Redundancy Consultation and Legal Requirements

Redundancy has become a fact of life due to the current economic climate, there are many employers likely to be faced with the challenge of reducing operating costs and inevitably making redundancies. In order to make successful job cuts employers must be prepared and good communication at all times is key. Organisations or small business do not want to be liable for further costs because of a failure to deal with redundancy properly. This essay will be discussing the legal requirements imposed on an employer when carrying out a redundancy exercise and also explaining the practical and procedural steps they must take in order to limit their potential liability. Employers have a number of options open to them to avoid redundancies; these and the solutions available to employers will be discussed in the course of the essay.

Definition of redundancy

In UK employment law there are two different meanings for redundancy. One where employers must first establish the entitlement to redundancy payments and one which gives employees the right to be consulted, both these topics will be discussed in the course of this essay. The definition of redundancy is contained in s.139 (1) of the Employment Rights Act 1996 (ERA 1996). Redundancies arises for a number of reasons, the employer has ceased, or intends to cease, to carry on the business in the place where the employee was so employed. Another reason given is because the requirements of the business for employees to carry out a particular kind has ceased or diminished or are expected to cease or diminish.

Through the course of employment history, two conflicting tests have been used to determine whether work of a particular kind has ceased or diminished, they are the contract test and the function test. The contract test focuses on how the duties of the employee are defined in the contract of employment. If the employer’s demand for the contractual duties had ceased or diminished, the employees would be redundant. The Function Test focuses on the duties actually performed by the employee. If the employer’s demand for employees to do the work had ceased or diminished, the employee would be redundant. The contract test prevails.

According to the contract test, duties are narrowly defined as the actual job carried out by the employee, and if that job has now gone, the employee is redundant. However, if the duties are widely defined in the contract, whilst the job performed by that employee may have gone, there may be other available jobs he or she could still be required to perform under the contract. In this case the dismissal will not be by reason of redundancy (Haden v.Cowan [1982] IRLR 314). According to the function test, if the actual job carried out by the employee has gone the employee is redundant regardless of whether, under the contract, he or she could be required to do other work. Although in Safeway Stores v. Burrell [1997] IRLR 200, Mr Burrell, a petrol station manager, was told that there would be a reorganisation of the management structure and that the post of ‘petrol station manager, would disappear. It was to be replaced by a new post of ‘petrol filling station controller’ at a lower salary. Although, the employees where invited to apply, Mr Burrell declined and brought a claim of unfair dismissal. The majority of the tribunal upheld Mr Burrell’s claim. A number of the jobs he had actually done (the functional test) where still required. The employment tribunal chair (in the minority) looked at what Mr Burrell’s contract required (the contract test) and concluded that the job he was employed to do no longer existed. The Employment Appeal (EAT) allowed the appeal and remitted the case for reconsideration by another tribunal. It held that the correct test involved three stages, firstly, was the employee dismissed? If so, had the requirements of the business for employees to carry out work of particular kind ‘ceased or diminished’ (or were they expected to do so)? And finally if so, was the dismissal caused wholly or mainly by that state of affairs?

Redundancy Consultation and Legal requirements imposed on employers

When carrying out a redundancy exercise employers must undertake practical and procedural steps to limit their potential liability. If the employer is thinking about making redundancies, they should follow a proper dismissal procedure before they can dismiss anyone. Firstly, they should send a written statement, telling the employee why they are considering making them redundant. Employers then should hold a meeting to discuss the matter further with them, if they want to appeal the decision regarding making them redundant, the employer should then hold an appeal meeting. If the employer doesn’t follow the correct dismissal procedure, any dismissal may be automatically unfair. If the case is won then compensation may be paid as the correct procedure was not followed.

If an employer fairly dismisses someone on the basis of redundancy, the employer will only be required to give the notice due under the employee’s contract unless the employer is bound by a separate obligation to pay a redundancy payment. However, if an employer fails to deal with a redundancy fairly, for example where the employee has been employed for one year will expose the employer to the risk of a tribunal ordering compensation of the equivalent of 6 months’ pay. If no notice is given, the employee can launch a further claim in the courts for an amount equal to the benefits , including pay which would have been received in that notice period. Furthermore if the employer deals with the redundancies in an unfair way, the damage to employer-employee relations with the retained staff will cause issues and plus this will give negative publicity for the employer. Where an employer is proposing to make 20 or more employees at one organisation redundant, he or she should consult all the appropriate representatives of any employees who may be affected Trade Unions Labours Relations (consolidations) Act 1992 s.188.

