Dismissal

by Kate Russell

Redundancy

A redundancy occurs where a dismissal is wholly or mainly because the employer has ceased to carry out his business or intends to cease to carry out his business, either for the purposes for which the employee is employed or in the place where the employee was employed.

Alternatively, a redundancy may occur either where the requirements of that business for employees to carry out work of a particular kind have ceased or diminished or are expected to do so or where the requirements have ceased or diminished in that place or are expected to do so.

If an employee is selected for redundancy for unfair reasons, an employer may be faced with an unfair dismissal claim.

See the topic on Redundancy.

Selection for redundancy

Where a job disappears, or is moved, causing a redundancy, the employer must follow a recognised procedure when selecting who is to be made redundant.

An employer must also follow a set dismissal procedure before dismissing an employee for redundancy. Special rules apply where more than 20 employees are being made redundant. Before carrying out redundancies, an employer must meet with and consult with employees in a timely fashion. He must be able to demonstrate that he has properly explored all avenues to reduce the risk of redundancy.

If an employer does not follow the proper procedures, a dismissal may be unfair and an employee will be able to make a claim for unfair dismissal to an employment tribunal.

The employer must use a procedure which is fair, objective and non-discriminatory, using objective criteria.

  • He must give as much warning of the redundancies as possible.
  • He must use objective criteria when deciding who will be made redundant.
  • He must try to ensure that the selection for redundancy is fair and in accordance with the criteria set.
  • He must try to find alternative employment for the employee.
Example

In Mental Health Care (UK) Ltd v Biluan and another, the EAT has held that the employer acted unreasonably when it used a series of competency tests normally used for recruitment to select employees for redundancy.

The claimants were employed as a nurse and a support worker respectively by Mental Health Care at a residential hospital. Mental Health Care recognised a need to close one of its wards which would result in 19 employees being made redundant.

It identified the pool as the nursing and support staff at the hospital and 58 employees were placed at risk of redundancy. They then commenced consultation.

As part of the consultation, a selection process was undertaken which included a competency test and the consideration of the sickness absence and disciplinary record of each of the employees. The weighting of this process was such that the competency tests carried greater weight than the other criteria. The competency test used included a written test, individual interview and group exercise and was normally used for the recruitment of employees. The competency tests were carried out by the HR staff, none of whom had experience of working with the employees and they did not obtain assessments from the employees’ managers. It appeared that this was because they considered there to be insufficient reliable material on which a fair assessment of past or current performance could be based. Whilst Mental Health Care admitted that the tests produced some surprising results with many good employees selected for redundancy, they proceeded to make those employees redundant. The Claimants were made redundant and brought claims for unfair dismissal.

In the first instance the Tribunal held that the Claimants had been unfairly dismissed. Mental Health Care appealed to the EAT. The EAT stated that it was unusual for an employer conducting a redundancy selection exercise on the basis of competence to base its decision entirely on competency tests without any reference to past appraisals or the views of the employees managers. The EAT confirmed that it agreed with the Tribunal’s findings that there had been confusion and a lack of consistency in the way the selection criteria had been applied and there had been some anomalies in the scoring system.

The EAT considered that it had been incorrect for Mental Health Care to choose an elaborate and HR driven method which deprived it of the benefit of input from managers and others who actually knew the staff at risk. The EAT considered that when surprising results were produced these should have been questioned rather than followed and in doing the latter, Mental Health Care had put a ‘blind faith in process’ which had led to them losing touch with common sense and fairness. The EAT dismissed the appeal.

This case highlights the importance not only of ensuring that redundancy selection processes are carried out correctly and fairly with reference to performance but also that appraisals and performance assessments are carried out frequently to ensure this historical information is available for consideration. It also indicates the importance of the views and assessments of line managers and that these should be taken into account in the selection process.

Some employers will have a recognised redundancy procedure. This will be part of the contract with workers and must have been agreed with the trade union at the workplace or with representatives of the workers. In other cases, there may be a procedure which the employer has consistently used previously and which has not been objected to by the workforce. This will therefore be the procedure that should be followed through custom and practice, unless it is not a fair and/or objective procedure.

Unfair selection for redundancy is a type of unfair dismissal. This may relate to the redundancy selection criteria, which must be fair, relevant and objective, or to inappropriate redundancy selection pools.

In a redundancy situation, it is really important to implement a fair process to avoid unfair dismissal claims. Part of that is identifying an appropriate redundancy pool. There are no set rules about how the pool should be defined. Employers always try to define them as narrowly as possible to limit disruption; the courts tend to view them more broadly. Two recent EAT decisions reinforce the importance of genuinely considering which employees should be included in a pool.

Where you have to select some individuals from a group of people doing the same job, the approved way is to put together a matrix based on a range of objective criteria. You are entitled to keep the necessary skills in the job. Criteria should not be discriminatory and scorings must be justified. You can include things such as attendance, formal disciplinary record and appraisal rating, but you would not mark someone down if she had been on maternity leave. Don’t use last in first out, as it tends to discriminate against younger people.

