| Employment — Employer’s insolvency — Protective award — Company dismissing employees without due consultation — Protective award made after liquidation of company — Whether award provable as debt in liquidation — Trade Union and Labour Relations (Consolidation) Act 1992, ss 188, 189 — Insolvency Rules 1986 (SI 1986/1925), rr 12.3 (as amended by Insolvency (Amendment) Rules 2003 (SI 2003/1730), Sch 1, Pt 9, para 62), 13.12 — Council Directive 98/59/EC
Day v Haine and another [2008] EWCA Civ 626; [2008] WLR (D) 188
CA: Thomas, Jacob and Wall LJJ: 11 June 2008
Where a company had failed to comply with its statutory obligation to consult its workforce before going into liquidation and subsequently protective awards were made by an employment tribunal, the obligation had arisen before the liquidation and the protective awards were therefore contingent debts of the company within rr 12.3 and 13.12 of the Insolvency Rules 1986 and provable in the liquidation. Moreover, the failure to consult concerning collective redundancies also infringed European law which the United Kingdom was under a duty to implement and to ensure that the penalty for infringement would be effective, proportionate and dissuasive.
The Court of Appeal so stated allowing the appeals of Ronald Benjamin Haine (as a representative of the former employees of Compound Sections Ltd entitled to the benefit of protective awards made by the Employment Tribunal on 31 August 2006) and the Secretary of State for Business Enterprise and Regulatory Reform from the decision of Sir Donald Rattee sitting as a judge of the Chancery Division [2008] ICR 452 whereby he held that protective awards made by an employment tribunal pursuant to s 189(2) of the Trade Union and Labour Relations (Consolidation) Act 1992 did not constitute debts provable in the liquidation of the company within the meaning of rr 12.3 and 13.12 of the Insolvency Rules 1986. The respondent was Robert Day, liquidator of Compound Sections Ltd. The Secretary of State was added as a party at his own request as he had an interest in the directions sought by the liquidator.
WALL LJ, giving the judgment of the court, said that the question before the Court of Appeal was whether or not the provisions of the 1992 Act could be properly construed so as to fulfil and enact into English law the provisions of Council Directive 98/59/EC on the approximation of the laws of member states relating to collective redundancies. The United Kingdom had a duty under European law to take all measures necessary to ensure that infringements of European law were penalised under conditions which made the penalty “effective, proportionate and dissuasive”: Commission of the European Communities v Hellenic Republic (Case 68/88) [1989] ECR 2965, ECJ, para 24. On the judge’s analysis of the statutory provisions and the authorities, employers would be able wholly to escape from the liability which Parliament imposed upon them. The Secretary of State, to whom were transferred the workforce’s rights under the 1992 Act, had no means of recouping his expenditure from the employer by proving in the company’s liquidation. The judge had regarded himself as bound by Glenister v Rowe [2000] Ch 76 and R (Steele) v Birmingham City Council [2006] ICR 869, neither of which was concerned with European law, still less a possible failure to implement a Directive. This appeal should be allowed for two linked reasons. (1) As a matter of language the liability to pay a protective award was a “liability to which the company may become subject after [the date of the liquidation] by reason of an obligation incurred before that date” [Insolvency Rules, r 13.12(1)(b)]. True it was contingent on the employment tribunal making the award later, but rule 13.12(3) stated that it was immaterial whether a liability was present or future, fixed or liquidated. The liability stemmed from the pre-liquidation breach of obligation. (2) Given the complete breach of the obligation to consult, the employment tribunal realistically did not have a discretion to refuse an award. If it had done so it would have erred in law. Of major importance to both reasons was the underlying basis of a protective award — that it was to be a measure that enforced the obligation placed on the employer and the failure to comply with that obligation was backed by a penalty which was to be “effective proportionate and dissuasive”. That could only be so if it was visited on the employer. Moreover, in accordance with general principles, domestic legislation should be read so as to comply with a Directive which it was intended to implement. The Directive required that the judicial or administrative procedures for the enforcement of obligations were available. So, to treat the liability as no more than discretionary would be wrong. It was at the very least a contingent liability within the meaning of r 13.12(3). The only remaining question was whether the Glenister or Steele case compelled the court by force of precedent to hold otherwise. Assuming that the employment tribunal retained a discretion not to make a protective award, there was no doubt that an employment law analysis of the case, based on the Directive and Susie Radin Ltd v GMB [2004] ICR 893 (a decision to which the judge did not refer), provided a powerful basis upon which to distinguish both the Glenister and Steele cases. |
