Redundancy - Definition, Procedure and Payment Explained.
Covid-19 has had a significant impact upon the nation. Now with the Coronavirus Job Retention Scheme and the New Flexible Furlough scheme being tapered out: businesses have been asked to contribute to their employees’ wages. This has meant that many businesses have already started to ask themselves whether they can afford to keep on as many staff as they have, or do they now have to consider making redundancies.
In this uncertain time, we want to discuss what is actually meant by redundancy, what employers should be doing when they are considering taking such steps, and what rights do employees have in such situations.
What is Redundancy?
Dismissal for redundancy is one of the potentially fair reasons for dismissal under s.98 Employment Rights Act 1996 (‘the ERA’). Although the term ‘redundancy’ is frequently used by employers when dismissing employees, it has a specific meaning which is defined by statute, as set out below. Only if the situation falls within the statutory definition can a genuine redundancy exist.
Any dismissal not falling within the definition will not automatically be unfair but may fall into another potentially fair reason under the ERA such as “some other substantial reason”, this covers scenarios where the work hasn’t ceased or diminished but the employer wants to restructure the business so as to make cost savings. This situation is often confused with redundancy but it’s very important that employers look at the words of the statute to consider whether circumstances satisfy a genuine redundancy situation. If you are unsure then we would invite you to seek independent legal advice.
So, what is the definition of Redundancy. Under s.139 of the Employment Rights Act 1996 (“ERA”) an employee will be taken to have been dismissed by reasons of redundancy if the dismissal is wholly or mainly attributable to one of the following:
1. the fact that his employer has ceased or intends to cease—
(i)to carry on the business for the purposes of which the employee was employed by him, or
(ii)to carry on that business in the place where the employee was so employed, or
2. (b)the fact that the requirements of that business—
(i)for employees to carry out work of a particular kind, or
(ii)for employees to carry out work of a particular kind in the place where the employee was employed by the employer,
have ceased or diminished or are expected to cease or diminish.
Mobility Clauses:
In relation to 1(ii) above, care needs to be taken in cases where there is a mobility clause within the employee’s contract (i.e. which may require the employee to work at other premises within a reasonable distance). In such circumstances the employee will have been dismissed by reason of redundancy if dismissed when their own workplace closes, even though there is a clause in their contract requiring them to work at a different branch as was the case in Bass Leisure Ltd v Thomas [1994] IRLR 104. Often employees consider that given such clause they should, and are entitled to, be moved to a different location. However, in Bass the Tribunal held that an employee’s place of work for the purpose of redundancy is a question of ‘fact’, taking into account where the employee ‘actually’ worked. Terms such as mobility clauses that allow for employees to be moved from one place to another are irrelevant for redundancy purposes. The Tribunal stated that expanding the location of work would be going too far.
However, a refusal to work at an alternative location may affect the employee’s entitlement to redundancy pay (see below) and may mean that they are found to have been dismissed by reason of misconduct, rather than by means of redundancy for failing to follow reasonable management instructions in compliance with such clause, and/or breach of contract (albeit such clause is subject to the provisions on reasonableness which is beyond the scope of this article).
In regards to 2 above, there does not need to be a reduction in the workforce: the fact that the employee is dismissed because they are unwilling to work on a temporary reduced basis (i.e. from full-time to part-time) may be a dismissal by reason of redundancy as was found in Packman (t/a Packman Lucas Associates) v Fauchon [2012] UKEAT /0017/12. The EAT in Packman, overruling an earlier decision, stated that “in such cases, the statutory wording must be specifically considered. Therefore, the need "for employees to carry out work of a particular kind" had diminished in this case, even though there had been no reduction in the need for a specific number of employees”. Thereby there was a redundancy dismissal entitling the Claimant to a redundancy payment. This case shows the importance of looking at the statutory wording when considering where the dismissal will fall.
