Unfair dismissals by reason of redundancy

In the fourth in a series of articles on unfair dismissal, Emma Wilkinson looks at fairness in dismissals by reason of redundancy

This article was originally published in the May/June 2016 issue of Adviser magazine and was correct at the date of publishing.

Advising a client who is facing redundancy is a common scenario. It often involves a number of different aspects including identifying the redundancy situation; evaluating the employer’s rationale and analysing process and procedure in order to identify whether the dismissal is fair. As with the previous articles in this series, we do not cover every eventuality, rather we focus on the most common situations.

Identifying a redundancy situation: the definition of redundancy

There are two different definitions of redundancy in UK law.

The first definition of redundancy is found in the Employment Rights Act 1996 (’the ERA 1996’) and is used in respect of claims relating to unfair dismissal and entitlement to statutory redundancy pay.

The second is derived from European law, namely the Collective Redundancies Directive 98/59/EC, which is incorporated into UK law via the Trade Union and Labour Relations Consolidation Act 1992 (‘TULRCA 1992’). It relates to the obligation to collectively consult and inform employees about impending redundancies, where the employer is proposing to dismiss 20 or more employees at any one establishment within a period of 90 days.

This article covers non collective redundancy process only.

A redundancy situation is defined in s139 of ERA 1996 as follows:

(1) For the purposes of this Act an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to -

(a) 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

(b) the fact that the requirements of the business -

(i) for employee 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.

It is crucial to understand the definition for two reasons:

● If a dismissal is ‘by reason of’ redundancy, the employee is entitled to certain rights, such as a redundancy payment.

● Dismissal ‘by reason of’ redundancy is listed as one of the potentially fair reasons for dismissal under s98 of ERA 1996, along with capability, conduct and SOSR (which have been covered in previous articles in this series).

Is there a ‘dismissal’?

Often the fact that there has been ‘a dismissal’ is not at issue between the parties, but it is worth remembering that, where it is at issue, it is the claimant, or employee, who has the burden of proving to the tribunal that there has been a dismissal.

As elsewhere in employment law, a ‘dismissal’ includes a constructive dismissal and the non-renewal of a fixed-term contract. So, for example, it is possible for an employee to argue that s/he has been fairly (or unfairly) constructively dismissed by reason of redundancy, or that redundancy is the reason for the non-renewal of a fixed term contract — and so a redundancy payment is payable, provided that the employee has the required two years’ service.

An employee who volunteers for redundancy is routinely to be regarded as dismissed by reason of redundancy. The proposition is well established. The leading case is Burton Allton & Johnson Ltd v Peck [1975] IRLR 87.

Is the dismissal ‘by reason of redundancy’?

When ascertaining whether a dismissal is ‘by reason of’ redundancy, an employment tribunal must ask itself two questions:

● is there a redundancy situation? and;

● if there is a redundancy situation, is the dismissal of this particular employee, or these particular employees, ‘attributable to’ the existence of the redundancy situation?

What is a ‘redundancy situation’?

The term ‘redundancy situation’ is not used anywhere in statute. It is a common term used to mean that the redundancy falls within the meaning of s139 of the ERA 1996. To paraphrase s139 ERA there are 3 types of redundancy situations:

● closure, (whether temporary or permanent) of a business as a whole

● closure of a particular workplace where the employee was employed

● the fact that the requirements of the business for employees to carry out work of a particular kind have ceased or diminished.

Is the dismissal ‘attributable to the redundancy situation’?

A dismissal is to be taken to be ‘by reason of’ redundancy when it is ‘attributable to’ the fact that there is a redundancy situation.

Again, the correct approach, as set out in the case law, leads to some counterintuitive results. Where a redundancy situation exists within a business, a dismissal will be ‘by reason of’ redundancy where the dismissal is caused by, or ‘attributable to’ the redundancy situation. This is the case even if the particular employee’s role is not ‘redundant’.

What is ‘work of a particular kind’?

The emphasis on the work requirement of the business means that it is usually said that the consideration is whether the job is redundant not whether the employee is redundant. However, the statutory definition is actually ‘work of a particular kind’ meaning that the nature of the work involved is key.

