CJEU: workers' refusal to accept significant detrimental contract change can be 'redundancy'

The Court of Justice of the European Union (CJEU) said that the salary cut amounted to a "significant unilateral change to essential elements of the contract" which operated to the worker's "detriment". Excluding the worker from the definition of "redundancy" and the employer's duty to collectively consult over her dismissal in these circumstances would "deprive" the relevant EU laws of their full effect and undermine the protection of workers, the court said.

The CJEU was responding to a referral from the 'Labour Court' in Barcelona. A former employee of a Spanish fitness centre chain who had been made redundant on objective grounds had claimed that the company should have followed collective redundancy consultation procedures before a number of employees left the company. Cristian Pujante Rivera claimed that the trigger for collective consultation had been met once this constructive dismissal was aggregated with the dismissal of workers  engaged on fixed-term contracts or whose contracts had been terminated for other reasons.

Employment law expert Christopher Mordue of Pinsent Masons, the law firm behind Out-Law.com, said that while the idea that what was effectively a constructive dismissal could trigger the collective redundancy consultation duty seemed "counter-intuitive", this approach does reflect existing UK law.

"Under UK law the duty to consult is triggered where the employer proposes to dismiss 20 or more employees on the grounds of redundancy within any period of 90 days or less," he said.

"While the definition of dismissal in the UK legislation has always included a constructive dismissal – where an employee terminates their employment in response to a breach of contract by the employer – it is not obvious how that is a dismissal 'proposed' by the employer. The 'dismissal' is one which the employee initiates when they decide to resign and it's not easy to see how the employer could consult 30 or 45 days in advance of that dismissal with employee representatives over ways of avoiding such a dismissal," he said.

"The decision is most easily understood in context. In this case the employer was introducing new terms and conditions of employment. Unless the contract of employment allows the employer to make a unilateral variation, or collectively agree contractual changes with a trade union, the only lawful ways to make that change will be by agreement with the employee or by dismissal and re-engagement, terminating the existing contract and offering continued employment on the new terms. If the employer simply decided to unlawfully impose the new terms unilaterally and with no collective consultation on the changes – and the employees resign and claim constructive dismissal - it would already be recognised in UK law that the employees could claim a breach of the collective consultation duty," he said.

Under Spanish law, employers with between 100 and 300 workers propose a 'collective redundancy' where they put the contracts of at least 10% of the workforce at risk of termination on objective grounds over a 90-day period. The EU's Collective Redundancy Directive imposes requirements to consult with unions or representatives of the affected workers for a set period where an employer proposes making collective redundancies.

Gestora, the employer in this case, had 126 employees as at 3 September 2013, made up of 114 permanent employees and 12 on fixed-term contracts. Between 16 and 26 September 2013, the company made 10 individual employees redundant, including Rivera. A further 27 contract terminations also occurred over the relevant 90-day period. These included voluntary redundancies, fixed-term contracts expiring, an unfair dismissal and the one effective constructive dismissal due to a unilaterally-imposed 25% reduction in salary.

In its judgment, the CJEU ruled that the Collective Redundancy Directive made it "absolutely clear" that only "redundancies in the strict sense of the term" should be counted towards a collective redundancy, and not "terminations of employment contracts that may be assimilated to redundancies". The difference between redundancy and termination had to do with the worker's consent, and covered "any termination of an employment contract not sought by the worker", the court said.

The workers whose contracts had reached the end of their fixed term should therefore not be counted towards collective redundancy consultation requirements, the CJEU said. However, in the case of the worker whose pay was cut, "the termination of that employment relationship arises from the change made unilaterally by her employer to an essential element of the employment contract for reasons not related to that individual worker", the CJEU said.

"Any national legislative provision or any interpretation of that concept to the effect that, in a situation such as that in the main proceedings, the termination of an employment contract is not a 'redundancy' for the purpose of [the Directive] would alter the scope of the directive and thus ... deprive it of its full effect," the CJEU said.

Employment law expert Christopher Mordue said that the case was "a useful reminder of the scope of the collective consultation obligation and the need for employers to take it into account when making changes to terms and conditions of employment", rather than meaning that all constructive dismissals would suddenly become subject to the collective consultation duty.

"If the constructive dismissal arises in response to a fundamental breach of contract by the employer which is not about imposing new terms and conditions, it is difficult to see how that is a dismissal proposed by the employer," he said.

"Equally, if the employer thinks that it is acting lawfully in changing the existing terms of employment – for example relying on flexibilities in the contract itself which allow these changes – the duty to collectively consult is unlikely to be engaged, even if the employer is subsequently found to have breached the contract, for example by using that discretion unreasonably, again on the basis that the constructive dismissal was not proposed by the employer," he said.