Now more than ever employers will be looking at ways to make cost savings to enable them to overcome the financial devastation that coronavirus has caused. This may well be a reduction in staff hours as opposed to reducing the number of employees. Employers will need to be alive to the definition of redundancy if they are considering reducing hours to save jobs.
In general, employers are not permitted to unilaterally vary an employment contract. This means that should an employers wish to change an employee’s hours for example, to avoid redundancy, careful consideration needs to be given to the terms of the employment contract, and the means by which they are trying to enforce change, and the steps taken following the same.
Some employment contracts contain flexibility clauses which allows an employer to change the employee’s hours without consent, absent such clause a contract can be varied in one of three ways:
1. Consent of the employee;
2. Unilaterally altered (changed without consent); and
3. Termination and re-employment on new terms.
The latter two ways opens up an employer to liability for unfair dismissal or redundancy payment (subject to the employee having attained the 2 years qualifying employment). The circumstances of these dismissals are beyond the scope of this blog but keep an eye out as we will be doing an article on this, if you want to sign up to our newsletter this may be the easiest way to keep up to date. Alternatively, if you need advice sooner you can contact us or instruct us on a direct access basis to do so by using the contact form found here.
Presumption of Redundancy:
It should be noted that an employee is presumed to have been dismissed by his employer by reason of redundancy unless the employer is able to prove otherwise (section 163(2) ERA). Therefore, unless an employer shows otherwise an employee will be entitled to redundancy pay (subject to entitlement).
Procedure and Unfair Dismissal:
If a dismissal falls within the statutory definition above that does not make such dismissal automatically fair. Prior to a dismissal for redundancy, a fair procedure must have been adopted and that procedural aspect needs to be fair as well. This means that when an employer is selecting employees who are at risk of redundancy this must be done in a transparent, unbiased and objective way.
Where an employee feels that there is not a genuine redundancy situation, or feels that they have been unfairly selected, or a fair redundancy procedure was not followed, they may be entitled to bring Tribunal Proceedings for Unfair Dismissal pursuant to s.94 ERA 1996. An employee can only bring such claim under the ERA where they have 2 years qualifying service pursuant to s.108 ERA 1996.
A claim for unfair dismissal must be presented to the Employment Tribunal within 3 months after the effective date of termination (i.e. the date where notice expires, or where notice is not given then the date that termination of the employment contract takes effect (section 97 ERA)), subject to any extension for ACAS Early Conciliation. The Employment Tribunal has the power to extend such limitation where it was not reasonably practicable for the complaint to be presented before the end of that period (Section 111 ERA). This is an extremely high hurdle to surmount, so it is imperative that claims are issued on time.
As with other potentially fair reasons, the fairness of a redundancy dismissal will also be determined by the test of whether the decision to dismiss for redundancy falls within the range of reasonable responses of a reasonable employer in those circumstances and in that line of business (“Birchell Test”). Therefore, failure to follow a fair procedure will normally render the dismissal unfair.
A fair procedure generally comprises a number of stages as follow:
warning and consultation
fair basis for selection
consideration of alternative employment
opportunity to appeal
Where there is an agreed redundancy procedure or policy this should be adhered to. Although failure to abide by an agreed redundancy procedure will not in itself render the dismissal unfair, the Tribunal will be inclined to take it into consideration when determining such question. Further, a strict adherence to the above may not be required the Tribunal will look at the whole circumstances and assess the resources available to the business, and the circumstances at the time.
The main case concerning fairness of redundancy is Williams v Compair Maxam Limited. The Court gave guidance as to what certain steps an employer should follow which were:
• “An employer should seek to give as much warning as possible of impending redundancies so that the union and the employees can consider possible alternative solutions and alternative employment.
• An employer should consult the union (if one is present) as to the best means by which the desired management result can be achieved with as little hardship to the employees. The employer should seek to agree with the union as to the criteria to be applied in selecting the employees to be made redundant.