Specialist skills

The Tribunal needs to determine as a question of fact whether the work is of a sufficiently particular kind that there has been a reduction in the requirements of the business for employees to carry out work of a particular kind.

In Shawkat v Nottingham City Hospital NHS Trust (№2) (2002) ICR 7, the Court of Appeal considered the case of a thoracic surgeon who was dismissed following a reorganisation for refusing to perform cardiac work rather than thoracic work. The determination to be considered was, in a changing terms and conditions scenario, whether the requirements of the employer’s business for employees to carry out work of a particular kind has diminished. In this case, the requirements of the business for employees to carry out thoracic work had diminished, meaning that he was redundant rather than dismissed for SOSR).

Function or contract?

The leading case in this area is Murray v Foyle Meats (1999) ICR 827. The employees were employed in a livestock slaughtering business. They could be required under their contracts to work all over the factory including in the boning hall, the loading bay or the slaughter hall. Whilst they occasionally carried out work in other parts of the factory, they predominantly worked in the slaughter hall. The business suffered a downturn and needed less employees to work in the slaughter hall and 35 employees were subsequently made redundant. The slaughter hall employees were made redundant and claimed that they had been unfairly dismissed because all employees were on the same contracts and could all be required to work throughout the business. As such, they argued, rather than being placed in a pool for selection of slaughter hall men, the pool for selection should have included all employees.

The House of Lords in Murray held that the correct test was to look at whether the requirements of the business for employees irrespective of the terms of their contract or the work they actually did. The correct test therefore was to ask whether the employer’s need for employees to carry out work of a particular kind - in this case slaughter hall men - had ceased or diminished or was expected to cease or diminish, which it had. The second question - whether the dismissal was attributable wholly or mainly to that state of affairs was then also answered affirmatively and the Claimants had NOT been unfairly dismissed.

The effect of the Murray decision is that the focus is on determining whether there is a diminution of the need for employees to carry out work of a particular kind rather than a diminution in the quantity of amount of work.

Bumping

The emphasis of the Murray decision also confirmed that ‘bumping’ is capable of constituting a dismissal by reason of redundancy.

Bumping is the scenario whereby an employee A is dismissed because to make room for another employee B. This is because the employer could have continuing need for employees carrying out the work which A does, but have a reduced need for employees to carry out work of a particular kind which B does; so A can be dismissed by reason of redundancy so that B can take his or her job even though there is no diminution of a work of a particular kind which B carried out.

Of course, it remains necessary to satisfy the second limb of the Murray test; is the dismissal attributable wholly or mainly to that state of affairs?

As such, the dismissal of employee A must be because of the redundancy situation of B, rather than for some other reason such as because A is black or pregnant or for capability reasons.

In the EAT decision in Leventhal Ltd v North (2004) the EAT held that it can be unfair for an employer to fail to consider offering alternative employment to a potentially redundant employee, even in the absence of a vacancy. Whether or not such a failure makes the dismissal unfair is a question of fact for the Tribunal to determine, based on considerations such as:

● Whether or not there is a vacancy;

● How different the two jobs are;

● The difference in remuneration between them;

● The relative length of service of the two employees;

● The qualifications of the employee in danger of redundancy;

● Any other relevant factors which apply in a particular case.

As such, a failure to consider bumping does not make a dismissal unfair. However, a failure to consider bumping may make the dismissal unfair dependent on the circumstances.

Establishing whether the redundancy dismissal was unfair

When examining the fairness or otherwise of an apparent redundancy dismissal, we must start by looking at the stages an employment tribunal will move through in order to make its findings, and how the burden of proof operates:

1. It is for the employee, or claimant, to establish first that there has been ‘a dismissal’. Usually the fact of a dismissal is not in dispute, so it is rare that a claimant has to provide evidence to establish this fact.

2. Once it has been established that there has indeed been a dismissal, it is for the employer to show, or prove, that the reason given for the dismissal falls within the list of potentially fair reasons for dismissal set out in s98 of ERA 1996. this list comprises ‘capability’, ‘conduct’, ‘redundancy’, ‘that continuing to employ the employee would contravene some other duty or restriction imposed by law’ and ‘some other substantial reason’.

