Collective Consultation: Lessons from P&O

Where an employer is considering large scale redundancies, one of its key obligations will often be to engage in “collective consultation”.  As nearly 800 P&O Ferries employees were dismissed, many asked the question of whether their actions were legal. P&O Ferries CEO, Peter Hebblethwaite, admitted to MPs last week that his Company broke the law by failing to consult, whilst maintaining that he would make the same decision again. The story is a useful reminder of an employer’s collective consultation requirements and the legal and commercial consequences of getting the process wrong.

What is involved in a collective consultation process?

Where the employer makes a proposal to dismiss as redundant 20 or more employees at one establishment, within a 90-day period, the employer is required to engage in collective consultation with a recognised trade union or elected employee representatives.

This process is geared towards minimising the impact of redundancies on impacted employees by providing a period of time, while the redundancy proposal is still in its infancy, for discussions before any dismissals take place.

Broadly, consultation involves two stages: provision of information and the consultation itself. The provision of information stage requires employers to provide detail on the reasons for the proposed redundancies, the numbers involved, how selection is proposed, how dismissals would take place and the payments involved (amongst other factors). Providing this information allows for a meaningful consultation process which balances the needs of the employer against the concerns of the employees.

The consultation process must, at a bare minimum, be conducted with a view to reaching agreement with the employee’s representatives on: avoiding dismissals, reducing the number of dismissed employees and mitigating the consequences of dismissals.

Statute also imposes minimum time periods for collective consultation. Where an employer is proposing to dismiss between 20 – 99 employees within a 90-day period, consultation must begin at least 30 days before the first dismissal takes effect. Where the number is more than 100 employees, this increases to 45 days.

Employers proposing to make such large-scale redundancies are also required to notify the Secretary of State of their proposals. The timing of the notification must be 30 or 45 days before the first dismissal reflecting the minimum time periods above.

The costs of getting it wrong

P&O staff were told that P&O would not be “viable” without jobs being cut immediately.  Employers are accustomed to weighing up legal risk against the commercial realities of day-to-day operations. However, there seems little commercial sense in taking such a ruthless decision, especially when one considers the legal risks and the number of employees involved.

One key component of an award for failure to collectively consult is a protective award. This is a punitive award and is designed to punish employers who fail to follow the requirements of collective consultation, rather than compensate the employee. The award is capped at a maximum of 90 days’ gross pay per employee. The award is discretionary but considering the nature of these dismissals and their sudden nature, one would expect a hypothetical award in such a case to be near the maximum amount. This would be on top of payment in lieu of notice for impacted employees and unfair dismissal awards and redundancy payments for employee’s with more than two years’ service.

P&O have sought to pre-empt these actions through a reported £36.5 million severance package to cover all their impacted employees, though it should be noted that the failure to consult is one cause of action that cannot be resolved via settlement agreement, though failure to pay a protective award can.

Moreover, P&O could also face potential criminal charges for failing to inform the Secretary of State about the proposed redundancies. P&O maintains that due to a change in the law regarding the notification requirement for vessels registered outside of the UK, they were only required to notify the competent authority for the state the vessel was registered in (although it should be noted that unions dispute if P&O gave this notification). The penalty for committing the offence is a potentially unlimited fine. Prosecutions for this offence are rare, but it is notable that Business Secretary, Kwasi Kwarteng took the step of publishing the letter sent to P&O which explicitly refers to the threat of criminal proceedings.

Comment

It is unlikely that Peter Hebblethwaite’s position that it would be easier to compensate workers rather than consult will go unchallenged. Indeed, Transport Secretary Grant Shapps, has already outlined his intention to unveil a “package of measures” to avoid a similar situation happening in the future.  In the meantime, P&O’s reputation suffers in the court of public opinion.

Most employers will not have to deal with redundancies on such a large scale, but this unfortunate situation is a reminder for employers that disregarding the requirement to consult not only has legal and financial risks, but reputational and commercial ones too.

*This article is for information purposes only. You should seek specific legal advice on any legal issues.*