Collective Redundancy Situation and Employee Representatives

With cuts in public spending and the new trend on the enforcement of competence, redundancies are now the main concern in public sector. This write-up give a brief guidance to bespoke practice as regards redundancies.

The perfect way out is to discuss an entirely new, or keep an existing, ‘non-redundancy’ agreement.

The most costly liability an employer can face arises from an inability to act in accordance with collective consultation obligations.

The danger of a protective award of up to 90 days of an uncapped pay per affected employee, together with the likelihood of unfair dismissal compensation if the right process is not followed means that employers must be sensitive enough to comply with their statutory duties where 20 or more redundancies are proposed in a 90-day period.

What is a redundancy?

According to the (Employment Rights Act 1996 s 136) a ‘dismissal due to redundancy’ for an individual is legally defined as when:

• the employer has ceased, or intends to cease, to carry on the business for the purposes of which, or in the place where, the employee was so employed; or

• the requirements of the business for the employees to carry out work of a particular kind, in the place where they were so employed (or otherwise), has ceased or diminished or are expected to cease or diminish.

The definition is therefore quite wide. Redundancy can occur when:

the workforce is reorganised and there is less work

changes in conditions mean the old job is quite different from the new one

the business relocates

an employer puts work out to contract

The issue bordering around redundancy is quite complex in the sense that the employer may need less or no workers to do a specific work, not because the work itself has stopped or reduced. The main reason for creating redundancies is because of reorganisation of working methods and efficiencies. Uncertainty may crop up because the process of making someone redundant could be capitalised on as an alternative method of dismissing an employee for reasons other than redundancy.

WHAT IS A COLLECTIVE REDUNDANCY?

An employer proposing a collective redundancy needs to consult before hand with the representatives of the affected employees and also, to bring to the notice of the Department of Trade and Industry, the estimated number of redundancies. A collective redundancy arises where twenty or more employees are to be made redundant at one establishment within a period of ninety days or less. Consultation must be completed, before any notices of dismissal are issued to employees. A complaint of failure to consult may be made to an employment tribunal, and must normally be brought within three months of the last of the dismissals. Where a complaint is upheld, the tribunal may make a protective award to employees of up to 90 days’ pay. In addition, the Government has made a small legislative change to make clear that notifications to the Department of trade and Industry must be made before any redundancy notices are sent to affected employees.

When can an employer carry out collective redundancies?

Employers can only the process of a collective redundancy after they must have carried out the consultation procedure. Notice of the dismissal to the affected employees should not be made until after the consultation processes have been completed.

Section 193 (1) and (2) of the Trade Union and Labour Relations (Consolidation) Act 1992provide that notice must be given to the Secretary of State at least 90 days before proposing to dismiss as redundant 100 or more employees at one establishment within a period of 90 days. The same applies with a limit of 30 days for between 20 and 99 employees before giving notice to terminate an employee’s contract of employment.

The date of notice is the date the notification is received by the Department for Business, Enterprise and Regulatory Reform. Failure to inform can lead to legal proceedings and on conviction up to a fine of £5,000.

Though consultation is not the same as negotiation, it should be aimed at reaching an agreement, which should include:

• Ways in which the dismissal may be avoided

• Reducing the numbers of Employees to be dismissed

• Minimising the consequences of the dismissals.

In addition, ACAS recommend that the following issues should be discussed:

• The effect on earnings where downgrading is accepted in preference to redundancy

• How the selection of employees for redundancy will be applied – for example, selecting across the organisation as a whole or on a departmental basis

• Travel and relocation expenses where staff are redeployed

Information

The employer must disclose in writing (by post or handed to representatives):

• The reasons for the proposals

• The numbers and descriptions of employees it is proposed to dismiss as redundant

• The total number of employees of any such description employed by the employer at the establishment in question

• The proposed method of selecting the employees who may be dismissed

• The proposed method of carrying out the dismissals, taking account of any agreed procedure, including the period over which dismissals are to take effect

• The proposed method of calculating any redundancy payments, other than those required by statute, that the employer proposes to make.

Who must be informed and consulted?

