REUTERS | Petar Kujundzic

Construction law and employment law collide: stopping work leads to redundancy

A construction or engineering contract, in particular a sub-contract, often allows the contractor to order the sub-contractor to stop work. This often appears as a contractual right to order the sub-contractor to suspend work immediately (or to suspend after a short notice period) following which, if work does not resume within six or twelve months, the sub-contract may also terminate.

While one contract may be different from the next, the Employment Appeal Tribunal (EAT) has shone a spotlight on one non-construction law aspect of these circumstances, namely what happens if an instruction to stop or suspend work forces the sub-contractor to make its employees redundant.

In Shanahan Engineering Ltd v Unite the Union, a sub-contractor was ordered to stop work within three days. It did so, but needed to lay off staff at one of its projects. It made the affected staff redundant as soon as it could.

In “normal” circumstances, when considering redundancy, Shanahan should have consulted with its employees over a 30 day period. Here it had just three days.

Construction law – contract may be terminated

Construction law, subject to one or two important exceptions (such as the right to suspend under the Construction Act 1996), follows the English law principle of freedom of contract. As such, the parties are free to agree a right to suspend or terminate a contract, as they see fit.

For examples of what this may mean and what the parties may agree in practice, from the world of professional appointments, see our practice note and checklist.

Employment law – employee consultation

In contrast, the contractual relationship between employee and employer is arguably more heavily regulated.

For example, where an employer proposes large scale redundancies of 20 or more employees within a period of 90 days or less (collective redundancies), it must consult on its proposal with representatives of the affected employees and also notify the Government (BIS). The relevant legislation is section 188 of the Trade Unions and Labour Relations (Consolidation) Act 1992, which implements the European Collective Redundancies Directive (Directive 98/59).

(For more information, see PLC Employment’s Practice note, Collective redundancy consultation.)

Special circumstances

Shanahan tried to rely on the so-called “special circumstances” defence, arguing that it had no choice but to make redundancies in a very short time, due to the instruction to stop work.

However, the EAT said that, just because there are special circumstances affecting the timing of the consultation about any redundancy, the obligation to inform and consult (in what little time is available) still remains. In other words, part of Shanahan’s processes on being instructed to suspend the works should have included consulting with its employees, in what little time it had.

A tangled web

A construction sub-contract sits in a web of complex contractual, personal, business, public relations and statutory relationships. It is easy to forget one thing, while trying to hastily address another.

You’ve probably heard this before, on complex webs:

“Oh what a tangled web we weave, When first we practice to deceive.”

But Sir Walter Scott also said that:

“A sound head, an honest heart, and an humble spirit are the three best guides through time and to eternity.”

Perhaps we can now add to the second quote the need to always keep in mind the requirements of other disciplines of law, as well as our own specialities. In this instance, as a construction lawyer, or in-house counsel for a construction firm, this may be bearing in mind just how important the employment law aspect might be.

After all, does that not just fall into the category of keeping a “humble spirit”?

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