• The objective criteria should, as far as possible, be capable of being checked against such things as:
o —attendance record;
o —efficiency at the job; and
o —experience or length of service,
and should not purely depend upon the subjective opinion of the person making the selection.
• The employer should make sure that selection is made fairly in accordance with the criteria and consider any representations the union may make regarding selection.
• The employer should consider whether there is any alternative employment to offer the employees.”
Dealing with each stage in turn:
Warning and Consultation:
An employer should give as much warning as possible of any potential redundancy situation so that this will allow employees the time to consider alternative employment and contemplate their options moving forward.
There is no statutory obligation to consult employees in redundancy situations (where the employer is considering making less than 20 employees redundant), although as mentioned above, when looking at the fairness of the dismissal this is a factor the Tribunal will take into consideration. Therefore, it is common that employers conduct consultations with their employees. Consultations generally speaking should focus upon consideration of alternatives to redundancy, and inform the employees of the procedure for selecting employees for redundancy. The consultation must be ‘fair and genuine’ as was found in the case of Rowell v Hubbard Group Services Ltd [1995] UKEAT /44/94. However, it was accepted in Rowell that the need for consultation may not be reasonable in every case. This will depend upon a number of factors such as the nature and the size of the business.
Selection of the pool of employees and the criteria:
The employer must select a fair pool which is used to determine which employees will be considered for redundancy. A “selection pool” is the term used to identify the groups of employees who are at risk of redundancy and from which the employer chooses employees to be made redundant.
Where the redundancy dismissals are because the whole business is closing, all the employees will be dismissed, and a selection pool will not be relevant in those circumstances.
However, where the situation leading to the redundancies involves a ceasing or diminution in work of a particular kind, a selection pool will be relevant. “The issue for the employer in such circumstances will be whether to include in the pool just those performing the same role, or also those whose skills are interchangeable. An employer’s preference will usually be to keep the pool as narrow as possible, as this will keep the number of employees affected by the uncertainty of redundancy to a minimum.” – LexisNexis
However, where employers restrict the selection pools it is open to the employee to question this and may lead to a finding of an unfair procedure. As mentioned above, the range of reasonable responses test applies to the employer’s decision as to what is the appropriate pool for selection and it will be for the tribunal to consider whether it was reasonable for the respondent not to consider a wider pool of employees whose positions were similar. Where employers are considering using a narrow pool, they must be able to reasonably justify that decision, and will be well advised to record the same in writing so that documentary evidence can be produced at Tribunal if required.
Nevertheless, the selection of the pools is generally a matter for the employer, as held in Taymech Limited v Ryan [1994] UKEAT/663/94. In Taymech, the Claimant was dismissed as she was the only telephonist, however upon reviewing her duties - irrespective of her job title - the Court stated there could have been meaningful comparison between her skills and those of four or five other administrative workers in the office, whom should have been pooled with the Claimant. The Court in Samels v University of Creative Arts [2012] EWCA Civ 1152 at [12] endorsed the view that the pool should not only include those employees doing work of a particular kind, but also those employees whose jobs are similar to, or interchangeable, with the employees doing a particular kind of work. It may, therefore, be important to look beyond the job title of the employees when deciding which employees should be pooled, and focus more on the duties the employees are carrying out, and decide whether it could be argued that the duties were similar, or whether there is a justifiable reason to restrict the pool. Bear in mind they do not need to be exactly the same for such employees to be pooled. The tribunal is entitled, if not obliged, to consider with care and scrutinise carefully the reasoning of the employer to determine if they have genuinely applied their mind to the issue of who should be in the pool, and whether by choosing such pool the employers actions were reasonable and fair.
