Collective Redundancy

From Max-EuP 2012

by Gregor Thüsing and Sally Horler

1. Economic reality and legal structure

A dismissal, that is, the termination of an employment relationship (employment contracts, individual (PIL)) at the employer’s initiative, has a severe impact on an employee’s life. His long-term plans for the future are called into question, and he is often forced to leave his roots behind in order to find work in another area. Consequently, one of the main objectives of employment law has always been to protect employees against random or unfair dismissals (ss 94, 98 Employment Rights Act 1996, § 1 Kündigungsschutzgesetz (KSchG)). This is especially true in cases where, following economic restructurings, a great number of employment relationships are terminated simultaneously. Particularly, but not only, in markets that are restricted to a certain region, laying off a large number of employees leads to a backlog of manpower supply. This makes it even more difficult for the laid-off worker to return to employment.

The European Union has a special responsibility in this respect, as by its efforts to complete the single market it created the conditions needed to enable the fast and straightforward relocation of production facilities which frequently results in redundancies at the original locations. Considering that prices and, in particular, the wage levels in the new east European Member States—compared to the situation in previous rounds of expansion—are far lower than those in the founding Member States, this problem will continue to strain the employment markets in the old Member States in the future. Against the background of a globalizing economic order, the Union has helped unleash economic forces which have raised the level of wealth as a whole. The once-constant aspect of ‘location’ is, however, turning into a variable in the cost-benefit-analysis. By adopting Dir 75/129 concerning collective redundancies, supplemented by Dirs 92/56 and 98/59, the Union has tried to curb the damaging effects of the forces it has conjured. These pieces of legislation are based on the awareness that ‘it is important that greater protection should be afforded to workers in the event of collective redundancies while taking into account the need for balanced economic and social development within the Community’ (recital 2 of Dir 98/59). The directives obligate the employers to consult the workers’ representatives in the event of collective redundancies.

The law on collective redundancies in Germany is by far much older than the legislation of the Union. Germany, after the devastation of World War I and the global economic crisis, discovered the damaging effects that shutting down companies and collective redundancies have on the employment market and the overall economy. The earliest German regulation concerning collective redundancies was the Stillegungsverordnung of 1920 as amended on 15 October 1923. The Stillegungsverordnung was originally meant to prevent an economically unwelcome closure of industrial plants after World War I; thus, it pursued a goal related to economic policy as opposed to employment market policy. Pursuant to these regulations, only the closure of an industrial plant resulted in a dismissal ban, which was considered dissatisfactory even then. Not until § 20 of the Gesetz zur Ordnung der nationalen Arbeit in 1934 which replaced the Stillegungsverordnung of 1923 was this link done away with and dismissal protection made solely dependent on the dismissal of a minimum number of employees based on the size of the company. This has remained the same to this day. Since 1969 §§ 17–22 KSchG have regulated the employer’s duties in the event of collective redundancies. Hence, the national law has evolved from the pursuit of a protective purpose based on economic policy to one based on employment market policy.

By virtue of the growing influence of secondary legislation on the laws of collective redundancy, the perception of its purpose experienced another change. In the early stages, German law shifted to regard the protection of the laid-off individual employee, consistent with the recitals of the directive, as the primary objective of the law. However, doubts have been raised about the efficacy of the regulations regarding the employment market. It is argued that in times of economic problems and resultant high unemployment the regulations rarely apply; furthermore, the preventative or compensatory measures of the local authorities are considered ineffective.

2. Implementation in the Member States

Due to the large number of existing laws, Germany was able to implement the directives by merely amending the KSchG. The amendments to § 17 KSchG in particular were mainly propelled by the European legislation of 1975. Following the directive of 1975 an amending law was enacted in 1978. The amended version of § 17 KSchG in 1978 was limited to a change of the benchmark number of dismissed employees as well as a more detailed provision regarding the form and content of the notification and consultation of the works council. Furthermore, the period of time to calculate the redundancies was extended to 30 days. Following the directive of 1992, an amending law was enacted in 1995. Pursuant to the provisions in Art 1(1) of Dir 98/59, § 17(1) KSchG was extended to apply also to other ‘terminations of an employment contract which occur on the employer’s initiative’. § 17(2)(1) KSchG was also amended. The employer’s consultation duties towards the works council were increased. These consultation duties apply irrespective of whether the decision regarding collective redundancies is being taken by the employer or by an undertaking controlling the employer (Art 2(4) of Dir 98/59). Despite the fact that Dir 98/59 does not define the term ‘controlling undertaking’, there is a broad consensus among legal scholars that, following the definition in Dir 94/45, it suffices for the undertaking to have the ability to exercise a dominant influence.

