Employment Seminar

The Employment Department held an Employment Law Seminar in January which provided a summary of Employment Law relating to redundancy.

Below is a brief synopsis of the seminar material. If you would like further information, please contact Bethan Southcombe on 0117 945 3084 or e-mail employment@metcalfes.co.uk

REDUNDANCY - GETTING IT RIGHT

SECTION ONE

MEANING OF "REDUNDANCY"

In order to fall within the statutory definition of "redundancy" as set out in section 139(1) of the Employment Rights Act 1996 (ERA 1996), an employee's dismissal must be "wholly or mainly attributable to" the employer:

Ceasing or intending to cease to carry on the business for the purposes of which the employee was employed by it (business closure);
Ceasing or intending to cease to carry on that business in the place where the employee was so employed (workplace closure); or
Having a reduced requirement for employees to carry out work of a particular kind or to carry out work of a particular kind at the place where the employee was employed to work (reduced requirement for employees).

The test for establishing a redundancy dismissal

The correct test for establishing whether a dismissal is a redundancy dismissal is set out in Safeway Stores plc v Burrell [1997]. This case set out a simple 3-stage test. A tribunal must decide:

(1) Was the employee dismissed?

(2) If so, had the requirements of the employer's business to carry out work of a particular kind ceased or diminished, or were they expected to cease or diminish?

(3) If so, was the dismissal of the employee caused wholly or mainly by the cessation or diminution?

This test was approved by the House of Lords in Murray and anor v Foyle Meats Ltd [1999].

SECTION TWO

UNFAIR DISMISSAL

Employees with a year's continuous employment are entitled not to be unfairly dismissed (section 94, ERA 1996). A redundancy is a potentially fair reason for dismissal under section 98 of ERA 1996.

Even if a dismissal is genuinely on grounds of redundancy, whether it is fair or unfair to dismiss for that reason depends normally on the application of the general test of fairness in section 98(4) of ERA 1996. There are some circumstances where dismissal on grounds of (genuine) redundancy is automatically unfair.

If the dismissal is unfair, the employee is usually entitled to an unfair dismissal compensatory award, as well as a basic award or their statutory redundancy payment. The amount of the statutory redundancy payment and the maximum compensatory award is increased in February each year. The current rate is £63,000.

Potentially unfair redundancy

Even if a redundancy dismissal is not automatically unfair, it can still be unfair under section 98(4) of ERA 1996 if the employer fails to satisfy the tribunal that, in the circumstances, it acted reasonably in dismissing the employee. Here, issues such as consultation, selection and the offer of alternative employment are key. In Polkey v A E Dayton Services Ltd [1987] the House of Lords held that, in the case of redundancy, an employer will normally not act reasonably unless it:

Warns and consults any affected employees (or their representative).
Adopts a fair basis on which to select for redundancy.
Takes such steps as may be reasonable to avoid or minimise redundancy by redeployment within its own organisation.

The employment tribunal must consider the band of reasonable responses test.

Therefore, a redundancy dismissal is likely to be unfair if any of the following applies:

There was a failure to consult with individuals.
An employer failed to consider properly the correct pool for selection.
Selection was on unfair grounds (other than automatically unfair grounds) such as selection on subjective grounds.
There was a failure on the part of the employer to offer suitable alternative employment (see Alternative employment below).

Time limit for bringing claims

When considering possible claims of unfair dismissal because of redundancy, it must be noted that employees can make a claim for compensation for unfair dismissal even after they have accepted their statutory redundancy payment. Generally, a complaint has to be presented to a tribunal within three months of the effective date of termination of employment.

The employee does not have to wait until their employment has ended as the complaint may be presented at any time after the employee has been given notice of dismissal.

Ways of avoiding redundancy

Any fair redundancy procedure should involve considering whether it is possible to avoid the need for redundancies.

Are volunteers for redundancy dismissed?