The law requires meaningful consultation – it is not enough only to inform. Section 188 (4) of TULRCA specifies that the employer must provide the following information in writing to the appropriate representatives:

the reason for the redundancies

the numbers and description of employees whom it proposes to make redundant

the total number of employees of any description

the selection procedure to be used

the proposal for how the redundancy dismissals are to be carried out, including the timescale

the proposed method of calculating the amount of any redundancy pay, if this is more than the statutory minimum.

Consultation must be real and not a ‘sham’, according to an Employment Appeal Tribunal decision which said that issuing redundancy notices by letter half an hour after a meeting with the unions suggested that consultation was not meaningful. A local authority had already decided on the number of redundancies it was going to make and made it obvious that it was not going to consider any alternative. This was not genuine consultation (Middlesbrough BC v T&G and UNISON EAT/26/00).

According to the Employment Relations update, 2005, an employer proposing to make collective redundancies must first consult appropriate representatives of any employees who may be affected by the dismissals (or by measures taken in connection with them). Where those affected are represented by an independent trade union recognised for collective bargaining purposes, the employer must inform and consult an authorised official of that union. This may be a shop steward or a district union official or, if appropriate, a national or regional official. The employer is not required to inform and consult any other employee representatives in such circumstances, but may do so voluntarily if desired. A trade union may be recognised for one group of employees in a company, but not for another.

Where employees, who may be affected by the proposed dismissals, or by measures taken in connection with them, are not represented by a trade union as described above, the employer must inform and consult other appropriate representatives of those employees. These may be either existing representatives or new ones specially elected for the purpose. It is the employer’s responsibility to ensure that consultation is offered to appropriate representatives. If they are to be existing representatives, their remit and method of election or appointment must give them suitable authority from the employees concerned. For example, where redundancies are to take place among, say, sales staff, it would clearly not be sufficient for the employer to inform and consult a committee of managers set up to consider the operation of a staff canteen; but it would be appropriate to inform and consult representatives elected or appointed as a result of the Information and Consultation of Employees Regulations 2004. It may also be appropriate to inform and consult a committee of employees, such as a works council or staff forum that is regularly informed or consulted more generally about the business’s financial position and/or personnel matters. If the representatives are to be specially elected ones, certain election conditions must be met. These are described below.

In non-union cases, where affected employees fail to elect representatives, having had a genuine opportunity to do so, the employers concerned may fulfil their obligations by providing relevant information to those employees directly.

Employees may be affected by the proposed dismissals, or by measures taken in connection with them, even though they themselves are not to be dismissed. In the event of a dispute, whether or not any particular employee or class of employees was affected would be for an employment tribunal to decide. For further details, see the sections below on ‘Redress in cases where employers have failed to meet their information and consultation obligations’ and ‘Complaints to employment tribunals’ (Employment Relations update, 2005).

Redundancy selection criteria

As soon as redundancies become inevitable, organisations must make it a point of duty to make the right selection in order to steer clear of claims and most importantly to ensure that the organisation keeps the best and experience it will need in the short and longer term. Below the key legal issues shall be considered in relation to the selection pools and criteria, as well as looking for ways to ensure the organisation’s objectives are met by maximising the flexibility the law offers.

Redundancy selection is clearly a major issue for many organisations as a result of the current economic climate. Although other options should be considered often, however, redundancies are inevitable.

In a survey conducted by Speechly Bircham and King’s College London of over 300 senior HR professionals, 80% of organisations surveyed had used compulsory redundancy to reduce their workforce. At the same time, however, 28% of organisations reported that they were still experiencing staff shortages and 25% of organisations cited the shortage of talent/skills as a major HR challenge for 2009. Furthermore, 44% of organisations (particularly large organisations) cited succession planning as a major challenge for 2009. These statistics indicate that organisations may not be using selection criteria that are most aligned to the needs of their business. Whilst the survey showed that the criteria being used varied widely, about a quarter of those making staff redundant in the past year cited each of the following criteria:

(a) absence records;

(b) disciplinary records;

(c) general performance assessment; and

(d) performance assessment undertaken specifically for this purpose.

