon the same passages.
16.
Mr Tatton Brown also referred us to the decision in Todd v Strain
[2011] IRLR 11; a decision of the former President, Underhill P who stated that
the guidance in Susie Radin should not be followed mechanically.
Mr Tatton Brown submitted that the Employment Tribunal had conflated the issue
of special circumstances that would have provided a defence for failure to
comply with sections 188 and 189 with what might loosely be described as
mitigation which is relevant effectively to the period of protective award. Ms
Davies has persuaded us that that is in fact not the case. Looking at the
passage as a whole it is quite clear that there was some overlap in the facts
relevant to both matters but the Employment Tribunal clearly had in mind that
it was considering the issues of what we might describe as mitigation.
17.
Mr Tatton Brown went on to submit that what the Employment Tribunal had
failed to do was to consider the seriousness of the default. The Employment
Tribunal found that there had been a complete failure to comply on the part of
the Respondent with its statutory obligations. However, it was necessary for
the Employment Tribunal to consider why this was so; what were the Respondent’s
intentions and what, again to follow the analogy of the criminal law, was its mens
rea. The Employment Tribunal had failed to consider if the breach was
deliberate and what explanation was given by the Respondent for carrying out
the dismissals when it did rather than at a later date. Mr Tatton Brown said
the answer is quite clear and is not really contentious. The Respondent had
been advised by its insolvency advisers that was in danger of trading
unlawfully while insolvent and that it should apply at once for a CVA, as it
did, and to reduce its costs by the immediate redundancy of the 124 employees
in the cable division.
18.
The Employment Tribunal has nowhere said why the Respondent acted as it
did submitted Mr Tatton Brown. This issue was highly relevant to the issue of
the Respondent’s conduct but was not considered by the Employment Tribunal as
it should have been. Although Mr Tatton Brown was not challenging the findings
of the Employment Tribunal that the communications that did take place on 26
May were not in compliance with the statutory obligations arising under
sections 188 and 189. They were relevant because it showed that the Respondent’s
immediate reaction after the meeting with the bank was to line up meetings with
the trade unions for 26 May. He submitted that these were not the actions of
an employer who was deliberately flouting its statutory obligations to consult
but rather the actions of an honest employer doing what he conceded was its
incompetent best to inform the trade union. This was a matter that the
Employment Tribunal should have had regard to.
19.
Mr Tatton Brown drew our attention to the written submissions that were
put before the Employment Tribunal by the Claimants. At page 59 of our bundle one
finds the Claimants submitting that it was not in dispute between the parties
that the Respondent had met its bank on 25 May with the intention of requesting
an extension of its credit facility but the bank refused to extend that
facility and:
“As a result of the failure to extend the credit facility the
Respondent was technically trading while insolvent and subsequently applied for
a Creditors Voluntary Arrangement.”
20.
Mr Tatton Brown also submitted, and again this is probably not
contentious, that where a company is of doubtful solvency the directors have an
additional duty to bear in mind that the interests of the creditors of the
company should be treated as paramount and he drew attention to two authorities
West Mercia Safetywear v Dodd [1988] BCLC 250 at 252-253 and Brady
v Brady [1988] BCLC 20 and Roberts v Frolich [2011] EWHC 257 (Ch). He submitted that the 90 days in the circumstances was excessive and
it should be reduced to four weeks, or 28 days that is, or perhaps even as low
a period as 7.
21.
Ms Davies relied, of course, on the Employment Tribunal’s decision and
submitted that we should not interfere with that decision unless it was plainly
wrong. She submitted that the Employment Tribunal must have had the importance
of considering mitigating factors in mind and the extent to which the breach
was deliberate. The Employment Tribunal was fully entitled to conclude that
the attempts to consult were made, if that is what they were on 26 May, were
not in any sense adequate and they did not mitigate the effect of the
seriousness of the breach. However, Ms Davies conceded, very properly, that
the period for consultation would have started between 17 and 20 May and lasted
until 26 May. It could not, therefore, have lasted for more than nine days.
She submitted by reference to the facts of the Amicus case that
it was very similar and in that case the Employment Appeal Tribunal had reduced
an award of 90 days to 70 days. She submitted in that the Amicus
case the employers had complied rather more than the Respondents in the present
case with its obligations to consult and disclose information. She submitted
that the Employment Tribunal was justified in concluding that the Respondent
could have communicated with trade unions and employees between the trigger
date and either 26 or 27 February. However, Ms Davies, in our opinion, very
properly conceded that the Employment Tribunal in the passage that we have read
towards the end of its Judgment was wrong in envisaging that there could have
been a 90 day consultation period. Were this to be have been so the Respondent
would have, of necessity, had to trade while insolvent and accordingly the approach
of the Employment Tribunal in our opinion was flawed.
22.
I now turn to our conclusions. In general we prefer the submissions of
Mr Tatton Brown. We very much bear in mind that the purpose of making a
protective award is penal, it is not compensatory. It is penal in the sense
that it is designed to encourage employers to comply with their obligations
under sections 188 and 189. We also bear in mind that the starting point in
considering the length of a protective award is 90 days. Nonetheless Employment
Tribunals are bound to take account of mitigating factors and are bound to ask
the important question why did the respondent act as it did. Had the
Employment Tribunal asked this question it could not possibly have ignored the
fact and the conclusion that the company simply was unable to trade lawfully
after the advice it had received on 25 May. In those circumstances, it is
clearly wrong for the Employment Tribunal to anticipate that a 90 day
consultation period could have started.
23.
My colleagues between them have great industrial experience and they are
both of the view that a good employer in circumstances where it is unable to
consult or provide information within a meaningful period would have “pulled
out all the stops” to do what it could to consult as best it could and to
provide information as best it could. The Employment Tribunal found that in
this case the Respondent’s failure was complete, there was no consultation and
no real provision of information. Some consultation could clearly have taken
place in the limited time from 17 and 20 May or even from 25 May, bearing in
mind it was only on 27 May that the dismissal letters went out. However,
because in our opinion the Employment Tribunal failed to have sufficient regard
to the insolvency and the consequences of trading and that a consultation
period of 90 was simply not possible, the award of 90 days cannot stand. Very
sensibly the parties have agreed that we should assess the appropriate level of
the protective award rather than remit the matter to the Employment Tribunal.
We are of the opinion that in order to meet the gravity of the claims of the
Respondent’s failures that at the same time to take account the circumstances
relating to its insolvency that we have mentioned that the appropriate level of
award should be 60 days and that is the order that we make.
24.
Before I conclude this Judgment we would like to express our sincere
thanks to Ms Davies and Mr Tatton Brown. They not only produced excellent and
very clear skeleton arguments but also made their submissions fully but at the
same time crisply and within a very acceptable time frame. We are grateful to
you both.
