Collective Redundancies

Merle Muda
pp. 119-123
The legal status of workers in the event of collective redundancies is regulated on the
international level by International Labour Organisation (hereafter ILO) Convention No. 158
concerning Termination of Employment at the Initiative of the Employer and the 1975
European Union (EU) Directive 75/129/EEC on the approximation of the laws of Member
States relating to collective redundancies, amended by Directive 92/56/EEC of 1992. Little
attention has been given to collective redundancies in the existing Estonian legislation, and
the subject is only indirectly referred to in a few paragraphs of the Employment Contracts Act
(hereafter ECA), which does not, in comparison with the international regulations, provide
workers with sufficient protection. The aim of this article is to determine which principles
have been set down by the ILO and EU relating to collective redundancies, the legal status of
Estonian workers regarding this question, and how in future it is intended to protect Estonian
workers in the event of collective redundancies in accordance with the draft of the Special
Principles of the Law of Obligations Act.

Concept of Collective Redundancies

Collective redundancies are regulated by ILO Regulation No. 158, Part 3, entitled
Additional Provisions on the termination of employment contracts for economic,
technological, structural or other similar reasons. The Convention does not define the
concept of collective redundancies, but instead allows the question to be regulated by
Member States: pursuant to Articles 13(2) and 14(2) of the Convention, Member States, after
having fulfilled the obligations stipulated in the above-mentioned Articles of informing and
consulting with the workers representatives and informing the competent public authority,
may introduce limitations to the execution of the stipulation, in cases where the number of
workers whose termination of employment is contemplated is less than a certain number or
percentage of the workforce [5, pp. 239-245].
The concept of collective redundancies is established in Article 1(1) of EU Directive
75/129/EEC, according to which collective redundancy*1 means dismissals from work for one
or more reasons not related to the individual workers concerned where, according to the
choice of the Member States, the number of redundancies is:
either, over a period of 30 days:

(1) at least ten workers in establishments normally employing more than 20 and less than 100
workers;

(2) at least 10% of the number of workers in establishments normally employing at least 100
but less than 300 workers;

(3) at least 30 in an establishments normally employing 300 workers or more,

or, over a period of 90 days, at least 20, whatever the number of workers normally
employed in the establishments in question [6, pp. 173-175].

In the case of collective redundancies, it must be kept in mind that the reason for the
termination of an employment contract must be of an economic nature, that is the redundancy
must have no connection with the individual worker. It is also important that the initiative for
the termination of the contract come from the employer. The European Court of Justice has
come to this conclusion, asserting that extensive termination of employment contracts after
an employer has announced to a bankruptcy court that he doubts his ability to pay a debt is
not considered to be redundancy according to Directive 75/129/EEC [2, pp. 312]. Thus, the
Directive is not applicable to a situation where an employer may plan, on the basis of the
establishments economic situation, collective redundancies, although for some reason does
not carry them out. The Directive does, however, apply to collective redundancies which are
connected with the termination of the operations of an establishment where that is the result
of a judicial decision [2, p. 313].
The term establishment is not defined in the Directive. This has led to continual confusion
and legal disputes, since different terms, which do not carry the same content, have been used
in the translation of the above-mentioned concept into the languages of the Member States
(establishment, institution, local unit, place of work, etc.) [2, p.314]. Pursuant to 5(1) of the
Estonian Commercial Code, an establishment is an economic unit through which a trader
operates. An establishment is comprised of things, rights and obligations belonging to the
trader which are or should, by their nature, be designated for the activities of the
establishment [8]. Accordingly, an establishment is not a legal person, nor can it be an
employer. A trading company, which may own several establishments, is, as an a legal
person, an employer. Therefore the collective dismissal of workers in an establishment is
decided by a trading company. The European Court of Justice has taken the view that in
determining the number of workers to be dismissed, one must consider the specific unit
where the worker is employed, and it is not of importance that the unit be competent to
implement collective redundancies on its own [2, p. 314]. Thus, in Estonian conditions, one
must, where necessary, consider the structural unit (establishment) where the worker is
employed, not the employer as a legal person.
The Estonian ECA does not define the concept of collective redundancy. ECA 89
introduces the principle that if an employer intends to terminate employment contracts with
ten to twenty workers during a three month period due to a lay-off of workers and job
placements for the released workers are not ensured, the organisation or person representing
the workers may suspend termination of the contracts for up to one month. If more than 20
workers are released during a three month period due to a lay-off and job placements are not
ensured for the released workers, the organisation or person representing the workers may
suspend termination of the contract for up to two months [7]. This paragraph is one of the few
in our legislation which affords some degree of protection against collective redundancies [4,
p. 99]. One may infer from the provisions mentioned that the legislator considered it
important to protect workers, if an employer dismisses either 10-12 or over 20 workers over a
three-month period. At the same time, one cannot consider this paragraph to be an adequate
representation of the concept of collective redundancy.
The existing legislation in this question should be improved, and the concept of collective
redundancy established. Directive 75/129/EEC provides, as mentioned, different possibilities,
from which each country chooses the most suitable one. Since a large number of
establishments employing relatively small numbers of workers have arisen in Estonia as a
result of privatisation, it would presently be most suitable to consider the dismissal, over a
30-day period, of at least ten workers in an establishment employing 20-100 workers to