Early retirement versus redundancy

SECTION THREE

POOLS AND SELECTION

Fair selection involves the fair application of objective selection criteria to the correct pool of employees. Selection in breach of a customary arrangement or agreed procedure used to be automatically unfair but this is no longer the case the tribunal must instead determine whether the selection was fair or unfair under the general reasonableness test under section 98(4) of ERA 1996.

The pool

Factors that may be relevant in identifying the correct pool are whether:

Other groups of employees are doing similar work to the group from which selections were made.
Employees' jobs are interchangeable, in which case a wider pool might be appropriate (see Blundell Permoglaze Ltd v O'Hagen for an example).
The selection pool was agreed with the union or employee representatives.
It is not always necessary to select from a pool, for example, if an employee carries out a unique role that is disappearing.

Selection criteria

Potentially fair selection criteria include:

"Last In First Out" (or LIFO) used to be a common (and acceptable) formula for selecting those to be made redundant, although it does run the risk of being indirectly discriminatory against female employees and is also likely to amount to indirect age discrimination.
Individual performance and ability.
Attendance record.

Criteria that are unlikely to be fair as they are too subjective include "attitude to work" and "employees' best suited to the needs of the business".

Discriminatory selection criteria

Any redundancy selection criteria that discriminate directly on grounds of sex (including pregnancy), race or, sexual orientation, religion or belief, disability or fixed-term or part-time status will generally result in a finding of unfairness (in addition to a finding of unlawful discrimination). Selection on the basis of age alone will be unlawful direct discrimination and it is unlikely that it will be possible to objectively justify selection on that basis.

Criteria that have an indirectly discriminatory effect are also likely to render dismissals unfair if the employer is unable to demonstrate an objective justification for the adoption of such criteria.

Fair application of criteria

"Bumping"

As a result of the House of Lords' decision in Murray and anor v Foyle Meats Ltd [1999] it is now appropriate to consider substantially wider pools for redundancy than might have been thought appropriate previously. This case established that a dismissal of an employee can be regarded as attributable to a reduction in the employer's need for employees to do work of a particular kind notwithstanding the terms of the particular employee's contract or the employee's function.

Therefore, "bumping" dismissals (where an employee, whose job is redundant, is redeployed to another existing job and the employee in the existing job is the one who is actually dismissed for redundancy) may be allowed. Although the dismissed employee's job is not actually redundant, their dismissal is plainly due to redundancy, as the dismissal has been brought about by the reduced requirement for work of a particular kind, that is the work previously done by the other employee.

Whether it is unfair to dismiss for redundancy without considering alternative and subordinate employment ("bumping") is a matter of fact for the tribunal. This will depend on the following factors:

Whether there is a vacancy.
How different the two jobs are.
The difference in remuneration between the two jobs.
The relative length of service of the two employees.
The qualifications of the employee in danger of redundancy.
Other factors which may apply in a particular case.

Alternative employment

It is important to consider alternative employment for potentially redundant employees to ensure a fair and reasonable redundancy procedure. An employer should do what it can, so far as is reasonable, to provide alternative work. This includes considering alternative employment in any associated companies, as well as the employing company.

Employers are not obliged to create alternative employment for redundant employees where none already exists. However, if an employer does not consider finding the employee another job, there is a risk that dismissal may be found to be unfair. An employer need not offer an equivalent job; if employees are prepared to accept jobs of lower status, a failure to offer such a job may render a dismissal unfair.

The fairness of a redundancy dismissal will be judged not simply at the date on which notice is given but also with regard to events up to the date on which it takes effect. So if an alternative job becomes available in that period the employer should offer it to the redundant employee or at least make them aware of its existence.

It is also important to note that, when considering alternative employment, any employees at risk of redundancy who are on maternity leave have special protection and have an automatic right to be offered any suitable vacancies.

Suitability

The issue of suitable alternative employment can affect an employee's entitlement to a statutory redundancy payment. If an employee unreasonably refuses an offer of suitable available alternative employment made before the date on which the redundancy dismissal takes effect (or within four weeks of that date), they will lose their entitlement to a redundancy payment if the refusal was unreasonable.

