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11. Redundancy
[ch 11: pages 380-382]Not every situation in which employees lose their job through no fault of their own is covered by redundancy law and confusingly, “redundancy” has two different meanings. One is used to establish an individual’s right to a redundancy payment and to be fairly dismissed and the other, explained on page 394, is used for the purposes of collective consultation.
The right not to be unfairly dismissed for redundancy and to be paid a redundancy payment is found in section 139 of the Employment Rights Act 1996 (ERA 96). This says that an employee is dismissed for redundancy 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 where they are employed, have ceased or diminished, or are expected to cease or diminish.
This is the basic test for a redundancy. If either of these conditions is met, there will be what tribunals describe as a genuine redundancy situation. Only employees can claim a redundancy payment.
Typical redundancy situations include:
• closure of the whole or part of a business, or relocation to another site;
• introduction of new technology, leading to the need for fewer employees;
• merger of two businesses following a TUPE transfer (see Chapter 12); and
• loss of a production line or order, leading to a fall in work.
Employment tribunals decide whether or not there is a redundancy situation by looking at all the surrounding facts and evidence and applying the statutory test in section 139, ERA 96 set out above.
There can still be a redundancy situation even if those targeted for redundancy could be required under their contracts of employment to perform other tasks that are still needed. For example:
The claimants worked in a slaughter hall where redundancies were required. They argued that they should not be selected for redundancy because under their contract terms, they could be ordered to perform other tasks for which there was still a need. The House of Lords (now the Supreme Court) said that this was irrelevant. There will be a genuine redundancy situation leading to redundancy dismissals, said the court, as long as the reason for dismissal is that the employer needs fewer employees to carry out work of a particular kind.
Murray v Foyle Meats [1999] IRLR 362
What if there is less work (and fewer hours) but no cut in headcount?
It has been settled law for many years that for an employee to be entitled to a redundancy payment or to claim unfair redundancy dismissal, the employer must need fewer (or no) employees to do work of a particular kind or in a particular location. In other words, there must be a headcount reduction. This is based on the wording of section 139, ERA 96 set out at the start of this Chapter.
However, the law on this important question is no longer certain. In Packman t/a Packman Lucas Associates v Fauchon [2012] UKEAT/0017/12/LA, the EAT ruled that provided there is a downturn in the amount of work available, there can be a redundancy situation even though the employer retains the same number of employees, as long as the employer needs them to work fewer hours. In other words, this case suggests that there can be a redundancy dismissal triggering a right to a redundancy payment without a reduction in headcount, as long as there is a fall in the amount of work that needs doing. If correct, it means there could be a redundancy situation where an employer wants an employee to change from full-time to part-time hours because of a reduced need for their services:
Ms Fauchon was a bookkeeper. As a result of a downturn and the introduction of new accounting software, her employer needed fewer hours. The business still needed one bookkeeper but to do less work. Fauchon’s employer had no contractual right to demand a cut in hours, and when Fauchon refused, she was dismissed. The employer refused to pay a redundancy payment, arguing that there was no redundancy situation because he still needed one bookkeeper.
The EAT ruled that Fauchon was dismissed for redundancy and should receive a redundancy payment. Although her employer still needed a bookkeeper, it needed fewer hours, and it was the refusal to work fewer hours that led directly to Fauchon’s dismissal. This was a redundancy situation.
Packman t/a Packman Lucas Associates v Fauchon [2012] UKEAT/0017/12/LA
This case approaches redundancy by counting hours (the “full-time equivalent (FTE)” test), rather than heads. It has important implications for employees who are asked to agree to a significant cut in hours because of a fall in available work.
However, in the same year, a Scottish EAT reached the opposite conclusion by following the established law, which is that a redundancy situation requires a cut in headcount:
A taxi radio-control operator was asked to cut her hours, especially at night, to save costs. She refused and when her employer imposed the cut in hours in breach of her contract, she resigned and claimed constructive unfair dismissal and redundancy. The Scottish EAT said that this was not a redundancy situation because there was no reduction in headcount. The taxi company still needed the same number of employees to do radio control work. They just needed fewer hours, especially night shift hours. There was no redundancy, said the EAT.
Welch v The Taxi Owners Association (Grangemouth) Limited [2012] UKEATS/0001/12/1506
Whichever approach is followed, it is important to notice that the employers in both of these cases had no contractual right to insist on a cut in hours. Where an employer does have a contractual right to insist on changes, such as a cut in hours or a relocation, a refusal to agree can lead to a fair dismissal for refusing to obey a lawful order (Home Office v Evans [2007] EWCA Civ. 1089). This area of law is unsatisfactory, and careful legal advice must always be taken.