constitute collective redundancy. At the same time, the other possibilities referred to in the
Directive could also be established as collective redundancies, since in the near future one
may expect merging of existing small establishments. With increasing competition, only large
establishments will able to survive financially. Taking account of the above-referred facts and
in accordance with 76(1) of the draft of the special part of the Law of Obligations Act,
redundancies are deemed collective when an employer intends to dismiss, over a 60-day
period, at least:
ten workers in an establishment employing 20-100 workers;
10% of workers in an establishment employing 100-300 workers;
30 workers in an establishment employing more than 300 workers [11].
Since most establishments in Estonia are small, the aim of the 60-day period for the execution
of the redundancies is to provide workers with effective protection in the event of collective
redundancies. This is not in conflict with Directive 75/129/EEC, because according to Article
5, the Directive shall not affect the right of Member States to apply or to introduce laws,
regulations or administrative provisions which are more favourable to workers or to promote
or make possible for workers the application of more advantageous collective contracts [9;
10]. That right has been used by several EU Member States.*2

Informing of and Consultation with Workers Representatives

In accordance with ILO Convention No. 158 (13) (1), when the employer contemplates
terminations for reasons of an economic, technological, structural or similar nature, the
employer shall:

(a) provide the workers representatives in good time with relevant information including the
reasons for the terminations contemplated, the number and categories of workers likely to be
affected and the period over which the terminations are intended to be carried out;

(b) give, in accordance with national law and practice, the workers representatives
concerned, as early as possible, an opportunity for consultation on measures to be taken to
avert or to minimise the terminations and measures to mitigate the adverse effects of any
terminations on the workers concerned, such as finding alternative employment [5, pp. 239245].
According to Article 2 of Directive 75/129/EEC, an employer contemplating collective
redundancies shall begin consultations with the workers representatives to determine ways
and means of avoiding collective redundancies or reducing the number of workers affected,
and mitigating the consequences of the redundancies, with a view to reaching an agreement.
To enable workers representatives to make constructive proposals, employers shall, during
consultations, supply them with all relevant information. The employer is required to present
written material about the following circumstances:
the reasons for the contemplated redundancies;
the number of categories of workers to be made redundant;
the number and categories of workers normally employed in the establishment;
the period over which it is planned to implement the redundancies;
the criteria for the selection of the workers to be made redundant (to the extent permitted
by national law or practice);

 the method of determining redundancy compensation, if it differs from that introduced by