For employers, when faced with the inevitable decision of possible job losses the redundancy procedure provides a joint agreement for avoiding or minimising job cuts. It reduces both the risk of conflict and the possibility of misinterpretation. The procedure also facilities better organisation and aids the process of change within a company such as the introduction of new technology. On the other hand the advantages for employees and their trade unions is that it will help to ensure fair treatment. So an agreement between employer and employee would demonstrates the companies commitment to continued employment and also giving details about retraining, transfers and redeployment expresses the company’s concern for the welfare of its employees. For the workforce left behind an agreement would likely reduce the fear of uncertainty and will increase the sense of stability and security of employment. The trade unions will have the opportunity to influence management by reaching an agreement on the method to be taken to avoid or reduce redundancies.

To ensure that the procedure has some flexibly in various redundancy situations, it will be necessary to include some room for manoeuvre. This will certainly be true in the choice of selection criteria implementation to avoid redundancies. It must be made sure that the company has the balance of skills and experience within the remaining workforce, this is important to the company’s future operating needs. If agreed changes to a redundancy procedure are made this should be made know to all employees and included in the procedure. There has to be agreement with trade union or employee representatives before there is any departure from an agreed procedure and, where possible, the procedure should specify the circumstances in which departure may be considered basis for redundancy selection. This will allow employers (and employee representatives where appropriate) some flexibility in deciding the best course of action when a redundancy becomes imminent. A European directive gives employees the right to be informed about business’ economic situation and to be informed and consulted about employment prospects and about decisions which may lead to substantial changes in work organisation or contractual relations, including redundancies and transfers. The directive was introduced in stages and applied to business with 100 or more employees from April 2007 and to business with 50 or more employees from April 2008.

There are three grounds for which dismissal for redundancy may be deemed unfair, firstly, trade union/non-trade union membership or activity (s.153 of TULR(C)A 1992). The reason for the redundancy selection was because of pregnancy or childbirth or because the employee had made health and safety complaints or asserted certain statutory rights (s.105 of the ERA 1996). The final ground is unreasonable redundancy which is defined in the case of, Williams’s v Compair Maxam [1982] IRLR 83. Here the Employment Appeal Tribunal (EAT) set out five principles of good industrial relations practice that should generally be followed when employees are represented by a recognised trade union:

To give as much warning as possible;

To consult with the union, particularly relating to the criteria to be applied in selection for redundancy;

To adopt objective rather than subjective criteria for selection , for example, experience, length of service, attendance, etc;

To select in accordance with the criteria, considering any representations made by the union regarding selection;

To consider the possibility of re-deployment rather than dismissal.

Avoiding Redundancies

Within an organisation management will determine how to utilise staff and are responsible for deciding the size of its workforce. Therefore within this current economic climate, employers need to carefully develop a strategy for managing their workforce, disruption to company performance must be minimised, job losses avoided or reduced and the process of change eased. Therefore the effective use of human resource planning can help to determine the existing and future staffing needs. This can then lead to an improvement in job security for employees and the avoidance of short-term solutions which will affect the long-time needs of an organisation. So it is good practice for employers to take advice from recognised trade unions or employee representatives about staffing implications of any advice to ensure the improvement of efficiency with a workforce. It is important for all concerned that these measures are fully understood by all involved and that any concerns about future employment is minimised. If any concerns exist, it is important that consultations take place, this could be done through a joint consultative committee, works council or other similarly representative body, and matters can be discussed such as staffing levels, expansion of a company. Committees such as this would normally meet regularly and analyse the company’s current performance, trading position and future plans to enable trade union or employee representatives to assess the need for changes in the number of the workforce. It will be beneficial and also good practice to provide appropriate information for individual employees to keep them informed of the situation. This is particularly important where there are no recognised trade union or employee representatives involved. There are three ways in which employers normally deal with redundancies. Firstly, an Ad hoc approach which varies in accordance to the circumstances of each redundancy and whereby there are no formally established arrangements. Secondly, a formal policy setting out the procedure to be followed by companies when faced with the decision of making redundancies, in these cases the agreement of trade union or employee representatives with the contents of the policy will not have been obtained. Finally, a formal agreement setting out the procedures to be followed in light of considering redundancies, anything included in the contents of the procedure will be the result of negotiation and agreement between management and trade union or employee representatives.

