Debenhams High Court Ruling: Compensation requires proving loss, and obligation to consult must consider the reality on the ground

At a glance

• The Irish High Court (Court) overturned the decision of the Labour Court to award employees of the insolvent Debenhams Retail (Ireland) Limited (Debenhams Ireland) with four weeks' pay for failure to comply with the consultation requirements in collective redundancy situations.
• The earliest opportunity in cases of collective redundancies, must be considered 'within the practicalities of life on the ground at that time'.
• Compensation under the Protection of Employment Act 1977 (1977 Act) should be referrable to some form of loss or injury suffered by the person being compensated; it should not be awarded as a penalty against the employer.

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Background

On 8 April 2020, the UK parent company of Debenhams Ireland informed Debenhams Ireland that it could no longer provide funding to it. The following day, 9 April 2020 – which was the Thursday before the Easter bank holiday weekend, the board of Debenhams Ireland made the decision to cease trading. A letter was also sent to employees that day, informing them that Debenhams Ireland intended to make an application to the Court to have a provisional liquidator appointed. The letter did not refer to redundancies. 

On 14 April 2020, Debenhams Ireland wrote to the employees' representative providing information relating to the proposed redundancies and stating that Debenham's Ireland was insolvent and that a liquidator would be appointed. The first consultation meeting was set for 17 April 2020.

A test case was taken on behalf of an employee to the Workplace Relations Commission (WRC) who found against the liquidator in that: 

• the consultation processed was not commenced 'at the earliest opportunity'; and 
• awarded the employee four weeks compensation. 

The liquidator appealed the decision to the Labour Court. The Labour Court dismissed the appeal and upheld the award on the basis that there had been a delay in commencing the consultation process. 

The liquidator appealed to the High Court. 

Four questions were put before the Court:

• When should the consultation period have commenced?
• When did the consultation period begin?
• Did the delay between 9 April and 17 April narrow options for employees?
• When can compensation be awarded?

High Court decision

Prior to answering the substantive questions posed to the Court, the Court considered the general obligation to consult at the earliest opportunity.

In contrast to the WRC and Labour Court rulings, the High Court noted that the obligation to consult at the earliest opportunity, must be considered 'within the practicalities of life on the ground at that time'. 

In this case, the fact that the events took place in a period of 'unprecedented lockdown due to Covid' was considered as was the bank holiday weekend. 

When should the consultation period have commenced?

The Court held that the finding of the Labour Court that the consultation period should have started on 9 April 2020 could not be set aside as having been made without evidence, or as being legally irrational. In coming to this conclusion, the Court had regard to the resolutions passed by the board of directors of Debenhams Ireland on 9 April which resolved that the company could not continue trading; and the letter sent to the employees on 9 April 2020 which informed them of the events which had transpired and the intention to appoint a liquidator. 

When did the consultation period begin?

The Court held that the letter to the employees on 14 April 2020, on the first day following the bank holiday weekend, marked the beginning of the consultation period and provided information that all employees were to be made redundant. To this point, it was noted that a consultation meeting does not always mark the start of the consultation process.

Did the delay between 9 April and 17 April narrow options for employees?

No. The Court found there was no evidence that the delay resulted in options no longer being available and the ruling of the Labour Court to that effect was made without evidence and could not be upheld. 

When can compensation be awarded?

The High Court noted that the power of the WRC and the Labour Court to award compensation to employees under the 1977 Act of such amount as they deem to be 'just and equitable having regard to all of the circumstances' was not intended to be the imposition of a penalty against the employer, nor was there jurisdiction to impose such a penalty.

The Court further noted that compensation is not limited to compensation for financial loss, however it should be referrable to some form of loss or injury suffered by the person being compensated. 

Ultimately, the High Court found that there was no evidence that Ms. Crowe had any financial loss or additional distress because of the perceived delay and that the Labour Court had therefore erred in awarding compensation. 

Key Takeaways

This decision will be a welcome one for employers, as it rows back on the strict interpretation on the meaning of the 'earliest opportunity'. 

Further, employees claiming compensation under the 1977 Act, will have to prove that they suffered some form of loss or injury as a result of the breach in order to be awarded. Whilst this decision is limited to the 1977 Act, it will be interesting to see whether the WRC / Labour Court will apply the requirement to show loss or some form of injury in other claims where the legislation allows for compensation to be awarded where it is 'just and equitable' to do so. 

Please contact a member of DLA Piper Ireland’s Employment team if you would like any further information on this decision or on redundancies more generally.