The Definition of Redundancy

In the current economic climate, many employers are likely to be faced with the challenge of reducing operating costs and inevitably making redundancies. The key to success for employers is preparation and communication. The last thing any organisation or small business needs is to be liable to 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. Also being discussed will be which options are open to avoid redundancies and what solutions are available to employers?

Definition of redundancy

Redundancy has two different meanings for the purposes of UK employment law. The first to establish the entitlement to redundancy payments and one for the right to be consulted both 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 such as, the employer has ceased, or intends to cease, or intends to cease, to carry on the business in the place where the employee was so employed. Also 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.

In the course of Employment history there have been two conflicting tests used for determining whether work of a particular kind has ceased or diminished, the contract test and the function test. The contract test focuses on how the duties of the employee were 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 actually performed by the employee had ceased or diminished, the employee would be redundant. The contract test prevails.

According to the contract test, if duties are narrowly defined as the actual job carried out by the employee, and that the job has 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?

The employer is the person liable to pay a redundancy payment. In the majority of cases the employer will simply make the payment without dispute. When the employer makes a statutory redundancy payment, he must give the employee a written statement of how the amount has been calculated (s.165 of ERA 1996). The employee can then check its accuracy. However, if the employer fails to make a payment, or there is a dispute about whether the payment should be made or the amount payable, the employee may refer the matter to an employment tribunal. There is a time-limit that must be observed. By s.164 of ERA 1996, an employee is not entitled to a redundancy payment unless, within six months of the dismissal, a payment is agreed and made, or he or she has given the employer written notice of the claim, or a question as to the right to, or amount of, the payment has been referred to an employment tribunal, or a complaint of unfair dismissal has been presented to the employment tribunal. An employment tribunal can, if it considers it just and equitable to increase the time-limit to 12 months from dismissal, but employees should be aware that the six months’ time limit is strict. Note that it is not necessary to refer the matter to an employment tribunal within six months of dismissal, provided that written notice of the claim has been given to the employer within that time.

Redundancy Consultation and Legal requirements imposed on employers

If the employer fairly dismisses someone on the basis of redundancy, the employer will only be required to give the notice due under his/her contract unless the employer is bound by a separate obligation to pay a redundancy payment. However, a failure to deal with a redundancy fairly 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 and plus this will give negative publicity for the employer. Where an employer is proposing to dismiss as redundant 20 or more employees at one establishment, 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.

Consultation must begin in good time. In particular, if 100 or more employees are to be dismissed at one establishment within a 90-day period, the employer must consult at least 90 days before the first dismissal is to take effect; otherwise, he or she must consult at least 30 days before the first dismissal takes place. The consultation period must end before the employer gives notice of dismissal to those employees who are to be made redundant (Junk v. Kuhel [2005] IRLR 310).

If there is no recognised trade union, the employer must arrange for employee representatives to be elected, and must consult with them. Employers who recognise a trade union must consult with representatives of that union; they cannot choose to consult with elected employee representatives instead. The employer must disclose the reasons for the redundancies, number and descriptions of the employees to be made redundant and the method of selection. The consultation must consider the possibility of avoiding or reducing the redundancies and mitigating their effects.

In GMB and AEEU v. Campbell’s UK Ltd (1996), unreported, the tribunal held that it was not enough for an employer who was proposing to close a factory simply to consult on how the ensuing redundancies should be handled. The tribunal stated that consultation must include ways of avoiding dismissals, and this is so, even though what had been proposed is total shutdown. Following the EAT decision in UK Coal Mining Ltd v. National Union of Mineworkers EAT/0397/06/RN, an employer is now required, as part of their obligation to consult over ways in which redundancies can be avoided, to consult over the business reasons for the redundancies. In the UK Coal Mining case, the employer should have informed the union representatives of the reason why any area considering closing the plant in question and should have responded to any suggestions put forward by the union.

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. Next they should hold a meeting to discuss the matter further with them and hold an appeal meeting with them, if they want to appeal the decision to make them redundant. 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.

For employers, a redundancy procedure provides a joint agreement for avoiding or minimising redundancies and for carrying out redundancies when they are inevitable. It reduces both the likelihood of conflict and the possibility of misunderstanding. It also facilities better planning and assists the process of change, for example in the introduction of new technology. For employees and their trade unions, the advantages of an agreed procedure, is that it will help to ensure fair treatment. An agreement giving details about retraining, transfers and redeployment demonstrates the company’s commitment to continued employment and concern for the welfare of its employees. It is likely to reduce the fear of the unknown and increase the sense of stability and security of employment. It gives the trade union an opportunity to influence management policy by reaching agreement on the measures to be followed to avoid or minimise redundancies.

