· Features

Toys 'R' Us: A not so merry Christmas

Toys 'R' Us has recently confirmed its intention to restructure its business

This will involve (among other things) the closure of at least 26 UK stores. The company, employing 3,200 people in the UK, anticipates that it will make approximately 800 jobs redundant.

The Toys 'R' Us announcement closely follows Palmer & Harvey appointing administrators and suggests that retailers’ woes are far from over.

Redundancy requirements

It remains the case, even in the current predicament that Toys 'R' Us finds itself in, that a fair process must be followed before any redundancies occur.

For those stores employing more than 20 people, there is likely to be a need to collectively consult with employees representatives (either with a trade union or employees who are elected to take on such a role) before any redundancy occurs. In addition, consultation should also take place with employees themselves.

The collapse of Woolworths revamped what an ‘establishment’ is when looking at collective consultation so, as a rule of thumb, each Toys 'R' Us store is likely to be treated as a separate exercise. This may mean that the period of consultation required is slightly shorter, namely 45 days rather than 90 days, if each store has less than 100 employees.

Toys 'R' Us will no doubt be cognisant of the costs of getting this process wrong. Aside from the unfair dismissal claims that would then no doubt follow, there are additional awards of up to 90 days’ pay for skipping the collective consultation process.

While we cannot profess to know the salary of Toys 'R' Us employees, a worst-case scenario for failing to follow the correct steps could amount to £15 million, which would be painful for any company, not least one in financial difficulties.

In saying this, no doubt Toys 'R' Us has already factored the consultation requirements into its proposed timescale, since it is not proposing the first of the closures before next Spring.

The pension scheme

One of the issues Toys 'R' Us is likely to face is the role of the pension scheme in its wish to enter into a Creditors Voluntary Arrangement (CVA).

To get approval for a CVA 75% of the creditors need to vote in favour. As the pension fund is one of the creditors, which some commentators say is £18 million in deficit, it appears that the pension scheme will need to be ‘on board’ if the CVA is to be given the go ahead.

Given the recent issues at BHS, the pension problems will no doubt be closely scrutinised by many, not least by the Work and Pensions Select Committee.

There are myriad challenges for the retail sector, whether that be economic uncertainty following Brexit affecting consumer activity, or simply that Millennials have moved more to e-retailing. What has always been important, perhaps even more so now, is the ability to meet consumer needs and choices.

In an environment where change is necessary it is a delinquent company that fails to listen carefully to its HRD prior to effecting, and indeed costing out, the employment requirements as a first step to any change.

David Israel is a partner and Catherine Hawkes a solicitor in the employment team at Royds Withy King