2. Individual redundancy — the law

Defining redundancy

Not every situation in which employees lose jobs through no fault of their own is covered by redundancy law, and confusingly, "redundancy" has two different statutory meanings. One is used to establish an individual’s right to a redundancy payment and to be fairly dismissed, and the other is used for the purpose of collective consultation.

This Chapter looks at the definition of redundancy for the purposes of individual rights. The definition of redundancy for the purposes of collective consultation rights is looked at in Chapter 3.

To be entitled to redundancy pay, an individual must be an employee who is dismissed by reason of redundancy.

What is a redundancy?

“Redundancy” is defined in section 139 of the Employment Rights Act 1996 (ERA 96). This says that an employee is dismissed for redundancy, and may be entitled to redundancy pay, if the dismissal is wholly or mainly because:

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

• the requirements of the business for employees to carry out work of a particular kind, or to carry it out in the place in which they are employed, have ceased or diminished, or are expected to cease or diminish.

The basic test for redundancy is therefore whether the employer requires fewer (or no) employees to do work of a particular kind, or in a particular location.

Retaining the same number of employees but to do different jobs

Where an employer wants fewer employees overall, a redundancy situation will usually be obvious. The position is less straightforward where the employer reorganises work, retaining the same number of employees, but to do different jobs. Generally speaking, there will be a redundancy situation where a particular kind of job has disappeared altogether. However, if it has only been changed in part, for example through the introduction of new technology, this may not always amount to a redundancy.

The basic test is always to return to the statutory definition and to ask whether, looking at the facts of each individual case, the employer’s requirement for employees to carry out work of a particular kind, or in a particular place, has reduced, or ended altogether.

A tribunal will not second-guess the employer’s economic judgment

An employer does not have to show an economic justification for deciding to make redundancies, or that there are financial problems leading to a reduction in work. Indeed there will still be a redundancy where a successful employer with plenty of work decides to reorganise the business, if the outcome is fewer staff (Kingwell and others v Elizabeth Bradley Designs EAT/0661/02). Even if there is the same amount of revenue coming in and the same amount of work being carried out, a decision to employ fewer staff is likely to amount to a redundancy.

There must be a genuine redundancy situation

Although a tribunal will not question an employer’s economic judgment in deciding to make redundancies, the employer’s economic reasoning is not irrelevant, because a tribunal will want to be satisfied that the employer’s belief that particular redundancies are required is genuinely held, meaning that redundancy really is the reason for the dismissal.

It is not unusual to find employers hiding behind redundancy as a convenient cloak for individual dismissals carried out for other undisclosed reasons, such as dissatisfaction with an employee’s performance. This is especially common where the employer has failed to engage in an adequate “performance management” procedure, so that it is not in a position to produce evidence of fair warnings about poor performance, offers of training and opportunities to improve, and as a result is not able to carry out a fair “capability” dismissal.

Where there is a genuine need to make redundancies, there is nothing to prevent an employer using “performance-related” criteria for selection (see Chapter 4). However, manufacturing a sham redundancy situation in order to engineer a dismissal is likely to be unfair.

In practice, finding the evidence to challenge an employer’s assertion that redundancy is the real reason for the dismissal is often very difficult. However, the growing practice of planning for and communicating about individual dismissal decisions using internal email, which can often leave a trail showing the employer’s real intentions and the timing of decisions, can be a fruitful source of evidence.

Where the decision is discriminatory, the statutory questionnaire procedure can also be used, Under this procedure, employees who suspect that they have been selected for redundancy for a discriminatory reason (for example, pregnancy or disability) can ask the employer relatively wide-ranging questions about the decision and the employer’s past practice when making redundancies. Guidance on how to use the questionnaire procedure can be found on the Equality and Human Rights Commission (EHRC) website at: www.equalityhumanrights.com/advice-and-guidance/information-for-advisers/taking-discrimination-cases.

There may also be scope to access documents and emails through a Data Subject Access Request under the Data Protection Act 1998. Guidance on how to do this is provided on the Information Commissioner’s website at: www.ico.gov.uk and also by the EHRC’s publication Using theData Protection Act and Freedom of Information Actin discrimination cases, available to download from its website.

Employees wanting to challenge a dismissal could also consider asking the employer for a written assurance that email folders and documents concerning the dismissal decision will not be deleted from the employer's computer system.

Redundancy and the contract of employment

For some time, it has been well-established that when working out whether there is a redundancy situation all that matters is whether, looking at all the facts, a business needs fewer employees to carry out work of a particular kind. It does not matter, for this purpose, that under the terms of the employment contract, an employer could require an employee to perform other tasks for which the employer still has a need. This important principle was established by the House of Lords in Murray v Foyle Meats:

However, this well-established principle has been challenged by a recent decision concerning the effect on redundancy of contract terms entitling an employer to force staff to relocate: Home Office v Evans.