3. Once the employer has shown that the dismissal was for a potentially fair category of reason, there is then a neutral burden of proof; it is for the tribunal to hear all of the evidence and decide whether, given the potentially fair reason, it was actually reasonable in all the circumstances of the case, having regard to equity and merits, for the employer to treat that reason as sufficient reason for dismissing that particular employee. In a redundancy dismissal, it is here that the tribunal will look at procedural fairness; was there consultation, was the pool for selection for redundancy a reasonable one, was a fair selection procedure carried out, and was there an unreasonable failure to identify and offer suitable available alternative work?

Following on from that, there are two ways of attacking the fairness of a redundancy dismissal:-

1. That ‘redundancy’ was not the real potentially fair reason for the dismissal, because:

• what happened in the company did not fall within the definition of redundancy in s139 of ERA 1996, or
• that it did fall within s139 but the employee’s dismissal was not ‘attributable to’ that redundancy situation, or
• in the most extreme cases, where there is a deliberate attempt to disguise a discriminatory dismissal, an automatically unfair dismissal or, for example, a conduct or capability dismissal as a redundancy dismissal.

2. That redundancy was the real reason for the dismissal, because there was a redundancy situation and the employee’s dismissal was ‘attributable to’ it, but from that point onwards the genuine redundancy dismissal was rendered unfair by unfair procedure.

Not a genuine redundancy?

This is one of the most commonly misunderstood aspects of redundancy law. Employees will often be convinced that their redundancy was unfair because, effectively, they believe that the employer has made the wrong decision about how to respond to a given situation, i.e. by making them redundant.

In order to understand this, it is important to stress again that a tribunal is interested in redundancy as the reason for the dismissal, not the employer’s business reasons for arriving at the decision that there is a redundancy situation - for example deciding to close a workplace or that its requirements for employees to do work of a particular kind have ceased or diminished.

It is not a tribunal’s task to manage how the employer makes decisions or conducts its own business.

It is generally not open to an employee to claim that his dismissal is unfair because the employer acted unreasonably in choosing to make workers redundant. The tribunals will not sit in judgment on that particular business decision.

The scope of review which is afforded to tribunals is limited. Essentially a tribunal requires the employer to provide evidence to show that the alleged reason for the dismissal does have some basis in fact, and that a proper business decision on the requirement for employees to do work of a particular kind has been reached. If the employer fails to satisfy a tribunal of this, he is not establishing that redundancy is the true reason for dismissal. However, the wisdom or otherwise of that decision remains beyond the tribunal’s scrutiny.

The ERA is not concerned to enquire what caused the redundancy situation. The question is what was the reason for the dismissal, not what was the reason for the redundancy. ERA 1996 enquires whether the dismissal was attributable to a cessation of the business or a cessation of, or diminution in, its requirements, but it says in terms that the cessation or diminution may arise ‘for whatever reason’ (ERA 1996 s 139(6)).

To that extent the employer does not have to justify a decision to make redundancies to establish fairness.

Procedural fairness

Even where the employer is proposing to dismiss less than 20 employees, the employer will be expected to go through a fair process, which will involve at least the following:

● Consulting individual employees before dismissing them;

● Properly identifying the ‘pool’ of those who are potentially redundant;

● Adopting fair criteria, and applying those criteria fairly, to select individuals from that ‘pool’ of potentially redundant employees;

● Informing the redundant employee of any available alternative employment that might be suitable for them.

In redundancy dismissals, as in capability and conduct dismissals, the ‘band of reasonable responses’ test applies. The test derives from Iceland Frozen Foods Ltd v Jones 1983, EAT, reaffirmed by the Court of Appeal in Foley v Post Office; HSBC Bank plc v Madden 2000, CA 2000. Authority for the proposition that the test applies in redundancy dismissals derives from Williams and ors v Compair Maxim Ltd EAT 1982.

Provided that, in respect of procedural as well as substantive fairness, the employer’s approach to the redundancy situation, to consultation, to the pool, to the selection criteria etc falls within the band, the dismissal will be fair.

