The statutory test for redundancy

The right not to be unfairly dismissed for redundancy and to receive a redundancy payment is found in section 139 of the Employment Rights Act 1996 (ERA 96). Only dismissals satisfying the statutory test found in that section will trigger the right to a redundancy payment. The test says an employee is dismissed for redundancy if their 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.

For example, there is a redundancy situation where:

• The employer is closing down the whole or part of a business, or relocating it to another site;

• The employer needs fewer employees — for example because of the introduction of new technology — even if the amount of work stays the same; or

• The employer needs fewer employees because there is less need for a particular kind of work — for example, because a production line is withdrawn or a contract has been lost;

Even though there is a redundancy situation, there will only be a right to a redundancy payment if the dismissal is because of redundancy, and not for some other reason, such as misconduct.

What if the number of employees stays the same but there is less work to do?

In an important development, a recent EAT case, Packman t/a Packman Lucas Associates v Fauchon [2012] UKEAT/0017/12/LA, suggests that there can also be a redundancy situation where there is less work to be done, but the employer wants to use the same number of employees to do it, working fewer hours. In other words, this case says that it is no longer the law that “redundancy” requires a reduction in headcount, either actual or anticipated, as long as there is a reduction in the amount of work that needs doing:

This significant development approaches the test for redundancy using a full-time equivalent (FTE) test, as opposed to simply counting heads. The case has important implications for employees who are asked to cut their hours. It suggests that employees dismissed for refusing to accept significantly shorter hours should get a redundancy payment. However, it is essential to note that in this case, the employer had no contractual right to insist that Ms Fauchon cut her hours.

Where an employer has a contractual right to cut hours, refusing to agree to the change could produce a fair dismissal for refusal to obey a lawful order rather than a dismissal due to redundancy (see Home Office v Evans [2007] EWCA Civ 1089 discussed). In these circumstances, there would be no right to a redundancy payment, because the dismissal was not because of redundancy, but instead was for contract breach.

There are other risks too. A tribunal could decide:

• that the new role was an offer of suitable alternative employment (see Chapter 6); or

• that by rejecting the new role, the employee failed to mitigate their loss (see chapter 8).

Even after the Fauchon decision, the law on this point remains uncertain. The Scottish EAT, in Welch v The Taxi Owners Association (Grangemouth) Limited [2012] UKEAT/0001/12/1506, reached the opposite view. In this case, a radio-control operator for a taxi company was asked to cut her hours, especially night shift hours, to save costs. She wanted her employer to offer her voluntary redundancy, but instead the taxi company imposed a cut in hours in breach of her contract. The Scottish EAT kept to the traditional view, which is that there can only be a redundancy situation if there is a reduction in headcount. This taxi company still needed the same number of employees to do radio control work even though they needed fewer employees for the night shift hours, so there could be no redundancy.

Remember that there are special rules that entitle an employee to resign and claim a redundancy payment in specific circumstances when hours have been cut. These rules, which are summarised in Chapter 9 (Lay-offs and short-time working) were not triggered in this case.

Whether or not there is a redundancy situation is always a question of fact, looking at all the circumstances and applying the statutory test. It does not matter that under the terms of the employment contract, an employer could require employees to perform other tasks that are still needed. In Murray v Foyle Meats [1999] IRLR 362, the employees worked in a slaughter hall, where redundancies were needed. They argued that they should not be made redundant because under their contracts, they could be made to carry out other tasks that were still required. The House of Lords said this was irrelevant. All that mattered was firstly, whether, looking at all the facts, there was a reduced need for employees to carry out work of a particular kind or in a particular place (a redundancy situation), and secondly, whether the dismissals were for this reason.