#savefabric – Business Closure and Dismissing Employees

Fabric, the iconic London nightclub, is due to close its doors permanently after having its licence revoked by Islington Council. The Council’s decision follows the drug related deaths of two teenagers this summer and an undercover police investigation (‘Operation Lenor’) into the use and sale of drugs at the venue.

The decision has sparked outrage across the clubbing scene and a host of artists, DJs and celebrities have expressed dismay with the Council’s decision. The Fabric website has been dedicated to the campaign opposing the closure and the hashtag #savefabric has become prevalent on social media. Fabric intends to appeal the decision.

From an employment law perspective, we consider it likely that the closure will result in the dismissal of Fabric’s employees. Below we have set out the possible options available to Fabric, or any other business in similar circumstances. But remember, always take legal advice.

1.       Redundancy

It is possible that Fabric decides to dismiss its employees by reason of redundancy. Redundancy is a potentially fair reason for dismissal. Where the employer “has ceased or intends to cease to carry on the business for the purposes of which the employee was employed” (section 139(1)(a)(i), ERA 1996) this will amount to redundancy. Workplace closure is likely to satisfy this definition. Section 139(6) ERA 1996 makes it clear that the cessation of business may be permanent or temporary, therefore Fabric’s intended appeal need not delay the redundancy process.

However, having a potentially fair reason for dismissal will not eliminate the possibility that the employees may bring an unfair dismissal claim. To reduce the risk of this happening, Fabric need to ensure that they follow a fair redundancy process before dismissing the employees, namely:

  • Warn and consult employees (or their representatives) about the proposed redundancy;
  • Identify an appropriate pool from which to select potentially redundant employees and select against proper criteria (as the workplace is closing a pool may not be necessary since everyone will be at risk);
  • Consider suitable alternative employment.

From the employees’ perspective, redundancy may be the best option for them financially, as they would receive their contractual entitlements (notice, holiday pay etc.) and a tax free redundancy payment on top (provided they have 2 years’ service).

2.       Illegality

Fabric could choose to dismiss the employees by reason of illegality, also a potentially fair reason for dismissal. Section 98(2)(d) ERA 1996 would permit such a dismissal on the basis that the employees cannot continue to work in the positions which they held without contravention (either on their part or on that of Fabric) of a duty or restriction imposed by or under an enactment. Simply put, Fabric would need to continue trading for the employees to continue working, however this would mean trading without a license in contravention of the law and the Council’s recent decision – which they cannot do.

Illegality as a reason for dismissal is something we see more often in cases where an employee has no legal right to work in the UK or their work permit/visa has expired, however there is no reason for why it cannot apply in other circumstances where continued employment would mean a contravention of a legal duty or restriction.

As with redundancy, in order for the dismissal to be fair, Fabric will need to follow a fair procedure before dismissing the employees.

If Fabric were to dismiss for illegality its employees would only receive their contractual entitlements (notice, holiday pay etc.).

3.       Some Other Substantial Reason (SOSR)

Finally, it is possible to dismiss the employees for “some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which the employee held” (Section 98(1)(b) ERA 1996). SOSR is a potentially fair reason for dismissal, and is seen as the ‘catch-all’ provision for dismissals where the employer is unable to apply one of the other four potentially fair reasons set out in Section 98 ERA 1996. There is no statutory definition of SOSR or any statutory guidance, however case law has established that the reason must be substantial – rather than trivial or insignificant. Whether a reason is substantial will be determined subjectively and on the facts of the case. We do consider, however, that a forced closure imposed by the Council is likely to be substantial.

SOSR will often overlap with other potentially fair reasons for dismissal. It is best for a business to take legal advice before electing to proceed with a SOSR dismissal, as they should not be seen as a ‘free for all’ in justifying the dismissal of an employee. In the case of Ezias v North Glamorgan NHS Trust [2011] UKEAT the Employment Appeal Tribunal warned against employers using SOSR as a veil to cover up the real reason for dismissal.

As with redundancy and illegality, in order for the dismissal to be fair, Fabric will need to follow a fair procedure before dismissing the employees.

If Fabric were to dismiss for SOSR the employees would only receive their contractual entitlements (notice, holiday pay etc.).