The question of the suitability of the alternative employment is objective.

Trial periods

If an employee accepts an offer of alternative work they are entitled to a statutory four-week trial period to "test" the new employment. If the employee terminates their employment (or gives notice to terminate) during the trial period, they will be treated as having been dismissed for redundancy from the date on which the original contract terminated. The employee is also treated as having refused the offer of a new job. Consequently, if the new job was an offer of suitable employment, and the employee unreasonably refused it, they will not be entitled to a statutory redundancy payment.

During the statutory trial period, if the employer dismisses the employee for a reason connected with the change in terms and conditions, then the employee is treated as having been dismissed for redundancy from the date on which the original contract terminated. However, if the employer dismisses the employee for an entirely unconnected reason (for example, misconduct), then the dismissal will be the actual date of dismissal.

The parties may agree to a trial period of longer than four weeks in strictly limited circumstances within the framework of the statutory scheme. The extension must be to retrain the employee for employment in the new job. An agreement for an extended trial period must also:

Be in writing and be agreed before the employee begins work under the new contract.
State the date on which the retraining will finish.
Identify the terms of employment that will apply to the employee after the retraining period has finished.

Individual consultation

For a redundancy dismissal to be fair, the employer must normally warn employees of the possibility of redundancy and then consult individually with them before reaching any firm decision regarding their dismissal. A procedural failure does not automatically lead to a finding of unfair dismissal (unless the minimum statutory DDPs) are not complied with. The tribunal will look at all the circumstances to decide if, in the particular circumstances, the employer has acted reasonably in dismissing the employee. However fair consultation usually means consultation whilst the proposals are still at a formative stage, providing adequate information on which to respond, providing adequate time to respond and conscientious consideration of arguments raised by the affected parties.

Matters to discuss during consultation

The matters that should be discussed during the consultation process will depend on the specific circumstances but, typically, consultation will include the following:

Notification of the fact that the individual has been provisionally selected for redundancy.
Verification of the basis for selection.
An opportunity for the employee to comment on their redundancy selection assessment.
An opportunity for the employee to put forward any suggestions for ways to avoid their redundancy.
Consideration of any alternative employment positions that may exist.
An opportunity for the employee to address any other matters or concerns that they may have.

Timing

If an employee is not consulted until too late a stage in the redundancy process for the consultation to be effective, recent cases show that a tribunal will be particularly concerned about a lack of adequate consultation.

Length

Case law has stated that seven days consultation was the "bare minimum", but may be more depending on the facts of the case.

Right to be accompanied

An employee attending a disciplinary or grievance hearing has the right to be accompanied at the hearing by a work colleague or trade union representative. However, it is not clear whether consultation meetings held during a redundancy exercise constitute "disciplinary hearings" for the purpose of the statutory right to be accompanied.

Advisable to allow them to be accompanied.

SECTION FOUR

AUTOMATICALLY UNFAIR REDUNDANCIES

A redundancy dismissal will be automatically unfair where the reason the employee was selected for redundancy was:

A reason connected with an employee having been summoned for or absent due jury service as specified in section 98B of ERA 1996.
A health and safety reason specified in section 100 of ERA 1996.
A reason relating to the employee's refusal to work on Sunday as specified in section 101 of ERA 1996.
A reason relating to the employee's rights under the Working Time Regulations 1998 (WTR) as specified in section 101A of ERA 1996.
A reason relating to the employee's role as an occupational pension scheme trustee as specified in section 102 of ERA 1996.
A reason relating to the employee's role as an employee representative (or standing for election for such role) for the purpose of collective redundancies or a transfer of an undertaking as specified in section 103 of ERA 1996.
That the employee making a protected disclosure as specified in section 103A of ERA 1996.
A reason relating to the employee's assertion of a statutory right as specified in section 104 of ERA 1996.
A reason relating to the employee's rights under the National Minimum Wage Act 1998 as specified in section 104A of ERA 1996.
A reason relating to the employee's rights under the Tax Credits Act 2002 as specified in section 104B of ERA 1996.
A reason connected with a request for flexible working as specified in section 104C of ERA 1996.
That the employee took protected industrial action within the meaning of section 238A Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).
A reason relating to the employee's rights under the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (PTW Regulations).
A reason relating to the employee's rights under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (FTE Regulations).
A reason relating to the employee performing functions under the Transnational Information and Consultation of Employees Regulations 1999 (TICE Regulations) or the Information and Consultation of Employees Regulations 2004 (ICE Regulations).
A reason relating to the employee performing functions under the European Public Limited-Liability Company Regulations 2004.