law or developed in practice.
The above requirements are to be fulfilled by the employer regardless of whether the
employer or the establishment controlling the employer decided to make the collective
redundancies [9; 10].
In the application of those provisions, the question has arisen as to who may be considered to
be the workers representative. Pursuant to Article 1(1) of the Directive, workers
representatives means the workers representatives provided for by the laws or practices of
the Member States [6, p. 175]. Problems may also be encountered in Estonia as regards the
specification of workers representatives, since in many workplaces, representatives (trade
unions) have not been elected. The European Court of Justice holds the view that since
employers are required to provide workers with information and hold consultations with
them, that means that employers must create relevant consulting mechanisms even in those
establishments which have no connections with trade unions, or where the employer does not
recognise the trade union [2, p. 316]. According to European practice, a workers
representative does not have to be a trade union. Consultations may take place with the
participation of members of the workers or establishments council, but in the absence
thereof, the employer is required to commence negotiations with the workers themselves.*3
In accordance with to Directive 75/129/EEC, the aim of consultations with the workers
representatives is to reach an agreement on questions affecting workers (Article 2 (1)). In the
opinion of the European Court of Justice, it is not sufficient for the implementation of the
principles set down in the Directive that employers take cognizance of the workers
representatives opinion on the redundancies and then answer for what reasons those
suggestions have not been accepted [2, p. 317]. Thus, employers are required to take serious
consideration of the workers representatives views regarding collective redundancies.
According likewise to the Estonian ECA, an employer, in the case of the dismissal of an
worker, is required to inform in advance the organisation representing the worker. Pursuant to
87(3) of the ECA, the employer is required, upon termination of an employment contract
due to the liquidation of an establishment, agency or other organisation and the laying off of
workers, to inform in writing the organisation or person representing the worker and to
present the reason for the termination of the contract and communicate the measures taken to
provide work for the worker [7]. Due to amendments to the law, the presently valid version of
the ECA no longer contains the previous provision, according to which the employer was also
required to provide advance information to workers representative or representative
organisation upon the termination of employment due to bankruptcy. Since the bankruptcy of
an employer may also lead to collective redundancies, this principle should be restored in its
previous form. As mentioned above, an organisation or individual representing workers may,
according to 89 of the ECA, suspend the termination of contract, if the future job placement
of the workers is not guaranteed.
The ECA indeed requires the employer to inform the workers representative of the
termination of employment contracts, but the opinion of the latter has no importance as
regards the execution of redundancies. The authority of workers representatives should be
significantly expanded as regards these questions. The law should clearly define the
circumstances of which the employer is required to inform workers before the
implementation of collective redundancies. In view of the above-mentioned international

legal norms, the informing of workers representatives is regulated by 76(1) of the draft of
the special part of the Law of Obligations Act in the following manner: if an employer is
contemplating collective redundancies, he is required to inform the workers representative at
least 45 days prior to the commencement of the redundancies [11]. According to abovementioned Directive 75/129/EEC, the employer must hold consultations with workers
representatives before the commencement of the redundancies, although the precise time for
the holding of consultations. The Directive does not specify the conditions under which an
employer is required to contemplate collective redundancies, and has no influence on the
employers right to decide whether and when it must finalise plans for collective
redundancies [1, p. 224]. Pursuant to the European practice, consultations with workers
representatives must commence at the early decision-making stage and certainly before
anything certain has been decided [3, p.398]. Ordinarily, questions relating to the holding of
consultations are regulated by collective negotiations (collective contracts), but since
collective employment relations are not particularly well developed, it is worth stipulating the
time for the holding of consultations in the law.
According to 76(2) of the draft, the employer is required to present the representative with
written information regarding the reasons for the redundancies, the number of workers
normally employed, the number of workers to be made redundant, the period over which the
redundancies are to be effected and the method for the calculation of severance pay [11]. The
above list overlaps precisely with that stipulated in Directive 75/129/EEC.
According to the draft of the Special Principles of the Law of Obligations Act, the employer
is required to hold consultations with the representative on avoiding the collective
redundancies, reducing the number of workers affected and mitigating the consequences of
the redundancies. The workers representative has the power to make written suggestions
about the contemplated redundancy, which the employer is required to discuss with the
workers representatives with a view to reaching a reasonable agreement which is to the
satisfaction of both parties. The procedure for the consultations is to be laid down in a written
agreement or collective contract between the employer and the workers representative (
76(1) and (3)) [11]. The opinions and suggestions of the workers representatives about the
contemplated redundancies and terminations should therefore be of a compulsory nature for
the employer. The power of suspension of the termination of employment contracts in the
event of collective redundancies is, however, granted to the competent public authority.*4