While the traditional criteria, like these, without doubt have a place in redundancy selection, it does possibly indicate that organisations are not fully making use of the flexibility the law offers. In some instances, it causes shortage of skills and succession planning issues. The cost of making redundancies is high. The last thing you want to find is that you got the selection criteria wrong, and incur additional costs in new recruitment because you have 2 of 7 inadvertently lost a key resource. Investing time in getting it right, and potentially suffering a more challenging consultation process as a result of having deviated from tradition, may save you money in the longer term. It might also help to convince your workforce that you have thought carefully about what you are doing and why, and that the redundancies are not a knee jerk reaction to the economic downturn.

Transfer of Undertakings

New TUPE regulations (the Transfer of Undertakings (Protection of Employment) Regulations 2006, SI 2006/246) were made on 7th February 2006 and came into force on 6th April 2006. They replaced the previous 1981 TUPE regulations as amended

The TUPE regulations apply whenever there is a “relevant transfer”. One of the main changes between the previous 1981 TUPE regulations and the new 2006 regulations is in the definition of “relevant transfer” (TUPE regulations 2006 (SI 2006/246) reg 3). The previous definition of a “relevant transfer” was simply the “transfer from one person to another of an undertaking situated immediately before the transfer in the United Kingdom or part of one which is so situated” (TUPE regs 1981, reg 3(1)). The 2006 definition is more complicated.

The first part of the new definition is essentially the same as the old definition quoted above although the wording is expanded to give greater clarity. However a second, new, part has been added to the definition. This new part, essentially codifying case law established under the 1981 TUPE regulations, specifies that a relevant transfer includes a “service provision change” (TUPE regulations 2006 (SI 2006/246) reg 3(1)(b)).

The purpose of the TUPE legislation is to protect employees when the “undertaking” for which they work is transferred from one legal person (which includes a company) to another.

The legislation recognises two types of TUPE transfer:

1.) A business transfer which involves the transfer of an “economic entity which retains its identity” (“economic entity” is defined as “an organised grouping of resources which has the objective of pursuing any economic activity, whether or not that activity is central or ancillary”);

2.) Service provision changes which cover contracting in, contracting out and changes of contractor

TUPE therefore applies to a wide variety of situations including takeovers, mergers, management buy outs and contracting in, contracting out and re tendering. TUPE does not apply to transactions which are share sales only.

The parties to a TUPE transfer are called the transferor and transferee. In some cases the fact that TUPE applies will be obvious and not disputed. In more difficult cases the transferor, the transferee (or both) may claim that TUPE does not apply. The question of whether or not TUPE does apply in such cases is resolved by the Tribunal examining precisely what has been transferred. The application and meaning of TUPE is one of the most complex and often uncertain areas in employment law and so TUPE questions can be referred to the Legal Services Department.

Rights of Employees

If TUPE does apply then employees have a number of rights, including;

1.) The right to transfer along with the undertaking in which they are employed on the same terms and conditions (and with their continuity of service protected)

2.) The right to object to the transfer if they do not want to transfer (but in many cases this will mean that their employment terminates without the right to claim unfair dismissal)

Other than where employees object to the transfer, any dismissal for a reason connected to a TUPE transfer will be automatically unfair, unless the employer has an “economic, technical or organisational” reason for the dismissal which entails changes in the workforce. The practical effect of this is that an employer can make redundancies that are connected to a TUPE transfer provided it goes through a fair procedure first. Employees are also protected against transfer connected changes to their terms and conditions unless the employer has an economic, technical or organisational reason which entails changes in the workforce for making the changes.

Consultation

In addition TUPE requires information and consultation. The requirements are very similar to those for collective redundancies (see above). If the Union is recognised then the information and consultation has to take place with an authorised official of the Union. For those members who work for employers that do not recognise the Union, representatives need to be appointed or elected, but there is no reason why these representatives cannot be union members.

The employer is obliged to inform and consult the representatives of the “affected employees”. The employer must inform those representatives of:

1.) The fact of the transfer, approximately when it is to take place and why;

2.) The legal, economic and social implications of the transfer for the employees;

3.) Whether the employer envisages taking any action in connection with the transfer which will affect the employees (and if so what action – e.g. a reorganisation);

4.) In the case of the transferor, any information that the transferee has given to it about any action which the transferee envisages taking that will affect the employees

The regulations apply (by virtue of TUPE regulations 2006 (SI 2006/246) reg 3) whenever there is “a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity”, for example on sale of a business.

