350: Can collective consultation be avoided because of compulsory liquidation?

Consultation can cure many things for employers: but it won’t work if you think about it too late or assume it is not needed.

The EAT’s decision in Carillion Services Ltd (in compulsory liquidation) and others v Benson and others confirms that it is only in very rare circumstances that an employer will be able to avoid liability for collective redundancy consultation. The decision is a timely reminder that even if redundancies cannot be avoided, employers will still be expected to take all reasonable steps to consult employee representatives over reducing and mitigating the dismissals.

Employee representatives must be consulted where an employer is proposing to make 20 or more redundancies at one establishment within a period of 90 days or less (section 188, Trade Union and Labour Relations (Consolidation) Act 1992). Breach of this requirement can be costly for employers as affected employees may be entitled to compensation of up to 90 days’ uncapped pay (known as a ‘protective award’). There is a defence to the obligation to consult collectively if it is not reasonably practicable to comply due to special circumstances made. However, for this defence to work, the employer must still show that it took such steps as were reasonably practicable in those circumstances.

The Carillion group, which employed around 18,000 employees, began to experience serious financial difficulties from around July 2017. Short-term lending arrangements were proposed to enable trading to continue pending implementation of a longer-term business plan. However, in January 2018, the group went into compulsory liquidation following failed negotiations and a decision by its stakeholders not to approve the short-term lending. Carillion’s liquidators dismissed most of the group’s employees without consulting employee representatives. Over 1000 of these employees brought claims for compensation. The liquidators argued that the special circumstances defence applied because the collapse of rescue talks over the weekend of 13 and 14 January 2018 amounted to sudden, unexpected and intervening events.

The Employment Tribunal rejected the liquidator’s argument, ruling that the events of the weekend of 13 and 14 January 2018 did not amount to special circumstances. Although unexpected, the withdrawal of financial backing by stakeholders, and the government’s refusal to provide financial support, were not sufficiently uncommon or sudden to meet the high threshold for this defence.

The EAT has now upheld this decision. Case law has established that the special circumstances defence is only available in insolvency cases where something out of the ordinary has happened, such as a sudden physical or financial disaster. Carillion’s financial position had declined gradually over many months and there was evidence that liquidation was being considered even before the government had confirmed that it would not offer support. Given the gradual deterioration, the EAT held that the Employment Tribunal had been entitled to conclude that Carillion’s situation did not amount to special circumstances.  Even if the dismissals could not have been avoided, consultation on mitigating the consequences of redundancies would still have been valuable.

This decision confirms that the special circumstances defence will only rarely be available, for events that are out of the ordinary or uncommon. Financial difficulties are unlikely to meet this test, even if those difficulties are likely to be exacerbated by being made public.