In addition a redundancy dismissal will be automatically unfair where the reason the employee was selected for redundancy was:

A reason relating to the employee's trade union membership or activities, section 153 of TULRCA.
A reason relating to trade union recognition or derecognition, schedule A1, paragraph 162 of TULRCA.
A reason connected with pregnancy, maternity, parental leave or dependant care leave; Regulation 20(2) of the Maternity and Parental Leave etc Regulations 1999 (SI 1999/3312) (MPL Regulations).
A reason connected with paternity and adoption leave; Regulation 29(2) of the Paternity and Adoption Leave Regulations 2002 (PAL Regulations).
A reason connected with a relevant transfer, regulation 7 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246).
A reason connected with the right to be accompanied at disciplinary and grievance hearings, section 12 of ERelA 1999.

Qualifying service

There is no qualifying service requirement in respect of any of the above claims of automatically unfair selection for redundancy, to which the usual one year qualifying service requirement applies). Prior to 1 October 2006, when it became unlawful to discriminate on the grounds of age discrimination, there was an upper age limit on the right to claim unfair dismissal. However there was no upper age limit in respect of any of the above claims.

Statutory dismissal and disciplinary procedures

The Employment Act 2002 introduced statutory dismissal and disciplinary procedures (DDPs) from 1 October 2004. As a result, employers must follow DDPs when contemplating dismissing employees.

The statutory dismissal and disciplinary procedures will be repealed and replaced with new procedures which will be in force from 6th April 2009.

Whether the DDPs apply will depend on the number of redundancies the employer is proposing to make at one establishment within a 90-day period.

If the employer is proposing to make 20 or more employees at one establishment redundant within a 90-day period, the employer is obliged under section 188 of TULRCA to inform and consult employee representatives and the obligation to follow a DDP does not apply. The DDP is excluded even if the employer does not comply with its obligations under TULRCA. It would also seem that, where the employer proposes to make 20 or more redundancies but subsequently makes less than 20, the DDP will not apply because the obligation under section 188 will have been triggered.

Where less than 20 redundancies are proposed in a 90-day period, the DDPs apply to each employee whom the employer contemplates dismissing.

The DDPs are intended to provide a bare minimum procedure for the employer to follow and failure to comply with the DDPs will make any dismissal to which they apply automatically unfair. A failure to follow the DDPs will also lead to an increase in any compensation awarded (whether in respect of an unfair dismissal claim or otherwise) of between 10% and 50%.

A failure to follow the DDPs does not amount to a freestanding right. Therefore, an employee must usually have at least one year's continuous employment (or a claim which does not require any continuous employment, such as a claim on one of the grounds of discrimination) in order to bring a claim of automatic unfair dismissal for a failure to follow the DDPs and be eligible for an uplift in compensation.

There is both a standard DDP and a modified DDP, however the modified DDP would never apply to a redundancy situation. The standard DDP provides for a three-step procedure as follows:

Step 1: the employer must set out in writing the grounds on which dismissal is being contemplated and invite the employee to attend a meeting to discuss the matter. In a redundancy case, this requires no more than specifying that there is a risk of redundancy.

Step 2: the employer must hold a meeting, prior to which the employer must have informed the employee of the basis for the grounds of action given to the employee pursuant to Step 1.