The regulations also apply, subject to specified conditions, where there is a “service provision change” as defined.

When the regulations apply a main effect is that contracts of employment of all persons employed in the business are automatically transferred to the new owner who automatically becomes their employer (TUPE regulations 2006 (SI 2006/246) reg 4).

If they are not taken on, they will be deemed to have been dismissed by the new employer and that dismissal will normally be automatically unfair dismissal.

Continuity for purposes of calculating length of continuous employment in such cases is preserved by separate provisions, in the Employment Rights Act 1996

The matter is one of great importance and large sums of money can turn on it – for example if a company or local authority wants to contract out (or “outsource”) an ancillary part of its operation (which might be anything from cleaning services to provision of maintenance for computer systems), it may avoid substantial redundancy costs if existing staff are automatically taken on by the outside contractor.

Conversely, the outside contractor may find himself saddled with large bills if he finds that he has to take on staff he does not require and either dismiss them or employ them on terms at least as good as those which they had previously had.

It can be difficult to be sure in any particular case whether there is a relevant transfer of an undertaking within the meaning of TUPE.

All relevant factors must be considered and the weight to be given to each factor will vary in accordance to the facts of each case. In broad general terms it can be said that if no tangible assets are transferred it is likely, especially in an asset intensive industry, that there will not have been a transfer of an undertaking for TUPE purposes but there is no binding rule to that effect and it is by no means always true.

Similarly, if no employees are transferred voluntarily it is likely that there will not have been a transfer of an undertaking (which would have the consequence that all employees are transferred automatically) but again there is no binding rule to that effect and it is by no means always true

The simplest example of a “service provision change” would be outsourcing by an employer of services provided by that employer. An example would be where a local education authority outsources to a private company the provision of school meals which it previously provided using its own employees.

“Service provision changes” also include in-sourcing (eg where a local education authority takes in-house provision of school meals previously provided by a private company) and changes of contractor (eg where a local education authority moves the contract for providing school meals from one private company to another private company).

The TUPE regulations do NOT apply when shares in a limited company are transferred as there is then no change in the identity of the employer. If shares in the capital of a company are sold or transferred, the trade or business of the company (ie its undertaking) still carries on in the ownership of the company.

Employees remain employees of the company and there is no need for special rules, such as the TUPE regulations, to transfer their contracts of employment to anyone else so, If ownership of a business or undertaking is transferred employees engaged in the undertaking automatically have their contracts of employment transferred to the new owner.

Case law shows that if tangible assets are not transferred this is an important factor to be taken into account, especially in an asset intensive industry.

However in all cases the whole transaction has to be looked at to see whether one particular factor is decisive for the purpose of ascertaining whether the transaction amounts to the transfer of an undertaking to which the TUPE regulations apply.

The seller and the purchaser of any business or undertaking must inform either duly elected employee representatives or the representatives of an independent trade union which is also a recognised trade union if any of its members are involved of any proposed sale or purchase of the business/undertaking, or other relevant transfer, which may affect employees.

Specified information must be given in all cases and if there are any “measures in relation to an affected employee” being taken then there must also be proper consultation.

The regulations provide that, if an employer has failed to consult as required, a disaffected employee may present a complaint to an Employment Tribunal.

The tribunal can make an award of “appropriate compensation” of up to 13 weeks’ pay.

There is a separate obligation (new in reg 11 of the 2006 TUPE regulations) requiring the seller (or other transferor) to provide the purchaser (or other transferee) with written details of any employees “assigned to the organised grouping of resources or employees that is the subject of a relevant transfer” before the transfer takes place.

It can be difficult to be sure in any particular case whether there is a relevant transfer within the meaning of the TUPE regulations. Two separate but related questions have to be considered, normally in this order – first was there an identifiable economic entity which counts as an undertaking for the purpose of the regulations?”; the second question is “was there a relevant transfer of any such entity?” (See Whitewater Leisure Management Ltd v Barnes & ors 2000 IRLR 456, EAT).

The TUPE regulations apply if part of a business is transferred in the same way as if the whole business is transferred (TUPE regs 1981, reg 3(1)).

TUPE (The Transfer of Undertakings (Protection of Employment) Regulations 2006)