In putting a matrix together, try to be as objective as possible. A criterion such as ‘good team member’ is a bit too vague and is quite likely to be criticised by a tribunal if put to the test.

Employers have some flexibility in determining the pool from which employees will be selected for redundancy, but they must act reasonably or the dismissals may be considered to be unfair. Relevant factors include whether other groups of employees are doing similar work, whether employees’ jobs are interchangeable and whether the selection pool was agreed with an employee representative.

If a group of employees does similar work to those in the selection pool, an employer will need a good reason to exclude that group.

Example

Ms Byard was employed by Capita Hartshead Ltd as one of four actuaries. A number of Ms Byard’s clients were lost and the company started the redundancy process. Capita thought a pool of one was reasonable for the following reasons: only Ms Byard’s workload had reduced; scheme actuary appointments are personal; there was a risk of losing clients if they were transferred between actuaries; and the team morale would have been affected if the other actuaries were also put at risk of redundancy. Ms Byard was eventually made redundant based on a pool of one and claimed unfair dismissal.

The court found that the redundancy was unfair. Capita’s decision to limit the size of the pool to one was not reasonable and the other actuaries should have been included. The court concluded that having a pool of one took a lot of the value away from the resultant consultation period and there was no evidence that it was reasonable for Capita to find that having a wider pool would have been useless.

But there can be cases where a pool of one is fair.

Example

In Halpin v Sandpiper Books Ltd, the employer employed Mr Halpin as an Administrator/Analyst in the London office. The company started to sell books in China and Mr Halpin moved to China in a sales management role. The company later outsourced the work to local book agents in China and Mr Halpin’s role was put at risk of redundancy. Following extensive consultation, during which Mr Halpin rejected an offer of alternative part-time administrative work in the UK, he was made redundant. He claimed unfair dismissal.

The court found that Sandpiper had fairly selected Mr Haplin for redundancy and a fair procedure had been followed. Mr Halpin appealed, arguing that other employees with interchangeable skills should have been included in the pool, and that no reasonable employer would have limited the pool to those workers whose work had diminished. It was not unfair for an employer to use a selection pool of just one employee where it was ceasing its operations in China and Mr Halpin was the only employee who had been sent to China. The EAT confirmed that decisions as to redundancy pools are matters for an employer to decide and a tribunal should rarely interfere with them.

Here the decision as to the pool of one in this case was logical.

In the Capita case, the EAT gave guidance for assessing whether an employer has chosen the correct pool:

  • The question is whether the choice of pool is within the range of conduct which a reasonable employer could have adopted. A tribunal cannot decide whether it would have been fairer to act in another way.
  • There is no legal requirement that a pool should be limited to employees doing the same or similar work.
  • It would be difficult (but not impossible) for the employee to challenge a decision where the employer has genuinely applied its mind to the issue of the pool. In the event of a challenge, tribunals should consider if the employer has really done so.

Someone who has been unfairly selected for redundancy may therefore be able to claim compensation for unfair dismissal as well as redundancy pay.

Discrimination

It is unlawful to have redundancy selection criteria and/or a redundancy procedure which involves discriminating on the basis of protected characteristics (gender, race, nationality, colour, age, religion, sexual orientation or disability). It is also unlawful to have criteria based on whether employees chosen to be made redundant are part-time or pregnant, as this would be sex discrimination. This is the case even if the criteria and/or procedures have been agreed with the worker(s).

Example

S was selected for redundancy while on maternity leave. She claimed that the reason she had been chosen was because of her pregnancy and brought a sex discrimination and unfair dismissal application. Selection for redundancy for a reason related to pregnancy or maternity would make the dismissal automatically unfair. The tribunal accepted her argument and she was awarded 2.5 years’ salary and ten years’ worth of pension contributions, an award which cost the company £163,000.

Employers faced with a situation where a female employee will suffer an apparent disadvantage for pregnancy related reasons should consider whether the ‘special treatment’ that it might adopt to redress the balance goes no further than what is reasonable and proportionate in the circumstances. This will involve an assessment not only of the positive impact on the female employee of such treatment, but also the corresponding negative effect on her colleagues in order to, as the EAT put it, strike ‘the right balance’. If the employer goes too far in favour of the woman, this may result in a male employee suffering discrimination.

Example

Mr De Belin was one of two associates working in Eversheds’ Leeds office as part of their Real Estate Investor Team. The other associate was Ms Reinholz. In September 2008, it was decided that one of the two associates in the team would have to be made redundant. Mr De Belin and Ms Reinholz were scored against various performance criteria. One of those criteria measured the length of time between the completion of a piece of work and the receipt of payment from the client. The measurement was performed as at 31 July 2008. Mr De Belin’s figure was 238, giving him a score of 0.5.