Step 3: the employer should provide the employee with a right of appeal against any decision to dismiss them.

There are also general requirements that must be followed. These are:

Each step and action must be taken without unreasonable delay.
The timing and location of meetings must be reasonable.
Meetings must be conducted in such a way that both employer and employee are given the opportunity to explain their case.
Where the meeting is an appeal meeting, the employer should, so far as is reasonably practicable, be represented by a more senior manager than attended the first meeting (unless the most senior manager attended that meeting).

Notification to BERR

Where 20 or more employees are being made redundant over a period of 90 days or less, the Secretary of State (in practice BERR) must be notified.

Where fewer than 20 employees are being made redundant over a period of 90 days or less, the duty to notify the Secretary of State does not apply.

Time off to seek alternative employment

An employee who is given notice of dismissal by reason of redundancy has a right to take a reasonable amount of time off with pay during working hours to seek alternative employment or to arrange training for future employment. If an employer unreasonably refuses to allow an employee time off or allows time off, but refuses to pay for it, the employee can apply to the tribunal who can make an award against the employer.

To qualify for the right to time off, employees must have been continuously employed for at least two years on the later of:

The date when notice expired.
The date when notice would have expired if the statutory minimum notice due under section 86 of ERA 1996 had been given.

Therefore all employees with at least two years of continuous employment qualify for the right to reasonable time off during working hours.

What are "working hours"?

What is a "reasonable" amount of time?

Does the employee need to produce evidence of appointments?

Should I pay the employee?

SECTION FIVE

STATUTORY REDUNDANCY PAYMENT

Employees with a least two years' continuous employment are entitled to a statutory redundancy payment if they are dismissed by reason of redundancy.

A statutory redundancy payment will generally fall within the £30,000 tax exemption for compensation payments made on the termination of employment.

Qualifying service

An employee must have two years of continuous employment at the relevant date in order to qualify for a redundancy payment. "Two years" means two years, each of 12 calendar months.

Prior to 1 October 2006 any period of continuous service before the employee's 18th birthday did not count when calculating qualifying service. However, this changed when the age discrimination legislation came into force in October 2006, as the upper and lower age limits for the statutory redundancy payment were removed.

An employee who would otherwise be entitled to a redundancy payment may be or become ineligible for a redundancy payment due to factors that are personal to them. This includes an unreasonable refusal of an offer of suitable alternative employment.

Amount of the payment

The amount of statutory redundancy pay to which an employee is entitled depends on their age, length of service and pay. The employee is entitled to:

One and a half weeks' pay for each complete year of service after age 41.
One week's pay for each complete year of service between ages 22 and 40.
Half a week's pay for each complete year of service under the age of 22.

Prior to 1 October 2006 any service before the employee's 18th birthday was disregarded. There was also an upper age limit for statutory redundancy payments of the normal retiring age (NRA) for any employee who has reached the NRA for their position, or, where there is no NRA or it is different for men and women or it is over 65, 65. In addition, where an employee was made redundant between the ages of 64 and 65, their redundancy payment was reduced by one-twelfth for each complete month of service following their 64th birthday.

This was changed when age discrimination became unlawful on 1 October 2006. Both the upper and lower age limits were removed. However the multiplier remained the same.

However the maximum length of service taken into account to calculate a redundancy payment is 20 years. A week's pay is also capped at the statutory maximum, which is increased in February each year.

Relevant date and calculation date

Where the employee earns more than the current statutory maximum week's pay, it will not be necessary to work out the relevant date or the calculation date in order to calculate the level of statutory redundancy payment, as the statutory maximum week's pay will apply.

However, where the employee earns less than the maximum week's pay, the employer must determine two significant dates to work out an employee's statutory redundancy entitlement. The first is the "relevant date". The relevant date is the date which is used to establish:

An employee's entitlement to a statutory redundancy payment is established (namely whether, on that date, the employee has two years' continuous service and is not the subject of an exemption order issued under section 157 (see Contracting out).
The amount of the statutory redundancy payment, as calculated under section 162 of ERA 1996.
The current statutory maximum week's pay.
When the six-month time limit for making a claim begins to run.

