Carillion was a construction and facilities management company that crashed spectacularly in 2018, when it was placed into liquidation.
This case concerns whether Carillion’s lack of redundancy consultation was unlawful.
If your business is being placed into liquidation, when do you need to consult employees who may be made redundant?
This was the question asked of the EAT in Carillion v Benson and others (around 1000 others).
S188 TULRCA says that when an employer is proposing to make more than 100 or more employees redundant within a period of 45 days or less, it must consult all affected employees.
However, S188 (7) TULRCA provides that if there are “special circumstances” meaning it’s not practicable for the employer to engage in consultation, they may be excused from the duty.
The leading case in the area is Clarks of Hove v Bakers Union. It says that a liquidation is not intrinsically a “special circumstance” permitting the employer to forego its consultation obligation, but rather, it may be in the circumstance. The court said:
“if, for example, sudden disaster strikes a company, making it necessary to close the concern, then plainly that would be a matter which was capable of being a special circumstance; and that is so whether the disaster is physical or financial. If the insolvency, however, were merely due to a gradual run-down of the company. Then those are facts on which the industrial tribunal can come to the conclusion that the circumstances were not special.”
Carillion argued that “disaster had struck” and that there were special circumstances allowing them to forgo the provisions – namely that there was an unexpected withdrawal of financial backing. The Claimants argued that Carillion knew of its financial difficulties in 2017, and the obligation to consult arose then, not when the financial backing was withdrawn. Therefore, they argued, there was no “special circumstance” obviating the need for consultation: the insolvency was a “gradual run down of the company.
Carillion also argued that the position had changed since Clarks of Hove v Bakers Union. By virtue of the Insolvency Act 1986 and the TUPE Regulations, liquidation was not as likely to cause redundancy. This meant that whilst the court was loath to find a special circumstances defence in 1978 (when Clarks was decided) they should not be so now (because the effect may be less severe).
Unfortunately, Mr. Justice Choudhry disagreed. He said that the change in circumstances re insolvency does not alter the binding authority that is Clarks, and that the case concerns basic statutory interpretation. The wording of the relevant provision has not changed (albeit slightly) and so neither should its interpretation.
Therefore, as Carillion knew that liquidation may occur some time before it in fact did, their duty to consult was triggered, and their failure to do so breached S188 of TULRCA.
The Takeaway Point
As soon as you propose a redundancy situation, take steps to begin consultation. Tribunals will be slow to consider you have a special circumstance entitling you to forego the provisions of TULRCA. If multiple staff are being made redundant, it may be best to take advice on the process. Our principal, Philip Hyland, has written a book on redundancy.