Replacing direct employees with other workers

Replacing direct employees with workers who are not employees will be a redundancy situation, even if they are doing exactly the same job. This is because the statutory test for redundancy asks whether the employer requires employees to do work of a particular kind. For example:

• dismissing employees and replacing them with agency workers or self-employed workers is a redundancy situation (Bromby & Hoare Limited v Evans [1972] ICR 113, Hodgkins v CJB Development Limited [1984] EAT/943/85);

• dismissing employees and replacing them with limited liability franchisees is a redundancy situation — even if the franchisee and the employee are one and the same person (see, for example, Meter U Limited v Ackroyd [2012] UKEAT/0207/11);

• dismissing a directly employed workforce and replacing them with “self-employed” labour provided by a payroll company will be a redundancy situation, even if there is no change in the identity of the workers.

In some circumstances, these arrangements may be a sham. A contract term can be a sham not only where the parties intend to deceive a third party, but also where both parties simply do not intend a written term to apply to their relationship (Protectacoat Firthglow Limited v Szilagyi [2009] EWCA Civ 98, Autoclenz v Belcher [2011] UKSC 41).

Construction workers’ union UCATT campaigns against the use of bogus self-employment by rogue employers who avoid their employment responsibilities, for example to make redundancy payments, by transferring their direct employees to a payroll company. Their report, The Great Payroll Scandal, 2012, can be downloaded from their website.