Once the pool of employees is selected, the employer must impose objective and reasonable selection criteria to decide who from the pool is made redundant. Such criteria should be, as far as possible, objective and not based upon the subjective view of the decision-maker as was decided in the case of Hartley & Anor v Marshalls Mono Ltd [1995] UKEAT /481/4. This means that the decision should not be based upon who is the favourite of the decision-maker, but on a comparison of objective grounds such as timekeeping, attendance and disciplinary record. Careful consideration also needs to be given to avoid any discrimination. For example, utilisation of a last in first out method has been criticised in the past as being potentially discriminatory on grounds of age (“Joanne Allan v Oakley Builders and Groundwork Contractors Ltd: 1403798/2018”). Whilst there was no discrimination found in Allan the court identified that there may well be times when those with shorter service will be much younger than the employees with longer service and may in those circumstances amount to discrimination. Likewise, making someone Redundant because they have the highest sickness absence could be disability discrimination, if the employee falls within the definition under the Equality Act 2010 as being disabled, and those sickness days are as a result of their disability. Careful consideration needs to be given to the selection criteria and employers should be as transparent and objective as they can be in the circumstances.
Furthermore, we pause to note at this stage, that employers should also be alive to the difficulties their disabled employees may have in participating in the redundancy procedure, and employers should of course give consideration throughout the redundancy process to whether reasonable adjustments need to be made in respect of such employees to either the selection criteria and/or the redundancy procedure.
It has previously been held:
- “where the employer knows (or ought reasonably to know) that the use of productivity and accuracy selection criteria with weightings is a provision, criterion or practice which has a substantial adverse effect on a disabled employee, the duty to make adjustments arises in the context of those particular criteria and their weightings - Dominique v Toll Global Forwarding (UKEAT/0308/13/LA)
- where the employer knows that an employee is unable, as a consequence of his disability, to attend ‘administrative meetings’, the employer has a duty to make reasonable adjustments to the practice of requiring those in the redeployment pool to attend an interview, so that the employee is not put at the substantial disadvantage of not being able to demonstrate his suitability for a post. The duty is not conditional upon the employee expressing an unequivocal interest in the post - LB Southwark v Charles (UKEAT/0008/14/RN)”
Alternative employment:
In some cases an employer will be expected ‘to do his best to see whether there is another role in the organisation which an employee at risk of redundancy can be offered, but it does not have to be at the same grade’ (Samels v University of Creative Arts [2012] EWCA Civ 1152 at [26]). Although there is no statutory obligation to do so (on an individual basis – this article does not consider collective consultations where there may be such obligation). It is clear that the employer is not usually required to consult on avoiding a redundancy situation all together by considering alternatives to redundancy, but as a matter of good practice it would be advisable to consider the same.
Furthermore, where there is an offer of alternative employment in a redundancy situation it must be offered on reasonable terms (Elliott v Richard Stump Ltd [1987] IRLR 215). Although there is no obligation on an employer to offer like-for-like work. Where there is an unreasonable refusal of the offer for alternative work, this may affect the employee’s claim under unfair dismissal (as stated in Chard v Hartlepool Borough Council[1992] UKEAT /202/91) and/or to statutory redundancy pay as outlined below.
Generally, what most employers do in the circumstances is terminate an individual’s position on grounds of redundancy and or some other substantial reason and ask employees to apply for alternative positions. This way the employer has greater flexibility to select new terms and conditions as briefly mentioned above.
Continuity of Employment:
In circumstances where the employer makes an employee redundant but then the circumstances of the employer changes, if the employer wishes to re-employ the redundant employee but wants break continuity of employment by the intervening redundancy, there should be a clear calendar-week, starting on a Sunday, between the termination of employment and the re-employment. Any continuity of service that there might otherwise have been will normally be broken in those circumstances, provided that there has been no agreement between the parties to preserve the same. Any new contract in this situation should make clear that it is a new engagement of employment and re-engagement of the old contract.
However, the position changes if the offer of new employment is made before the original employment has ended. In those circumstances, continuity will be preserved on the caveat that the new position will start no more than four weeks after the redundancy date, any longer than four weeks and this has the potential to break the continuity.