Competence of and Notifications to Competent Authority

In accordance with Article 14(1) of ILO Convention No. 158, an employer contemplating
terminations for reasons of an economic, technological, structural or similar nature shall
notify, in accordance with the national law and practice, the authority competent to deal with
questions of employment, as early as possible, giving relevant information, including a
written statement of the reasons for the terminations, the number and categories of workers
likely to be affected and the period over which the terminations are intended to be carried out
[5, pp. 239-245].
An analogous principle is prescribed by EU Directive 75/129/EEC, according to Article 3(1)
of which an employer shall notify the competent public authority of any projected collective
redundancies. This notification shall contain information concerning the collective
redundancies and consultations with workers representatives. Employers must submit to the
competent public authority the following information:

the reasons for the redundancies;

the number of workers to be made redundant;
the number of workers normally employed;
the period over which the redundancies are to be effected.

Member States may stipulate that in the case of collective redundancies due to the
termination of the operations of an establishment through a judicial decision, the employer is
required to notify the competent authority in writing only on the demand of the latter.
According to Article 4 of the Directive, collective redundancies shall take effect not earlier
than 30 days after the notification of the competent public authority. Member States may
grant the competent public authority the power to reduce or to extend this period to 60 days
when it is not possible to resolve the problems raised within the initial period. The given
period is provided so that the competent public authority may seek solutions to the many
problems which may arise in connection with the collective redundancies. The above
provisions need not be applied by Member States in the case of collective redundancies
which are the result of the termination of an establishments operations due to a judicial
decision [9; 10].
The Directive does not specify which problems may arise in connection with collective
redundancies. The competent public authoritys right to delay the implementation of the
redundancies is necessary for finding work for the dismissed workers, organising their retraining and further training, etc. [2, p. 317].
Section 88 of the Estonian ECA prescribes the requirement to notify the competent public
authority in the event of collective dismissals as follows: upon termination of employment
contracts due to the liquidation of the enterprise, agency or organisation, or the lay-off of
workers, the employer is required to submit information regarding the number, occupation,
age and sex of the released workers to the employment office of his or her location
(residence) at least two months prior to termination of the employment contracts. If
employment contracts are terminated with workers upon declaration of bankruptcy of the
employer, the employer shall submit information regarding the workers to the employment
office the date following termination of the employment contracts [7].
The principles enunciated in international acts are reiterated in 77(1) of the draft of the
Special Principles of the Law of Obligations Act, according to which the employer, in the
event of collective redundancies, is required to provide the regional labour inspection at least
30 days prior to the commencement of the contemplated redundancies with written
information on the reasons for the redundancies, the number of workers employed in the
establishment, the number of employees to be dismissed, the date of the lay-off and the
results of consultations with the workers representatives. If the redundancy is the result of
the liquidation of the employers activities resulting from a judicial decision, the employer
must inform the labour inspection only upon the demand of the latter. The director of the
regional labour inspection has the power to suspend the redundancy for 60 days, if the job
placement of the released workers is not ensured, except in cases provided for in paragraphs 3
and 4 ( 77(2)). If the employer intends to dismiss at least 30 workers over a 60 day period,
the general director of the labour inspection has the power to suspend the redundancy (
77(3)). The suspension of redundancy is not permitted in cases where this is the result of a
declaration of bankruptcy or where this may lead to a declaration of bankruptcy ( 77(4))
[11].

