Out-Law / Your Daily Need-To-Know

Carillion liquidation not a ‘special circumstance’ excusing collective consultation

Out-Law News | 26 Oct 2021 | 8:28 am |

Ed Goodwyn tells HRNews about the EAT’s ruling in Carillion Services Ltd v Benson and the very limited application of the ‘special circumstances’ defence    

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  • Transcript

    The Employment Appeal Tribunal has ruled on the application of the ‘special circumstances’ defence which may excuse an employer’s usual collective consultation obligations – in this case in the context of redundancies in an insolvency situation. The EAT confirms that the  exception in s188(7) of the Trade Union and Labour Relations (Consolidation) Act 1992 continues to have very narrow application. The case is Carillion Services Limited v Benson and is an important one to be aware of.

    The background to the Carillion case is well known and has been widely covered by the media. As the BBC reported at the time it all went wrong for the UK's second-largest construction company when it failed to secure financial backing from the government in the face of £1.5bn of debts. In January 2018 when it went into liquidation it employed around 18,000 workers. The subsequent insolvency process was described as the largest and most complex of its kind in UK history. 

    About 1,000 of the employees who were made redundant went on to bring tribunal claims seeking protective awards on the basis that Carillion had failed to comply with its the collective consultation obligations under section 188. Carillion conceded that there was a failure to consult but argued that there were special circumstances, within the meaning of Section 188(7), which got them off the hook.

    Carillion’s case was that it was presented with a sudden and unforeseen disaster over the weekend preceding its entry into liquidation, namely the government’s refusal to give financial help and backing in an administration process. They said the effect of that was key stakeholders in turn declined to approve short-term lending arrangements and so compulsory liquidation became the only option. From that point onwards, mass redundancies were inevitable.

    The tribunal rejected that argument, finding that Carillion was on a downward spiral from July 2017 onwards and that the refusal of financial support on the weekend before entering liquidation wasn’t a special circumstance. In other words, insolvency due to a gradual run down of the business is not enough to trigger the defence. The tribunal based its decision the Court of Appeal’s 1978 ruling in Clarks v Bakers’ Union which established that for the defence to apply, the circumstances must be something out of the ordinary or uncommon. 

    Carillion appealed and on appeal the EAT said the tribunal had got it right, rejecting Carillion’s argument that it was impossible to avoid dismissal and hence impossible to comply with a requirement to consult on avoiding dismissals. The EAT added that even if avoiding dismissals was impossible, that didn’t rule out conducting consultation on mitigating the consequences of the dismissals nor the provision of information required under section 188. The EAT said there is still value in consulting, even in situations where dismissal cannot be avoided. 

    So let’s get some reaction to that. Ed Goodwyn is a specialist in this field and he joined me by video-link from the London office to discuss the case. I started by asking Ed whether this decision is significant:

    Ed Goodwyn: “It's very significant, not least because the size, it’s the largest insolvency we've had for a while. One of the arguments was based on the fact that the CEO effectively thought Carillion was too big to fail, rather like the banks, and as a result of that view argued that, effectively, having the rug pulled out from under him, i.e. the bank not providing additional funding nor the government stepping in, was his argument that this was a ‘special circumstance’ because it happened so quickly. That decision was not accepted in the EAT nor at the first instance tribunal and they looked very much back to the Court of Appeal case back in 1978 which took the view that whilst insolvency proceedings can be special circumstances the mere fact that it's come from insolvency does not in itself provide that special circumstance. You need something more and  the Court of Appeal’s decision, and the EAT in Carillion, says it has to be something novel, effectively, and they talk about the being something like a disaster that's unexpected. What is interesting since the Carillion case, of course, we've had the COVID issues which have affected number of businesses where insolvencies have been the consequence and question as to whether something like COVID, and the closure of certain parts of certain sectors would be sufficient to be special circumstances.”

    Joe Glavina: “It’s interesting that one of the points the EAT makes clear in its judgement is that there is still value in consulting, even in situations where dismissal cannot be avoided.”

    Ed Goodwyn: “Yes, it's very interesting because that point was picked up directly by the judge in the EAT, but also a secondary but connected points was argued that actually the special circumstances in this case should be looked at differently because in this case we had TUPE, the transfer of undertakings, as an option coming out with the insolvency because of changes in law since the Court of Appeal’s case. In both situations the EAT said well hang on a minute, the mere fact of TUPE means that, in a real sense, there's a greater need for consultation because TUPE can save jobs and really that's exactly what consultation should be about. Equally, the EAT rejected the argument that just because everybody was going to be dismissed there was no need to consult, they said there's plenty to talk about, and the EAT specifically highlighted the need to consult about mitigation of the effects of the dismissal for redundancy. So, you know, the EAT rejected both grounds. Even if dismissals are inevitable did not mean the consultation was meaningless.”

    Joe Glavina: “So what’s your message to clients, Ed? The takeaway point?”

    Ed Goodwyn: “Even when time is short, and even when there are commercial reasons where you don't want to go public and insolvency is inevitable, you often have a period of time, even if it’s just a few days. If there is a short period of time, do your best to engage in that consultation. The limited ability to run special circumstances is so narrow it's as though it may not even be there. What, however, will be interesting is whether disasters like COVID will in very exceptional circumstances allow the defence to be run and I think we will be seeing a few cases in the next twelve months where that point will be taken.”

    That decision of the EAT is Carillion Services Limited v Benson and we have put a link to the judgment in the transcript of this programme.

    - Link to EAT’s judgement: Carillion Services Ltd v Benson