Relocation redundancies

Under Section 139 of the ERA, there will be a redundancy situation where an employer needs fewer (or no) employees to carry out work “in the place in which they are employed”. This usually because of straightforward business closure or relocation. A line of cases has examined what happens when employees are no longer needed in their current place of work, but the contract of employment entitles the employer to require the employee to work elsewhere. In High Table Limited v Horst ([1997] IRLR513), the Court of Appeal established that the test as to the “place where the employee was employed” is mainly a question of fact, looking at where the employee actually worked day-to-day, regardless of what the contract said (although the contract terms might provide evidence as to where the employee worked):

“It cannot be right…to let the contract be the sole determinant (as to whether someone is redundant or not), regardless of where the employee actually works. It would be unfortunate if the law were to encourage the use of mobility clauses in contracts of employment to defeat genuine redundancy claims.”

In other words, if in reality, an employee has only ever worked in one location, then the fact that the contract contains a “mobility” clause allowing the employer to relocate the employee will not entitle the employer to argue that the employee is not redundant because the contract contains the right to force the employee to move to another location where there is still work.

Another good example is the case of Bass Leisure v Thomas:

But in a more recent case, which has attracted some criticism, the Court of Appeal appeared to take the opposite view:

Employees therefore need to be very wary if, instead of being made redundant, they are instructed to work at a different location or branch. A refusal to move could result in a dismissal for refusal to obey a “lawful order” to relocate, instead of a redundancy. There is also a risk that an offer of a new role elsewhere will be regarded as “suitable alternative employment” removing an employee’s entitlement to a redundancy payment (see Chapter 5).

There may sometimes be scope to argue, for example, that a contractual relocation term must be read subject to obligations of good faith, trust and confidence. In United Bank v Akhtar ([1989] IRLR 507), it was held that it was a breach of the duty of trust and confidence for an employer to rely on a contractual right to transfer staff “anywhere in the UK” to force an employee with personal commitments to move from Leeds to Birmingham on a few days notice.

Expiry of fixed term contract can be redundancy

Where an employee is employed on a succession of fixed-term contracts, there can be a redundancy dismissal at the end of each fixed-term contract, where the contract ends and is not renewed (Pfaffinger v City of Liverpool Community College [1996] IRLR 508). This is the case even where the contract was for a specific purpose or carries only time-limited funding.

The rights of fixed-term or temporary employees improved with the introduction of the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (FTER). These require an employer to treat temporary employees “no less favourably” than equivalent permanent employees, including in relation to redundancy rights. The FTER also outlawed waiver clauses under which a fixed-term employee waives his or her right to a redundancy payment. Any fixed-term employee with two years’ continuous service or more is therefore entitled to a redundancy payment (see Chapter 6). Only employees have the benefit of these regulations. Temporary agency workers are not protected.

Changes in working patterns and redundancy

Simply changing a shift pattern without doing anything else, will not normally be a redundancy situation, because the employer’s requirement for workers to carry out work of a particular kind has not “ceased or diminished”. Instead, the number of employees needed to do the work is unchanged, but they are needed at a different time. Similarly, changing a role from full-time to part-time may well not be a redundancy situation. But in both cases the outcome will always depend on the facts of the case, and specifically on whether it can be argued that the employer needs fewer (or no) employees to carry out work of a particular kind. Employees who are dismissed for refusing to accept these types of change may have a claim for unfair dismissal, depending on the facts (see LRD’s employment law guide Law at work 2011).

Same role — cheaper workforce?

Replacing an employee with another employee who will do the same work for less money is not a redundancy as the requirement to do the work remains the same. However, it is likely to be an unfair dismissal unless the employer can establish “some other substantial reason” (under section 98(1) (b) of the ERA 96) for the dismissal. An employer is more likely to succeed with this defence where it can establish a genuine economic need to cut pay, and can demonstrate genuine consultation and a careful, collaborative examination of all alternatives. Note that even though this scenario does not trigger a right to a redundancy payment, it will give rise to collective redundancy consultation obligations where it involves the dismissal and re-engagement of 20 or more employees.

Has there been a dismissal?

To qualify for redundancy pay (see Chapter 6), an employee must show not only that there is a redundancy situation, but also that s/he has been dismissed because of redundancy.

Under section 136(1) of the ERA 96, there will be a dismissal when:

• the employment contract is terminated, with or without notice;

• a contract for a fixed term is not renewed;

• the employer’s actions leave the employee with no alternative but to resign (constructive dismissal); or

• the employee resigns while under notice of a redundancy dismissal.

Voluntary redundancy

As long as there is already a genuine redundancy situation at the time the employer invites candidates for voluntary redundancy, voluntary redundancies will be treated as redundancy dismissals for the purpose of entitlement to a statutory redundancy payment. However, employees should take care to avoid any suggestion that they are ending their contracts through mutual consent (see below).

Early retirement

Employers may propose early retirement as a way of avoiding compulsory redundancies. In Birch & Another v University of Liverpool [1985] IRLR 165, the Court of Appeal held that employees who opted to retire early in the context of projected compulsory redundancies had terminated their contracts by mutual consent. This meant that they were not entitled to redundancy pay:

Notice

The employer must give every redundant employee at least the minimum statutory notice of dismissal (or contractual notice, if longer than the statutory minimum). Employees with two or more years’ service are entitled to a week's notice for every full year of service (up to a maximum of 12 weeks). Employees with less than two years’ service are entitled to one week's notice.