As is evident from the above, the regulation of the requirement to notify the competent public
authority with the provisions of Directive 75/129/EEC is sufficiently well followed in the
draft legislation. The most competent body for dealing with questions of employment is the
labour inspection, and thus the authors of the draft of the special part of the Law of
Obligations Act granted the labour inspection competence on questions of collective
redundancies, although according to European practice, only the labour market office, labour
minister, employment offices or other such bodies may be designated as competent
authorities.*5
The requirement to inform the employment office continues to be valid in the draft of the
Special Principles of the Law of Obligations Act. According to 78 of the draft, the employer
executing a collective redundancy by an ordinary serving of notice must submit information
regarding the number, occupation, age and sex of the released workers to the employment
office of his or her location or residence at least one month prior to termination of the
employment contracts [11].

Conclusions
On the basis of the above, one may say that there are no fundamental conflicts between the
provisions of the Estonian ECA and international norms as regards collective redundancies.
Questions relating to collective redundancies are, however, much more precisely regulated on
the international level than in Estonian legislation, thus providing workers with more
extensive protection. According to the regulations herein examined, ILO Convention No 158
and EU Directive 75/129/EEC, the employer is required to notify workers representatives
and hold consultations with them before the implementation of collective redundancies. The
employer must also notify the competent public authority of the contemplated collective
redundancies. The Estonian ECA indeed requires the employer to notify the workers
representative of the termination of a contract, but the latters opinion holds no importance
from the point of view of the implementation of the redundancies. The authority of the
workers representative should be considerably expanded. According to international
provisions, circumstances of which the employer is required to notify the workers
representative and the labour inspection as the competent public authority before the
implementation of collective redundancies will be established in the draft of the Special
Principles of the Law of Obligations Act. Consultations between the workers representative
and the employer have been made compulsory, in order to determine ways and means of
avoiding collective redundancies or reducing the number of workers affected, and mitigating
the consequences of the redundancies, with a view to reaching a reasonable agreement to the
satisfaction of both parties. In the draft, the labour inspection has been granted the power to
suspend collective redundancies when necessary. Thus the existing Estonian legislation as
regards collective redundancies should be made considerably more precise.
Literature and materials
1. B. Bercusson. European Labour Law. Butterworths, 1996.
2. R. Blanpain, C. Engels. European Labour Law. Fourth and revised edition. Kluwer Law
International. The Hague, London, Boston, 1997.
3. C. Barnard. EC Employment Law. Revised Edition. European Law Series. John Wiley & Sons.
England, 1996.

4. Eesti Vabariigi tlepingu seadus. Kommenteeritud vljaanne. (The Employment Contracts Act of the
Republic of Estonia. Edition with comments.) Comments by I.-M. Orgo, H. Siigur, G. Tavits. Tallinn:
igusteabe AS Juura, 1997.
5. International Labour Conventions and Recommendations 19191991. Volume II, 19631991. Geneva:
International Labour Office, 1992.
6. Valik Euroopa Liidu sotsiaaligusakte. (Selection of European Union Social Legislation). Vol 1.
Tallinn: Estonian Translation and Legislative Support Centre, 1998.
7. Employment Contracts Act of the Republic of Estonia. RT 1992, 15/16, 241; 1993, 10, 150; RT I 1993,
26, 441; 1995, 14, 170; 16, 228; 1996, 3, 57; 40, 773; 45, 850; 49, 953; 1997, 5/6, 32.
8. Commercial Code RT I 1995, 26-28, 335; 57, 976; 1996, 40, 773; consolidated text 1996, 52-54, 993;
1997, 16, 258; 48, 774; 77, 1313; 1998, 2, 48.
9. Official Journal of the European Communities. No L 48/29 of 22 Feb 1975.
10. Official Journal of the European Communities. No L 245/3 of 26 Aug 1992.
11. Law of Obligations Act. Special Section. Part IV. Service Agreements. Chapt. 2. Employment
Contract. Draft.