France has provisions corresponding to those of Germany in its Art L-1233-8 ff Code du travail. The United Kingdom decided to implement the directive by introducing ss 188 ff in its Trade Union and Labour Relations (Consolidation) Act 1992. The Code du travail and the English implementation law adhere strictly to the directive’s instructions. The implementation acts of the other Member States are available at <http://eur-lex.europa.eu>.

3. Protection in the event of collective redundancy

Under Art 1(1) of Dir 98/59 ‘collective redundancies’ means dismissals effected by an employer for one or more reasons not related to the indi- vidual workers concerned where, according to the choice of the Member States, the number of redundancies is either, over a period of 30 days, at least 10 per cent of the number of workers in establishments normally employing more than 20 and less than 100 workers, at least 10 per cent in establishments normally employing at least 100 but less than 300 workers, at least 30 per cent in establishments normally employing 300 workers or more, or, over a period of 90 days, at least 20 per cent, whatever the number of workers normally employed in the establishments in question. The directive does not apply to dismissals of workers in establishments governed by public law or of the crews of seagoing vessels or dismissals effected under contracts of employment concluded for limited periods of time or for specific tasks. Germany transposed these instructions in its §§ 17(1), 22, 23(2) KSchG; in part going beyond the level of protection afforded by the directive. The United Kingdom preferred a ‘copy-out’ transposition in s 188 of the Trade Union and Labour Relations (Consolidation) Act 1992.

Pursuant to Arts 2 and 3, if the threshold numbers are reached, the employer must inform and consult the workers’ representatives in good time and inform the competent public authority of the intended redundancies. The consultations with the workers’ representatives shall cover ways and means to avoid or limit the intended collective redundancies as well as to mitigate the consequences by recourse to accompanying social measures aimed, inter alia, at aid for redeploying or retraining workers made redundant. Article 2(3) presents a list of elements to be supplied to the workers’ representatives by the employer. This list was adopted in § 17(2) KSchG, Art L-1233-10 Code du travail and s 188(4), Trade Union and Labour Relations (Consolidation) Act 1992. The notification of the public authority shall contain any comments made by the workers’ representatives (Art 3(1) of Dir 98/59).

‘Workers’ representatives’ means the workers’ representatives provided for by the laws or practices of the Member States. In Germany, the works council must be consulted; the competent public authority is the Bundesagentur für Arbeit. Under s 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 the trade union representatives must be consulted. Article L-1233-8 Code du travail stipulates the notification of the comité d’entreprise or the délégués du personnel.

A further consequence of collective redundancies next to the notification duties is, pursu- ant to Art 4 of the directive, that the redundancies do not take effect earlier than 30 days after the notification of the public authority. The public authority can extend this period of time to 60 days under certain circumstances. Under Art 5, the Member States may apply or introduce laws, regulations or administrative provisions which are more favourable to workers or promote or allow the application of collective agreements more favourable to workers. Article 6 sets out that Member States shall ensure that judicial and/or administrative procedures for the enforcement of obligations are available to the workers’ representatives and/or the workers.

The interpretation of the terms used in the directive has, as is so often the case, presented certain difficulties; but the important terms of Dir 98/59 have been resolved by the European Court of Justice (ECJ). In Athinaïki Chartopoiía (ECJ Case C-270/05 [2007] ECR I-1499) the ECJ ruled that Art 1(1)(a) is to be interpreted to mean that a production unit comes within the concept of ‘establishment’ for the purposes of the application of Dir 98/59. According to this, an ‘establishment’ is the unit to which the workers made redundant are assigned to carry out their duties. The entity in question need not have any legal, economic, financial, administrative or technological autonomy.