Consulting each employee

The employer should consult each affected employee before dismissal notices are handed out, so that there is a chance of real consultation and time for the employee to respond.

Pools for selection

The group of employees at risk of redundancy - the group from whom the redundancy selection is going to be made - is known as the ‘pool’. It should be fairly chosen. A tribunal will review the pool for selection when determining whether the decision to dismiss the employee by reason of redundancy is within the band of reasonable responses and so an employer needs to carefully identify the employees who are at risk of redundancy. If the employee disputes that the pool is appropriate they should challenge it as part of the consultation process. However in the absence of a predetermined redundancy policy that sets out pools, a tribunal will afford an employer a significant amount of latitude when determining and defining the pool for selection. Ultimately the pool from which the selection will be made is for the employer to determine, and, in the absence of a customary arrangement or procedure, it will be difficult for an employee to challenge where the employer can show that he has acted reasonably (Thomas and Betts Manufacturing Ltd v Harding) 1980 IRLR 225.

Selection criteria

If the employer only intends to make some members of a pool redundant, then the employer must establish a ‘selection process’ i.e. how it will select those to be dismissed. It order to be fair, the employer should, so far as is possible, base its selection criteria on objective and transparent criteria. This means it should not be based on an individual’s opinion and, where possible, should be verifiable by data such as attendance and appraisal records.

A tribunal is not able to impose its own view on the reasonableness of the selection procedure chosen in a particular circumstance. In general, employers are given a wide ambit in their choice of selection criteria and procedure and a tribunal will only interfere with selection criteria and procedures which fall outside the band of reasonable responses.

Unreasonable failure to consider and/or offer suitable alternative employment

In order to ensure that a dismissal is unfair, an employer must have taken reasonable steps to identify whether it (or even another company within the same group) has other employment. Offers may be made of work which is much lower paid, or of lower status. That does not mean that an employee will necessarily lose their redundancy pay if they reasonably refuse an offer or the offer is unsuitable, but merely that the employer must offer them an option if it exists, in order to ensure that all alternatives to dismissal are explored and that the dismissal is fair.

Discriminatory selection criteria

Where the employee is selected for redundancy because of a protected characteristic such as race, sex or pregnancy then this will be directly discriminatory contrary to s13 of the Equality Act 2010. Reasonable adjustments should be made in respect of disabled employees where appropriate during the redundancy procedure; for example, selection criteria should take into account circumstances where absences or performance issues have been disability-related.

‘New school’ redundancies

If the process above does not look familiar, that may be because it has become common practice to approach redundancies in a different way over recent years and simply dismiss the entire affected section of the workforce and invite them to apply for a slightly different role. If they interview successfully then they are offered the new role with a trial period and if they are unsuccessful then they are made redundant. This avoids the need to engage with many of the procedural fairness aspects of the redundancy process and affords the employer much greater flexibility in its hiring processes. Provided there is a redundancy situation and the dismissal is by reason of redundancy then dismissals effected by this procedure are capable of being fair if the employer’s approach falls within the range of reasonable responses.

Compensation

Claimants who are claiming that a redundancy dismissal is unfair will often have received their redundancy payments and notice. In nearly all circumstances these amounts will be offset against the basic and compensatory awards, effectively negating the basic award completely and reducing the compensatory award. A tribunal will only make a further substantive compensatory award where not only has it found the dismissal to be unfair, but where it is persuaded that a fair procedure would have led to retention of employment; it is crucial when running a case to incorporate evidence and argument that addresses this aspect.

Comment

As with most employment rights, it is easier to argue to stay in your job than argue for re-instatement or remedy post-dismissal. As such, if you are advising a client who is facing an unfair redundancy dismissal you should raise any issues or concerns as part of the consultation process. This will give an employer the opportunity to rectify mistakes and dismiss fairly, but it also allows for the possibility of the client keeping their job.

Emma Wilkinson is the Senior Employment Expert in the Expert Advice team at Citizens Advice and a member of the Adviser Editorial Board. She can also be found on Twitter @emmawilksCAB