Collective redundancy consultation and the 'special circumstances' defence
Carillion Services Ltd v Benson
Compulsory liquidation is not a ‘special circumstance’ allowing an employer to escape liability for a failure collectively to consult before making redundancies.
Section 188(7) of the Trade Union and Labour Relations (Consolidation) Act 1992 provides that if there are special circumstances which render it not reasonably practicable for an employer to comply with any of its collective consultation obligations under s. 188, then it must take all such steps as are reasonably practicable in the circumstances.
In July 2017, Carillion, a very large FTSE 100 company which provided facilities management services to government, was facing serious financial difficulties. It went into liquidation on 15 January 2018, many thousands of redundancy dismissals followed and given the numbers, Carillion should have undertaken collective consultation. Several employees issued claims for protective awards in respect of Carillion’s failure to consult.
Carillion conceded that it had failed to consult but argued that s.188(7) came to its rescue. Its case was it only became apparent the company wouldn’t survive in the days before entering liquidation when its lenders and the government declined to provide further financial support. The claimants argued there was a sufficiently clear intention to enter liquidation a few weeks earlier, whereas Carillion said it was the day before.
The tribunal rejected the special circumstances defence, finding that Carillion was on a downward path from July 2017 onwards and that the refusal of financial support on the weekend before entering liquidation wasn’t a special circumstance. While a sudden disaster necessitating a closure will be a special circumstance, insolvency due to a gradual run down of the business will not. The tribunal based its conclusion on the 1978 Court of Appeal decision in Clarks of Hove Ltd v Bakers’ Union which held that for s. 188(7) to apply, the circumstances must be something out of the ordinary or uncommon. Carillion appealed.
The appeal was dismissed.
The tribunal had correctly focused not just on the immediate cause of the insolvency in the days before liquidation but on events going back to July 2017. The tribunal had kept the relevant factors in mind, not limiting itself to the fact of the compulsory liquidation per se but looking at the events compelling it as well as their speed and context.
One argument raised by Carillion was that in a case of compulsory liquidation it was impossible to avoid dismissal and hence impossible to comply with a requirement to consult on avoiding dismissals. The EAT was clear that didn’t render the circumstance special. Were it otherwise, then the defence would be available to any employer who could point to a factor that made it difficult or impossible to comply with the obligation to consult or an aspect thereof.
In particular, the EAT pointed out that even if avoiding dismissals was impossible, that didn’t render invaluable consultation on mitigating the consequences of the dismissals nor the provision of information requirements under s. 188(4):
‘… the obligation to consult includes a requirement to provide information on a wide range of matters, including the reasons for the proposed redundancy, the method of carrying out the dismissals and the method of calculating the amount of any payment. All of these matters would be highly valuable to an employee facing the distressing prospect of being made redundant, even if the fact of dismissal itself could not be avoided.’
Link to judgment: https://www.bailii.org/uk/cases/UKEAT/2021/2021-000269.html
The ‘special circumstance’ exception has, over the years, been very narrowly applied – and this emphasises that s. 188(7) requires something uncommon or out of the ordinary for such a defence to succeed.
Employers should also remember that the fact that a special circumstance exists will not excuse a total failure to consult where some, albeit limited, consultation could take place – see Shanahan Engineering Ltd v UNITE.