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JURIDICA INTERNATIONAL. LAW REVIEW.
UNIVERSITY OF TARTU (1632)

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 establishment’s 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. 239-245].

    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 establishment’s 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 above-mentioned 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 employer’s 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 establishment’s 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 authority’s right to delay the implementation of the redundancies is necessary for finding work for the dismissed workers, organising their re-training 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 employer’s 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 latter’s 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 töölepingu seadus. Kommenteeritud väljaanne. (The Employment Contracts Act of the Republic of Estonia. Edition with comments.) Comments by I.-M. Orgo, H. Siigur, G. Tavits. – Tallinn: Õigusteabe AS Juura, 1997.
    5. International Labour Conventions and Recommendations 1919–1991. Volume II, 1963–1991. – Geneva: International Labour Office, 1992.
    6. Valik Euroopa Liidu sotsiaalõigusakte. (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.

    Notes:

    *1 In the compilation “Selection of European Union Social Legislation”, the Estonian Translation and Legislative Support Centre has translated the concept “collective redundancies” in a narrow sense, giving it the meaning of “collective lay-offs” (kollektiivsed koondamised). According to Estonian legal terminology, the Directive protects workers not only in the event of lay-offs, but also in the case that the employer dismisses a larger number of workers due to the liquidation or bankruptcy of the establishment. Thus, the author considers the use of the term “collective redundancies” (kollektiivne vallandamine) to be more correct.
    *2 See table; 3, p. 387.
    *3 See table; 3, p. 391.
    *4 See next section for more details.
    *5 See table; 3, p. 391.






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