Any employer who does not want an employee to work his or her notice (or any part of it) should make a payment in lieu of the notice entitlement. This notice payment will be mainly wages, but should also include the value of any contractual benefits the employee would have received if s/he had remained employed during the notice period. Failing to give the full amount of the notice required is a breach of contract.

Many employers provide better than the statutory minimum notice, but to be entitled to a longer notice period, it must be clearly expressed as a contractual right. If the right is contained in a collective agreement, it must be incorporated into the employee’s individual contract of employment. In Griffiths v Buckinghamshire County Council ([1994] ICR 265), the High Court held that a statement in a collective agreement that individuals should be given the maximum possible redundancy notice (which should not be less than a year) was a “recommendation” and not a contractual entitlement.

Must an employee work for the whole of the notice period to be entitled to a redundancy payment?

Once an employee has been given notice to terminate the contract, s/he can give the employer a counter-notice in writing to end the employment at an earlier date within the notice period, and still retain the right to redundancy pay (section 136(3) of the ERA 96).

But the employer can challenge this counter-notice by giving further notice in writing asking the employee to work until the original end date, as long as the employer takes this step before the counter-notice has expired. If an employee refuses to work to the end of the notice period in these circumstances, s/he risks losing redundancy pay. An employment tribunal has discretion to award some or all of the redundancy pay due, but whether it does this will depend, for example, on how the tribunal views the employee’s reasons for leaving early (Section 142(2) ERA 96).

Leaving too early

An employee who leaves work when redundancies have been announced but before s/he has been given notice of dismissal for redundancy will not be entitled to redundancy pay:

In general, the rule is that redundancy notice has only been given if the employee has been given a termination date.

Strikers

Taking strike action before or during a redundancy period can affect employment rights in two main ways.

As a general rule, strike action during an employment contract does not break continuity of employment. However, time spent on strike will not count towards continuous service. For example, this means that an employee with seven years’ service who has taken 20 days of strike action will have those 20 days deducted from the seven years to calculate the length of continuous employment. This is unlikely to affect most workers, as the amount of strike action compared to the entire period of employment is normally insignificant. But employees whose total employment brings them just into another year may be affected.

If strike action takes place before the start of the statutory notice period, the employer may be able to avoid statutory redundancy payments by dismissing strikers. Generally an employer can only do this lawfully after 12 weeks’ strike action, or at any time if the action is unlawful (usually where there has been no valid ballot). Lawful strikes that begin after redundancy notices have been issued will not jeopardise the entitlement to redundancy pay.

Employees are also barred from redundancy pay rights if they resign during an employer’s lockout. This situation is specifically excluded from the definition of a redundancy dismissal under section 136(2) of the ERA 96.

Temporary agency workers

Only employees are entitled to claim a redundancy payment. Temporary agency workers have no right to claim redundancy because they are not employees. Occasionally, agency workers bring claims for redundancy pay and unfair dismissal, arguing that they are in fact “employees”. However, on the basis of current case law, a typical temporary agency worker would be very unlikely to succeed in such a claim (see, for example, the leading case, James v London Borough of Greenwich [2008] EWCA Civ 35). The Agency Workers Regulations 2010, which come into force on 1 October 2011, will make no difference to this basic position.

Unfair dismissal and redundancy

There are various ways in which a dismissal on grounds of redundancy can be unfair, entitling the employee to bring a claim for unfair dismissal.

Unfair selection

A redundancy dismissal is automatically unfair if selection was for any of the automatically unfair reasons . A redundancy dismissal can also be unfair where the employer acted unreasonably in choosing selection criteria, or selecting a particular employee for redundancy. SeeChapter 4.

Failure to consult

Inadequate consultation can make a redundancy dismissal unfair. This is discussed in detail in Chapter 3.

Failure to offer alternative employment

A failure to offer suitable alternative employment where available can make a dismissal unfair. This is discussed in detail in Chapter 5.

Length of service

Unless an employer selects an employee for redundancy for an automatically unfair reason, an employee must have one year’s service in order to bring a claim. The coalition government is currently consulting on extending this service requirement to two years. This proposal is being strongly resisted by unions.

Time limit for an unfair dismissal claim

The time limit for a claim of unfair dismissal on grounds of redundancy is three months from the date of dismissal, with discretion for the tribunal to extend this if it was not reasonably practicable to issue the claim within that time. This time limit is very rarely extended. The three-month limit should not be confused with the six-month time limit for claiming a statutory redundancy payment (see Chapter 6).

The importance of a clear dismissal date

Far too many tribunal cases involve misunderstandings over the dismissal date. It is vital for employees to ensure they have a clear understanding about the termination date, because extensions of time are very rare. Employees who want to bring proceedings should be encouraged not to delay and especially not to leave claims to the last minute:

Any agreement to shorten the notice period on termination needs to be clear and unambiguous: