AEI Cables v GMB Businesses with money troubles can't escape onerous duties. They must balance the need to reduce outgoings quickly with their legal responsibilities.
Consulting with staff in the lead-up to redundancy is one of the basics of employment law. But this takes time, as AEI Cables discovered when it needed to reduce its head count by more than 120 people. The business had been advised by its accountants that unless it cut costs, there was a risk of trading while insolvent (cue directors' liability and potential criminal penalties for fraudulent trading). So AEI made all 124 employees redundant straight away.
Those employees claimed that AEI had breached its duty to consult. They won and were each given awards of 90 days' pay, which was the maximum allowed. The company appealed and the Employment Appeal Tribunal (EAT) reduced the 90-day awards to 60 days. It was not reasonable, the EAT said, to expect an insolvent employer to carry on trading for 90 days while it informed and consulted with employees. Protective awards are not meant to penalise employers but to encourage them to consult. In AEI's case, some consultation could and should have taken place, despite the urgency of the situation.
Here the company's financial circumstances helped reduce its burden to consult, but this case makes clear that doing away with consultation altogether is a risky strategy.
Consulting with staff in the lead-up to redundancy is one of the basics of employment law. But this takes time, as AEI Cables discovered when it needed to reduce its head count by more than 120 people. The business had been advised by its accountants that unless it cut costs, there was a risk of trading while insolvent (cue directors' liability and potential criminal penalties for fraudulent trading). So AEI made all 124 employees redundant straight away.
Those employees claimed that AEI had breached its duty to consult. They won and were each given awards of 90 days' pay, which was the maximum allowed. The company appealed and the Employment Appeal Tribunal (EAT) reduced the 90-day awards to 60 days. It was not reasonable, the EAT said, to expect an insolvent employer to carry on trading for 90 days while it informed and consulted with employees. Protective awards are not meant to penalise employers but to encourage them to consult. In AEI's case, some consultation could and should have taken place, despite the urgency of the situation.
Here the company's financial circumstances helped reduce its burden to consult, but this case makes clear that doing away with consultation altogether is a risky strategy.
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