Wednesday, October 9, 2013

Collective Consultation in the US and UK

Unfortunately, in the current economic climate mass restructurings and layoffs have remained commonplace on both sides of the pond. However, the statutory obligations imposed upon employers in the US and the UK differ broadly, with US employers unsurprisingly having much greater flexibility (and employees thus having fewer protections) than their UK counterparts when mass redundancies are envisaged.

These key differences in statutory obligations can cause difficulties for multinational employers, particularly where global restructurings are envisaged, with employers facing not only two (or more) sets of differing legal obligations, but also different triggers for those obligations and different timescales for compliance. Forward planning and awareness of these differences is essential to ensure that employers do not inadvertently fall foul of applicable local legislation.

In the UK, employers have typically (if somewhat reluctantly) become well versed in the collective consultation obligations which apply when mass redundancies are proposed. In brief, collective consultation is required where an employer proposes to dismiss 20 or more employees from the same establishment within a period of 90 days or less. Where 100+ redundancies are proposed, employers were previously required to consult with employee representatives for at least 90 days before the dismissals took effect. Recent changes to reduce the burdens this obligation imposed have provided welcome relief to employers. Among these changes is a reduction in the consultation period for 100+ redundancies from 90 days to a minimum of 45 days. The minimum consultation period of 30 days for a proposal to dismiss 20-99 employees remains unchanged.

The reduction for larger scale layoffs is intended to reduce the uncertainty caused by lengthy consultation periods and to allow employers to implement business change more swiftly. However, it is important for employers proposing redundancies in the UK to keep in mind that such consultation, even for the reduced period, is still required to be ‘meaningful’ and to address ways of avoiding dismissals, reducing the number of redundancies and mitigating the effect of any dismissals.

Conversely, employers in the US have no federal statutory requirement to consult at all with employees in mass redundancy situations. Rather, under the Workers Adjustment and Retraining Notification Act (‘WARN’) covered employers simply have an obligation to provide 60 days notice to employees that redundancies will be taking place. Not only is no consultation required, but in addition the notification obligation is triggered only when redundancies are actually known to be taking place. This differs from the UK consultation regime under which the obligation on employers to engage in meaningful consultation is triggered much earlier; namely, when redundancies are in the proposal stage. Employers in the UK also need to build in adequate time before the consultation period commences to elect employee representatives where no existing representatives are in place. This serves to extend the forward planning which UK employers need to undertake before any redundancies can lawfully take effect.

The federal WARN regime also applies in a narrower range of scenarios than the UK consultation obligation. In brief, the WARN regime applies only where an employer with 100+ employees will be implementing a plant closing or mass layoff. Employees who have worked for less than 6 months in the last 12 months and employees who work less than 20 hours per week (unless those part-time workers collectively work at least 4,000 hours per week exclusive of overtime) are generally excluded when determining whether or not an employer has met the 100+ employee threshold for the notification obligation to apply.

For the purposes of WARN, a ‘plant closure’ is defined as a facility or operating unit closing for more than 6 months, or where 50+ employees will lose their jobs during any 30 day period at a single site of employment. A ‘mass layoff’ is defined as 50-499 employees being affected during any 30 day period at a single employment site if these employees represent at least 33% of the employer’s workforce at the site where the layoffs will occur. If over 500 employees will be affected, the 33% rule does not apply.

As a further concession to employers to maximize their flexibility to simply implement business change, the 60 day advance notification requirement can be reduced where the layoffs are the result of a company’s financial difficulty, unforeseen business circumstances or natural disaster.

Employers in the US do, however, have one added complication to consider which UK employers do not; namely, the requirement to comply with any state legislation which can apply in addition to the federal WARN obligations outlined above. Local state legislation tends to be slightly more protective towards employees than the federal-level legislation, but typically simply by extending the notification period or ensuring that the notification obligation is triggered at a lower threshold. It is therefore important for any employer in the US to consider both local and federal level protections.

In summary, employers in the US generally have far greater flexibility to implement required business restructurings and layoffs without being legally required to consult with employees or their representatives first. However, failure to comply with the notification requirement does carry financial penalty, with employees being able to claim pay and benefits for the period of violation (up to a maximum of 60 days). This is similar in remedy to the UK regime, whereby employees can claim up to 90 days’ pay for failure to comply with the consultation obligations.

Any employer with operations in more than one jurisdiction therefore needs to tread carefully, and with forward planning, if redundancies are planned overseas or globally to avoid unwittingly falling foul of local legislation and incurring the costs which result.

Helen Colquhoun, Withers LLP