Of greater significance, especially for German law, was the decision in Junk (ECJ Case C-188/03 [2005] ECR I-885) regarding the term ‘redundancy’ (Entlassung). Did this mean the termination of the employment relationship upon expiry of the period of notice or did it mean the declaration of the notice of dismissal? Referring to the purpose of the Dir 98/59, the ECJ ruled that ‘redundancy’ is to be interpreted to mean the declaration to terminate the contract of employment and that this may not be carried out before the end of the consultation and notification procedure. The purpose of the directive, as set out in Art 2(2), is to avoid terminations of contracts of employment or to reduce the number of such terminations. The achievement of that purpose would be jeopardized if the consultation of workers’ representatives were to be subsequent to the employer’s decision. It follows that an employer cannot terminate contracts of employment before he has engaged in the consultation procedure, ie before the employer has fulfilled his obligations under Art 2. Accordingly, Art 3(1) refers to ‘projected’ redundancies having to be notified to the public authorities.

4. Penalties in the event of non-compliance

Article 6 sets out that Member States ‘shall ensure that judicial and/or administrative procedures for the enforcement of obligations under this directive are available to the workers’ representatives and/or workers’. This is a clear instruction for the Member States to provide either the employee or the workers’ representatives, or both, with a judicial remedy in order to enforce the information, consultation and notification duties. According to the jurisprudence of the ECJ, penalties imposed to ensure compliance with directives must be effective, proportionate and dissuasive.

The German KSchG has no express penalty provisions in the event of non-compliance with the notification and consultation duties. However, the absence of penalty provisions for non-compliance with the notification obligations does not present a problem: the notification to the public authority must contain comments made by the works council (§ 17 KSchG). Consequently, in the absence of a notification of the works council and, with that, any comments to be forwarded to the public authority, any redundancies declared are ineffective under § 18(1) KSchG. In turn, the employee can make a claim before the Labour Court, under § 2(1) No 3(b) Arbeitsgerichtsgesetz. This meets the requirements set out in Art 6 of Dir 98/59. Non-compliance with the consultation obligations, however, does not render the redundancy ineffective under German law. Consequently, German law allows for collective redundancies to be effective without prior consultations. This is not consistent with the requirements set out in Art 6 of the directive. The German legislature has the option of declaring such redundancies ineffective or of giving the works council a judicial remedy to enforce the consultation obligation. A cumulation of both instruments would be permissible under European law, as they would be measures that are effective, proportionate and dissuasive.

In the United Kingdom, redress to the courts is only available to the trade unions, under s 189 of the Trade Union and Labour Relations (Consolidation) Act 1992. In Belgian law, the workers’ representatives have a right to challenge non-observance of consultation and notification obligations before a court. Article 67 of la loi du 13 février 1998 gives workers an individual right of challenge, although it is limited in regard to the complaints which may be raised and subject to the conditions that workers’ representatives should first have raised objections and that the worker concerned has informed the employer in advance of his intention to challenge compliance with the information and consultation procedure. These conditions placed on the exercise of challenge were found to be in conformity with the directive in the ECJ case Mono Car Styling (ECJ Case C-12/08 [2009] ECR I-6653). In Denmark an employer risks a criminal fine and may have to pay compensation to each employee in the event of violating the consultation and notification procedures, but the dismissals remain effective, § 11 ff of Act no 414, Lov om Kollektive Afskedigelser. There are similar sanctions in French law, which include the dismissals being declared void (Art L-1233-1 ff Code du travail).

Literature

Hellmut Wißmann, ‘Probleme bei der Umsetzung der EG-Richtlinie über Massenentlassungen in deutsches Recht’ [1998] RdA 221; Bernhard Poplony, ‘Die anzeigepflichtige Entlassung nach § 17 KSchG’ [1999] NZA 791; Mark Hall and Paul Edwards, ‘Reforming the Statutory Redundancy Procedure’ (1999) 28(4) Industrial Law Journal 299; Steven D Anderman, The Law of Unfair Dismissal (3rd edn, 2001); Jean Pélissier, Alain Supiot, Antoine Jeammaud and Gilles Auzero, Droit du travail (24th edn, 2008); Norman Selwyn, Law of Employment (15th edn, 2008); Gregor Thüsing, Europäisches Arbeitsrecht (2008); Gerrit Forst, ‘Die ad-hoc-pflichtige Massenentlassung’ [2009] Der Betrieb 607.

Retrieved from Collective Redundancy – Max-EuP 2012 on 01 December 2022.

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