Time off to look for other work:
Under section 52 ERA, once an employee has been given notice of dismissal by reason of redundancy, they are entitled to take reasonable time off during their working hours to look for new employment or to make arrangements for training for future employment. However, this is subject to the fact that the employee must have been, at least, continuously employed for a period of two years by the time that the date of notice is due to expire.
An employee has a further right, under section 53 ERA to be paid for any time taken off under section 52. This payment is also due where an employer unreasonably refuses to permit the employee to take time off work under section 52 (section 53(4) ERA).
It should be noted that the employee will not be able to take off any time which is unreasonable and that any time spent which is not for one of the specified exceptions will not be permitted. This entitlement is not available to police officers, mariners and members of the armed forces.
Any claim sought to be raised that the employer unreasonably refused to allow time to be taken off, or failed to pay any amount due under section 53 should be brought within 3 months from when it is alleged that the time off should have been permitted (subject to any extension for ACAS Early Conciliation), unless the Employment Tribunal finds that it was not reasonably practicable for the complaint to be presented before the end of that period (section 54 ERA).
Redundancy pay:
The starting point under section 135 of the ERA is that an employer shall pay the employee redundancy pay where: a) the employee has been dismissed for redundancy; or b) is eligible for payment by reason of being laid off or kept on short-time. This article focuses upon the former.
The employee, therefore, has an enforceable right to redundancy pay from their employer. However, there are requirements that the employee must satisfy before they can qualify:
1. s/he was an employee;
2. s/he were dismissed by reason of redundancy – note presumption outlined above;
3. s/he was continuously employed for a period of not less than two years ending with the date that notice expires, or where notice is not given on the day when termination of the employment contract takes effect (sections 155 and 145 ERA).
In relation to the second point. An employee will be shown not to have been dismissed by reason of redundancy where:
a) S/he were subject to summary dismissal in accordance with section 140 ERA;
b) S/he unreasonably refused an offer to accept to renew or to re-engage with a new contract of employment which is an offer of suitable employment (section 141 ERA). For example, the employee may not be entitled to redundancy pay where they have unreasonably refused the offer to work at a suitable alternative location.
In circumstances where the employer relies upon the offer a suitable offer of employment, it is upon the employer to show that it was suitable (Kitching v Ward [1976] ITR 464) and the offer must have been made before the end of employment and was to take effect not more than four weeks after that date. It is also for the for the employer to show that any refusal was unreasonable. The question of reasonableness “depends on factors personal to the employee and is assessed subjectivi[l]y from the employee's point of view at the time of the refusal“(Devon Primary Care Trust v Readman [2013] EWCA Civ 1110 at [21]).
The amount of redundancy payment to be awarded is governed under section 162 ERA and is primarily dependent upon the length of employment. An employee/employer can use the online calculator to calculate the redundancy payment by using the link here and completing the relevant parts of the form.
Redundancy payments are calculated as follows:
half a week's pay for each year of employment up to the age of 22;
one week's pay for each year of employment between the ages of 22 and 40;
one and a half week's pay for each year of employment over the age of 41;
a maximum of 20 years' employment can be taken into account; and
there is a statutory maximum limit to a week's pay. This is set annually and is currently £538 per week (as of April 2020).
Maximum redundancy payment is capped at £16,140.00
A claim for redundancy payment must be made within 6 months (subject to any extension for ACAS Early Conciliation) in accordance with section 164 ERA; however, the Tribunal has the discrimination to disapply such limitation where they find that it is just and equitable to do so. This is not to be confused with a claim for unfair dismissal where the limitation is 3 months (discussed above).
We acknowledged that this is an extremely worrying and stressful time for all our readers, and we hope the above assists you. However, If you require any specific or additional legal advice which has not covered in this article above, please get in touch using the contact us form.
Contributors:
Nathan Davies - Pupil Barrister at Park Square Barristers.
You can follow Nathan on:
