March 8, 2019

Collective Redundancies in the Offshore Shipping Industry

Last year, we reported the Employment Appeal Tribunal (EAT) decision of Seahorse Maritime Limited v Nautilus International (a trade union) (2017), which extended collective consultation rights to overseas employees who had a sufficiently strong connection to Great Britain. The decision was of considerable interest to the offshore shipping industry because it placed increased obligations on employers to consult collectively with crew operating in foreign territorial waters when seeking to make them redundant or change terms of employment.

Now that the Court of Appeal has overturned the EAT's decision, employers in the offshore shipping industry should take heed of the Court of Appeal's guidance to avoid unnecessary claims for failure to consult crew working on ships outside British territorial waters.  

The employer's obligation to inform and consult

Employers are obliged to inform and consult with employees, within a 90 day period, when proposing to dismiss 20 or more employees at one establishment, by reason of redundancy, for operational or economic reasons. An employer who fails to comply with the appropriate information and consultation obligations may be ordered to pay a protective award of up to 90 days' gross pay per affected employee. This can be very expensive for employers.  

What happened in this case?

Seahorse, a Guernsey registered company, employed crew which it supplied to specialist ships owned and operated by other companies. A UK company dealt with employee administration. The crew were stationed all over the world (mainly at a fixed location, such as static oil rigs) for 4-6 weeks at a time. Those crew who were UK domiciled would return home at the end of each trip, but then tended to return to the same vessels in the same locations. Nautilus was the trade union that had collective bargaining rights in respect of the employees.

Four ships were taken out of service, meaning that the crew working on those ships would no longer be needed. More than 20 crew members were made redundant without following collective consultation rules, so Nautilus, the union, brought claims in the employment tribunal for protective awards for failure to inform and consult with the UK domiciled employees.

A key question was whether these employees were entitled to claim protection from UK law. In a previous case, the Supreme Court had concluded that where such an employee’s place of work is not Great Britain, the court had to evaluate whether the employee had a strong enough connection with Great Britain to gain protection from its laws.

The redundancies were over 4 different ships and less than 20 crew members would be lost on each ship. This raised the question as to whether each ship was a separate "establishment", so that the obligation to inform and consult, which is triggered when dismissing "as redundant 20 or more employees at one establishment" within a 90 day period, could be avoided.

Each ship was an "establishment"

The Court of Appeal decided that each ship was an establishment with assigned crews.  This won't always be the case, though, since every case is fact sensitive.  In order to decide if the collective redundancy rules are triggered, employers should follow these steps:

  • First, identify the establishment using guidance given by the courts and the wording of the statute
  • Second, consider if a sufficient number of employees are "assigned" to that establishment
  • Lastly, consider if the employer proposes to dismiss sufficient numbers to trigger collective consultation

Finding "sufficient connection" to Great Britain

The Court of Appeal clarified that when considering an employer's collective consultation obligations, the focus should not be on whether the individual crew members have a sufficiently strong connection with Great Britain, but rather whether the establishment (i.e. the ship) had such a connection. Otherwise the employer would be required to carry out individual assessments to determine which employees were to be taken into account to determine the 20 employee threshold required by the collective consultation rules.  The Court considered that this would be unsatisfactory.

Given that the only connection between the ships and Great Britain was that some of the employer's functions were performed through its UK-based agent, the Court decided on the facts, there wasn't sufficient connection. The union's claims, made on behalf of the crew assigned to ships stationed outside Great Britain, were dismissed.

Conclusion

This is an important case for the offshore shipping industry. In the first place, it establishes that a ship can be an "establishment" where crew members are assigned to a particular ship. Second, when it comes to determining the applicability of UK law for collective consultation purposes, it establishes that the focus is not whether the individual crew members are sufficiently connected with Great Britain (as would be the case for individual employment rights such as unfair dismissal), but whether the "establishment" has such a link. This will be fact sensitive in each case.

Even in the absence of a strict legal obligation to consult, employers might undertake an informal consultation process with staff in the interests of fostering good employee relations, if practical to do so.