Following the Court of Appeal decision in the Thompsons case of Susie Radin Ltd v GMB & ors (2004, IRLR 400), reported in LELR 90, the employment appeal tribunal has just revisited the issue of protective awards.
It has confirmed, in Smith & Moore v Cherry Lewis Ltd that the whole point of a protective award is to enforce the statutory requirement of consultation and to persuade employers to comply with it.
What happened in this case?
Both women had been employed as cutters (one of them for 22 years) by Cherry Lewis, but in December 2003 a receiver was appointed and all the employees were made redundant.
No one had been consulted about the redundancies (no union was recognised, nor were there any employee representatives). Instead, the firm just wrote to everyone on 11 December telling them they had been dismissed and that although it had no money to pay staff, they could make a claim from the National Insurance Fund.
The two women brought a claim under section 189 of the Trade Union and Labour Relations (Consolidation) Act 1992 which allows a redundant employee to present a complaint, if there are no employee representatives nor a recognised trade union.
What did the tribunal decide?
The tribunal chair decided that the employers' approach was contrary to section 188 of the Act, which requires them to consult appropriate representatives if they are going to make 20 or more employees redundant within 90 days or less. In this case, at least 45 employees had been dismissed.
The chair then said, however, that because of the decision in Susie Radin, which made clear that the purpose of the award was to provide a sanction against the employer and not to compensate the employees, that it was not just and equitable to make one in this case.
The reason, he said, was that it would be completely ineffective as a sanction against an insolvent employer. The only person to be affected would be the Secretary of State for Trade and Industry and the Redundancy Payments Fund.
What did the EAT decide?
The EAT, on the other hand, disagreed. It said that the tribunal chair had failed to apply the guidance of the Court of Appeal in Radin, and that his decision contravened the requirement for the provision of a sanction imposed by the relevant EC directives.
It said it was clear from the Radin decision that, in referring to an 'effective sanction', the court was recognising that it should be punitive and have a deterrent effect. The aim was to enforce the statutory requirement of consultation and to dissuade employers from failing to comply.
The tribunal chair had not focused on the seriousness of the employers' default in failing to comply with their statutory duty of consultation. Instead, he took into account irrelevant factors, namely the employers' insolvency, their inability to pay and the likelihood that the government would have to step into the employers' shoes. As a result, the chair had approached the concept of a 'sanction' in a 'retributive rather than a punitive or a dissuasive sense'.
As a result, he had concluded that imposing a financial debt on an insolvent company did not amount to a sanction.
As the EAT pointed out, taking insolvency into account would mean that the threat of the sanction of a protective award would be removed in the vast majority of cases where employees are made redundant. Such an approach would therefore seriously undermine the impact of the legislation.
The focus should always be on the employer's default, and in this case the tribunal's findings were beyond doubt. The employers had failed totally to comply with their duties and the EAT made a protective award in favour of the two women.