Until recently, the law required employers who propose to make 100 or more employees redundant to consult with them at least 90 days (now 45) before the first dismissal takes effect. In AEI Cables Ltd v GMB and Unite the Union, the Employment Appeal Tribunal (EAT) held that even if they cannot consult for 90 days, employers should still pull out all the stops to ensure they comply with the law as far as possible.

The employees’ unions, the GMB and Unite the Union, instructed Thompsons to act on their behalf.

Basic facts

It was clear from February 2011 that AEI Cables Ltd, which manufactured items from copper bought on the stock market, was in financial difficulty. It was warned by its accountants between 17 and 20 May that it risked trading while insolvent.

After a meeting with the bank on 25 May at which it refused to extend their overdraft, the company decided on the same day to close the cable plant immediately, with the loss of 124 jobs. The domestic division, which employed 189 people, was not affected.

Around the same time, the company was advised by its accountants to seek a Creditors Voluntary Arrangement (CVA) allowing it to continue trading while paying back its debts over an agreed period.

The following day, the HR manager told the regional officers for the GMB and Unite the Union of the decision to close the cable plant and on 27 May, letters were sent out summarily dismissing all the employees in that division. Following a creditors’ meeting on 14 June the CVA was ratified 10 days later.

The GMB and Unite the Union brought protective award claims on behalf of their members on the basis that AEI was in breach of section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA). This required employers who propose to make 100 or more employees redundant to consult with them at least 90 days (now 45) before the first dismissal takes effect.

Tribunal decision

The tribunal held that as there had been a complete failure to consult with either of the trade unions or with the individuals concerned, it was just and equitable to award the maximum period of 90 days’ pay.

EAT decision

Bearing in mind that the purpose of the protective award is to punish the employer and not to compensate the employee, the EAT said that the tribunal should have taken account of mitigating factors and should have asked why the company had acted as it did.

Had it done so, it would have realised that the company could not trade lawfully after 25 May and could not therefore have engaged in a consultation period that lasted 90 days. At most, it could have consulted over a nine day period from 17 to 26 May.

However, despite the tight timescale, the company did have some time to comply with TULRCA and should therefore have “pulled out all the stops” in order to consult with and inform the trade unions and the individuals concerned. As a last resort it could have consulted between 25 and 27 May, the date that the dismissal letters went out but it did not.

The EAT therefore overturned the tribunal’s decision to award 90 days, holding that it failed to give “sufficient regard” to the insolvency and the consequences for the directors of continuing to trade. Instead, it set the level at 60 days’ pay per employee to reflect the company’s complete failure to comply with the law.