Other solutions in avoiding redundancies

There are practical advantages for employers in avoiding job losses. In an effort to avoid staff reductions, employers should consider whether employees whom are likely to be faced with redundancy can be offered suitable alternative work. Employers should consider if alternative work is available within their own organisation or with an associated employer, the employee should be given sufficient details regarding the position to enable him or her to decide whether to accept or not. The employers search for alternative employment should include, where possible and appropriate, all parts of the organisation. It is then the employee’s decision to decide whether the alternative post is suitable. However the employer should be aware that the following factors may influence their decision, commuting time should be considered, and also in relation to the age, health and domestic circumstances of the employee. The working environment may be especially important for any employees who suffer an ill health or physical disability. Employers may like to consider changes to hours of work such as a change shift patterns, again however could be unsuitable if it fails to take account of the individual’s personal circumstances. Companies may also like to consider possibly retaining employees in a temporary capacity until permanent positions arise, especially in organisations where vacancies arise regularly.

If an employer intends to make an employee redundant, they must consider whether there are other jobs available which they are capable of doing. If an offer of an alternative post has been made it’s the employers responsibility to show this, this has been held by Employment tribunals. Any offer should therefore be put in writing, even where the employer believes that it may be rejected. The offer must show that the new role differs from the old and by law this must be made before the employment under the previous role expires and after the date on which the employee starts work under the new contract. If a suitable job is available, then the employer should offer to the employee instead of making them redundant. If a suitable job is available, but the employer fails to offer it to the employee without good reason, this could mean that the employee may have been unfairly dismissed and can make a claim to an employment tribunal. Whether the alternative job that has been offered is suitable, will depend on a number of things, these include for example the sort of job it is, the pay, the hours and where the job is located. The offer of alternative employment must be made before the current job ends. The offer can be made written or verbally. If the job that is offered is turned down without a good reason, the employee may loss any right to a redundancy payment. If an employee is considering the offer of an alternative job, they have the right to try out before they decide to take it or not. They can work for a trial period of four weeks. The trial period will start immediately after the previous job has ended. If the employee decides that the job is not suitable, they can then give notice within the trial period without affecting there right to redundancy pay. An employee however will forfeit the redundancy payment if they work beyond the end of the four week period or the jointly agreed extended period if would be accepted that the employee has accepted the new post. There must be communication between parties when the alternative job offer is made. The trial period should be used by the employer to assess the employee’s suitability. If the employer wishes to end the contract within the four week period in reasons associated with the new role, the employee will have the right to a redundancy payment under the old contract. However if the contract is ended for reasons other than redundancy, the employee will not be entitled to a redundancy payment. Positions may be offered to the redundant employees and giving redundant employees first option of re-employment should there been an upturn in business.

Conclusion

In the current economic climate redundancy has become a fact of life and may be a valid reason for terminating staff. It can however be a stressful experience for employees, especially for those who have worked for many years in the same organisation. Employers have also to consider that some employees will have special difficulties to contend with even though they may have received payments in excess of the statutory minimum. Employers should consider cases of hardship and where they can seek ways of helping them, this would be good practice. Redundancy maybe a valid option for employers to cut staff, provided that the employer (if challenged) is able to persuade a court that there is no longer any useful work for the employee to do within a company. The employer has the right to terminate a staff member on notice, in accordance with the terms of his or her contract, and currently not need to disclose a reason for the decision. The importance in the redundancy situation is communication on the part of the employer, consultations with employers to be kept up to date with any developments. Employers should also seek alternatives to redundancy, such as reduced hours or an alternative position within the organisation. A failure to handle the redundancy procedure correctly or fairly will result in the employer facing court claims and this could then damage the employer-employee relations with the remaining staff and also have negative publicity for the employer.