The duty to consult staff about redundancy

The demise of Kids Company is well-known, but perhaps the staff at the centre of the storm have been overlooked; certainly the Employment Appeal Tribunal (“EAT”) found that Kids Company had not done enough to comply with their legal duties towards staff.

Legal position

Put simply, where an employer is proposing to make 20 or more redundant employees at one establishment in 90 days or less, they must consult with those employees. Consultation must begin “in good time” and should be at least 45 days for over 100 employees, 30 days for less. If an employer fails to do this, a tribunal can make a “protective award” of up to 90 days’ pay per employee. In determining the level of the protective award the tribunal must consider whether there are any special circumstances, or whether the employer took all such steps towards compliance as was reasonably practicable in the circumstances.

Background

The perilous financial situation of Kids Company, before its demise, is well-known. The relevant facts for the purpose of the employment claim were that on 19 May 2015 Mr Yentob wrote to the government to say that there were insufficient funds to pay that month’s salaries to the charity’s employees. He sought a financial commitment by the government by 22 May; if this failed to happen the Kids Company would be declared insolvent.

On 12 June 2015 Kids Company applied to the government for funding; contained within its application was a proposal to reduce staff costs by 58% (approximately 323 posts), with the redundancy process to be concluded by the third week in September. It was anticipated that the redundancy costs would be over £3,000,000.

On 29 July 2015 the government made an offer of a “one-off” grant; staff were informed that as a consequence of agreement with the government, salaries would be paid the following day.

On 30 July 2015 it became known that the Metropolitan Police were investigating Kids Company following allegations relating to child safeguarding issues, described by the charity as an organised campaign against them. It meant that securing any source of funding was virtually impossible.

On 3 August 2015, as a consequence of the police investigation, the government notified Kids Company that the grant agreement was terminated and demanded immediate repayment of the unspent grant.

On 5 August, Mr Yentob emailed all staff to notify them that all centres must stop operating, that Kids Company was closing, and that all employees were dismissed from that date.

The issues before the EAT

When did the obligation to consult arise?

Did the proposal to make redundancies, contained in the 12 June 2015 application for government funding, trigger the duty to consult? Kids Company argued that, because it was just a proposal at that stage, and was contingent on the government agreeing funding, it could not start consulting. Until the funding was agreed, Kids Company could not start implementing their restructuring proposals.

The EAT disagreed. They found that by 12 June 2015 Kids Company knew that either staffing costs would be reduced by 58% (if funding was approved) or that the charity would close (if funding was not agreed). By this point, plans were sufficiently well-advanced for Kids Company to be able to enter into meaningful consultation with its staff; and that consultation should start “promptly” or without delay. The fact that circumstances may change, positively or negatively, did not remove or defer the obligation to consult.

Were there “special circumstances”?

Kids Company argued that the events of 30 July 2015 amounted to special circumstances: disaster struck and consequently it had to close, that’s why it couldn’t consult with staff. 

The EAT found that this did amount to a special circumstance; the EAT said it was “plainly an unexpected and sudden disaster … which entirely derailed its plans and meant that the operation had to close down pretty much immediately”. However, this only went so far to assist Kids Company because the obligation to consult had already arisen on 12 June.

Were there circumstances to mitigate the award of 90 days compensation?

The EAT agreed that there were mitigating circumstances, namely the events of 30 July 2015. They indicated that the events of 30 July 2015 meant that there was no continuing obligation to consult after this point, and accordingly that the 90 days’ protective award should be reassessed.

Conclusion

One would hope it would be rare for a charity to find itself in similar circumstance to Kids Company. However, challenges to funding are never far away. Therefore, the case is an important reminder that if redundancies appear possible, it is preferable to err on the side of caution and start consultation processes early. If circumstances change positively, meaning that redundancies are not necessary, then you are in no worse position. If circumstances do not improve, then you have complied with your legal obligations towards staff.