In order to ensure that the procedure can be applied flexibly to different redundancy situations, it will be necessary to include some room for manoeuvre. This will be particularly true in the choice of selection criteria and in the design and implementation of measures to avoid redundancies. It is especially important to ensure that the balance of skills and experience within the remaining workforce is appropriate to the company’s future operating needs. Any agreed change to a redundancy procedure should be made know to all employees and incorporated in the procedure. Agreement with trade union or employee representatives should be sought 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 for April 2008.

Failure to consult with individual employees about proposed redundancies can render the dismissals unfair, as may a failure to follow the statutory dismissal and disciplinary procedure. Redundant employees in such circumstances may be able to bring claims both for a redundancy payment and for unfair dismissal. There are also situations in which the employee’s selection for redundancy may be automatically unfair, for example where the employee is selected for pregnancy-related reasons or trade union reasons. If the employee receives a redundancy payment and is successful in an unfair dismissal claim, the redundancy payment will be deducted from the basic award (note that, in most cases, the redundancy payment will be exactly the same as the basic award, which will, in effect, leave the employee with just one payment of the appropriate amount).

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). And finally,unreasonable redundancy under, Williams v Compair Maxam [1982] IRLR 83. Here the 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

Management within a company are responsible for deciding the size and most efficient use of the workforce. Therefore within this current economic climate, by carefully developing a strategy for managing human resources, disruption to company performance can be minimised, job losses avoided or reduced and the process of change eased. Effective human resource planning can help to determine existing and future staffing needs. In turn this can lead to an improvement in job security for employees and to avoidance of short-term solutions which are inconsistent with longer-term needs. Employers are advised to consult recognised trade unions or employee representatives about staffing implications of any measures designed to improve efficiency. It is important to ensure that these are fully understood by all concerned and that uncertainty about future employment is minimised. Where they exist this could be done through a joint consultative committee, works council or other similarly representative body, to discuss such matters as staffing levels, company expansion or rationalisation plans. Such a committee would normally meet regularly and consider information on the company’s current performance, trading position and future plans to enable trade union or employee representatives to monitor the need for changes in the size of the labour force. It is also good practice to provide appropriate information for individual employees. This is particularly important where there are no recognised trade union or employee representatives. Employers normally deal with redundancies in one of the following three ways. An Ad hoc approach whereby there are no formally established arrangements, with the practice varying according to the circumstances of each redundancy. A formal policy setting out the approach to be adopted by management when faced with making redundancies, in such cases the agreement of trade union or employee representatives with the contents of the policy will not have been obtained. A formal agreement setting out the procedures to be followed when redundancies have to be considered, the contents of such of a procedure will be the result of negotiation and agreement between management and trade union or employee representatives.

Other solutions in avoiding redundancies

Employers should consider whether employees likely to be affected by redundancy can be offered suitable alternative work. Where alternative work is available within the employer’s own organisation or with an associated employer, the employee should be given sufficient details to enable him or her to decide whether to accept or not. The search for alternative employment should extend, if possible and appropriate, throughout the group of which the company forms a part. It is up to the employee to decide whether the alternative work is suitable. However, an employer should be aware that the following factors may influence their decision: time should be considered in relation to the age, health and domestic circumstances of the employee. Firstly, working environment, this may be especially important for those employees who suffer a health complaint or physical disability. Secondly, an employer may like to consider changes to hours of work for examples shift patterns, may be considered unsuitable if it fails to take account of the individual’s personal circumstances. An employer may also consider the possibility of retaining the employee in a temporary capacity until permanent vacancies arise. This is particularly appropriate 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. Employment tribunals have held that it is the employer’s responsibility to show that an offer of an alternative job has been made. Any offer should therefore be put in writing, even where the employer believes that it may be rejected. The offer should show how the new employment differs from the old and by law must be made before the employment under the previous 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 your 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, notice can be given during the trial period without affecting there right to redundancy pay. If the employee works beyond the end of the four week period or the jointly agreed extended period any redundancy entitlement will be lost because the employee will be deemed to have accepted the new employment. Employers should communicate this to the employee when the alternative job offer is made. The employer should also use the trial period to assess the employee’s suitability. Should the employer wish to end the new contract within four weeks for a reason connected with the new job, the employee will preserve the right to a redundancy payment under the old contract. If the dismissal was due to a reason unconnected with redundancy, the employee may lose that entitlement. Vacancies which 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 may be a valid reason for terminating staff. Redundancy can be a traumatic experience for employees, especially for those who have worked for many years in a stable environment. Some employees will have special difficulties to contend with even though they may have received payments in excess of the statutory minimum. Where practicable, employers should consider cases of hardship and where possible, seek ways of helping them. Redundancy may be a valid reason for terminating 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.