The second significant date is the "calculation date". This is the date on which an employee's "week's pay" is calculated.

Relevant date

The relevant date is usually the effective date of termination of the contract of employment. This is:

The date on which notice expires (where the contract is terminated by notice).
The date on which termination takes effect (where the dismissal is without notice).
The date on which the fixed-term contract expires (where the employment is under a fixed-term contract that expires without being renewed).

There are three situations where the relevant date will not be the effective date of termination of the contract:

Where the employer has given notice to the employee and, within that period of notice, the employee has served notice in writing on the employer to terminate the contract of employment earlier than the date specified in the employer's notice, the relevant date will be the date on which the employee's notice expires.
Where the employee has accepted an offer of alternative employment but decides to leave during a statutory trial period, the relevant date is the date of termination of the original contract. It is worth noting though that the six month time limit for claiming a statutory redundancy payment will run from the effective date of termination of the most recent contract.
Where the employer terminates the contract on either no notice or insufficient notice, the relevant date for calculating the employee's qualifying service is the date on which statutory notice under section 86 of ERA 1996 would have expired if it had been given. This will still operate where the employee has waived their right to notice and accepted a payment in lieu.

If an employee has been laid off or put on short time working, the relevant date is the last day of the last week of the lay-off or short time working the employee is relying upon.

Therefore, where a pay rise is agreed after the calculation date, the redundancy payment is calculated using the pay rate that applied at the calculation date (that is, prior to the pay rise being awarded).

Misconduct

Where an employee's conduct amounts to gross misconduct entitling the employer to dismiss the employee without notice, the employee loses their right to a redundancy payment. Accordingly, an employee may lose their right to a redundancy payment where either an incident of gross misconduct comes to light during redundancy consultation, or the employee is guilty of gross misconduct during their notice period.

Offsetting pension payments against redundancy payments

If an employee is entitled to a pension from his employer, then that may reduce or extinguish any claim they may have to a redundancy payment provided certain conditions are satisfied. In practice this is a right not generally used by employers.

Excluded employees

Usually, only employees are entitled to a statutory redundancy payment. An employee is "an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment".

Therefore, certain classes of workers are not entitled to a statutory redundancy payment. These are:

Independent contractors and self-employed individuals (including many casual workers).
Agents and workers provided by employment agencies and employment businesses (although it is necessary to consider whether an agency worker has an implied contract of employment, in which case they will be entitled to a statutory redundancy payment.
Office holders.
Partners,
Crown servants who have their own redundancy pay scheme and are excluded from the statutory scheme.
Government employees of any overseas territory.
Any household servants who are also close relatives of their employers.
Share fishermen and women.

Contracting out

Generally, any term or condition aiming to exclude an employee's rights under the statutory redundancy scheme is void. However, there are certain circumstances in which an employee may opt out of the statutory redundancy scheme, being collective contracting out under an exemption order, a legally binding compromise agreement or a conciliated settlement agreement.

Time limit for bringing a claim

An employee will lose their right to a statutory redundancy payment unless one of the following four events occurs within six months beginning with the relevant date:

The payment is agreed and paid by the employer.
The employee makes a written claim for payment to the employer.
The employee's right to a redundancy payment is referred to a tribunal.
The employee files a claim of unfair dismissal at a tribunal.

Contractual enhanced redundancy payment

In addition to a statutory redundancy payment, an employee may also be entitled to an enhanced redundancy payment and notice pay (if notice is not served).

Notice pay

Employees will also be entitled to payment of notice for any period of notice not worked.

Insolvent employers

Where an employer refuses to make a redundancy payment (or has made a part payment only), or the employer is insolvent, an employee may apply to the Secretary of State for A redundancy payment out of the National Insurance Fund

Contact

Judith Ellery Head of Employment

Bethan Southcombe Solicitor

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