Important decision regarding collective

redundancies

McCann FitzGerald
Terence McCrann, Mary Brassil and Stephen Holst

European Union, Ireland

May 19 2014

Author page

Author page

The High Court has handed down a very important decision which will affect how
employers manage collective redundancy processes and, in particular, employers

obligations to engage with employees and their representatives in relation to collective

redundancies at a sufficiently early stage.
The Protection of Employment Acts 1977 to 2007 provide, in Section 9, that where an
employer proposes to create collective redundancies he shall, with a view to
reaching agreement, initiate consultations with employees representatives and [s]uch
consultations must be initiated at the earliest opportunity and in any event at least 30 days
before the first notice of dismissal is given. This obligation (breach of which is a criminal
offence) requires employers to genuinely consult with employees representatives (whether
trade unions or specially elected representatives) with a view to reaching agreement, and this
obligation must begin prior to the notices of dismissals being issued.
As this obligation derives from European law, European case law is very important in
considering the extent of the obligation. In the case of Akavan v Fujitsu Siemens Computers
Oy, the Court of Justice of the European Union (the ECJ) had stated that the obligation to
consult with employees in the context of collective redundancies arose where the employer
is contemplating collective redundancies or is drawing up a plan for collective
redundancies and prior to any decision to terminate the employment contract being reached.
In the case of United States of America v Christine Nolan, the Advocate General to the ECJ
stated that the obligation to consult arose following a strategic decision which exerted
compelling force on the employer to commence employee consultations.
While these European decisions set out a legal test for when the obligation commences, from
a practical point of view, it can be difficult for employers to determine exactly when the
obligation arises, and therefore when must the collective consultation process commence. The
concern of employers and employment lawyers alike is that the employers obligation might
begin at such an early stage that the employer was not yet ready to engage with employees
with a firm proposal, and that the obligation would be pre-maturely engaged. The Irish High
Court in the case of Tangney & Others v Dell Products was concerned with such a situation.
On 8 January 2009, employees at the Dell facility in Limerick received a written
communication furnishing information about a re-structuring plan for the company and were
briefed by senior management on Dells plans to cease manufacturing at its Limerick facility.
Subsequently, Dell engaged in a period of consultation with employees and their
representatives which ultimately led to collective redundancies being implemented at the
facility. However, the employees and their representatives claimed that the communications
and events of 8 January 2009, of themselves, constituted a notice of dismissal and that
therefore the consultation and discussions that followed were ineffective for the purposes of
the Protection of Employment Acts 1977 to 2007. In other words, the employees argued that
the decision had already been made and that the consultation followed the notice of dismissal
rather than was at least 30 days prior to it.
While the employees and their representatives had succeeded with this argument before a
Rights Commissioner (the first stage), on appeal, the Employment Appeals Tribunal rejected
this argument and overturned the Rights Commissioners decision. Mr Justice Birmingham in
the High Court supported this decision.
He noted that the initial letter could not be said to constitute a communication of a fait
accompli. The letter itself stated that it was for information purposes only, and did not
represent contractual terms. The Judge noted that several significant issues dealt with in the

initial letter had altered over the course of the consultation period. These included the terms
of redeployment of certain employees as well, as an improvement in the terms of the
severance package on offer. Furthermore, the initial letter simply set out estimates of
severance packages, rather than firm figures representing severance packages.The Judge
noted that while the content of the letter suggests that the employer did not have an entirely
open mind, he acknowledged that equally a blank sheet couched in generalities would be
of little assistance to employees.
In light of all of these matters, the Judge found that there was no basis on which to overturn
the determination of the EAT and therefore found that Dell had not acted in breach of the
Protection of Employment Acts 1977 to 2007 in its communication of 8 January 2009.
Message for employers
This case will be of interest to employers who have reason to consider collective
redundancies as it more clearly sets out that so long as a consultation process is genuine and
the employer makes a legitimate attempt to engage with employees, they should be in a
position to demonstrate compliance with the obligations of Section 9 of the Protection of
Employment Acts 1977 to 2007. Clearly, however, employers should take care to ensure that
communications to employees are not presented as a fait accompli and that there is genuine
room to consult with employees representatives, with a view to reaching agreement.