Ms Reinholz was absent on maternity leave at the measurement date: she had in fact been away since 10 February 2008. This meant that the measure could not be taken for her as at that date, since she had no client files. In accordance with what was said to be the Company’s general policy for redundancy candidates who were absent on maternity leave or sabbatical, Ms Reinholz was given the maximum score for this criterion, which was 2. Mr De Belin was selected for redundancy; but the closeness of the result meant that if Ms Reinholz had not been given the maximum score on the measurement, there would either have been a tie or she would have scored less than Mr De Belin and would have been the one selected for redundancy.

Mr De Belin raised a grievance complaining that the measurement process was unfair. He suggested alternative approaches, including measuring Ms Reinholz based on the actual figures available before she went on maternity leave. The Company accepted that the result might appear unfair, but rejected Mr De Belin’s proposals, stating that their approach was required by law in order to ensure that Ms Reinholz did not lose out by her maternity absence, and thus to avoid the risk of a sex discrimination claim from her.

The Employment Tribunal found in Mr De Belin’s favour, awarding him just over £123,000 in compensation. Eversheds appealed, arguing that they could not be held to have discriminated against a man, if the treatment on which he was relying was something done in order to protect the interests of an employee on maternity leave. However the EAT concluded that whilst pregnant employees and those on maternity leave were entitled to special treatment, this could not justify the disproportionate favouring of such women. The court found that Eversheds’ conduct was disproportionate; there were other, less discriminatory, ways in which they could have addressed Ms Reinholz’s absence which they ought to have considered. As a result, they were guilty of sex discrimination in the way in which they had treated Mr De Belin.

Selection of part time employees

While you can apply the matrix and select part-time employees for redundancy, you should not select a person for a reason connected with his part-time status, even if the part-time status is not the only reason.

Example

Ms Sharma and her colleagues all worked part-time as lecturers for Manchester City Council. Their contracts entitled the Council to vary the number of hours they worked, subject to their being guaranteed one-third of the hours they had worked the previous year. This contractual provision did not appear in the contracts of full-time and some other part-time lecturers.

The Council suffered some funding difficulties. To make savings, it adopted a policy of reducing the contractual hours of many part-time lecturers, including the employees. The Council argued that the reason for the less favourable treatment (that is, the reduced hours) was not exclusively because of their part-time status, but rather the fact that their employment contracts made it possible for the Council to reduce hours without being in breach of contract.

The tribunal rejected the claim, as the reason for the detrimental treatment was not solely on the ground of the workers being part-time. The employees appealed.

On appeal, the EAT found in favour of the part-time employees. The Part Time Workers Regulations 2000 are engaged whenever (i) a part-time employee has been treated less favourably than a comparable full-time employee; and (ii) being part-time was one of the material reasons for that less favourable treatment.

In deciding the case, the EAT departed from the earlier Scottish EAT ruling of Gibson v Scottish Ambulance Service. In the Gibson case, the court held that the part-time nature of the worker’s status had to be the sole reason for the unfavourable treatment. The later EAT in Sharma held that this approach was wrong.

This decision extends protection in relation to part-time workers in line with other types of discrimination law, where the discriminatory factor need not be the sole, or even the main, factor influencing the employer. It just needs to be a material factor.

Bumping

Bumping is a form of transferred redundancy. It occurs when an employee loses his position in the organisation and is moved to another worker’s job, thus displacing the second employee and causing his dismissal. In these circumstances, the dismissal is by way of redundancy. There is still a duty on you to behave fairly and reasonably. Whether it is unfair or not to dismiss for redundancy without considering alternative and subordinate employment is a matter of fact for the tribunal.

Example

Mr North was employed by Lionel Leventhal Ltd as a senior editor. In 2003, the company encountered serious financial difficulties. At that time, it employed 12 full-time staff and two part-time secretaries.

The company decided that the best way to save money was to make a staff member redundant, and the prime candidate was Mr North, because he was the most expensive employee, in a role the company could easily manage without.

At a meeting, Mr North was advised that the company did not consider it needed a senior editor. They asked Mr North for his views and reconvened another meeting. Mr North brought a list of 11 suggestions for cost cutting to that meeting. These were discussed, but subsequently the company concluded that they were not capable of producing the required savings quickly enough. They did not consider making any other member of staff redundant.

Mr North attended a second meeting the following day and was told that his employment would be terminated, and he would be given his two months’ contractual notice, together with statutory redundancy pay.

At no time did Mr North suggest, or the company consider, making a subordinate editor redundant, and offering the claimant that job, with less pay. He subsequently complained that his employer had failed to consider bumping and, that as a result, he had been unfairly dismissed.

The court agreed that the redundancy dismissal was unfair, because the employer had failed to consider ‘bumping’ (even though the other job was a subordinate role with less pay, and the redundant employee had not suggested he would have considered this option). In this case, the tribunal concluded that North was not given the opportunity to say whether he would have accepted the subordinate position, and the subordinate employee was not approached to see whether he was interested in voluntary redundancy.

Always assess whether it is appropriate to consider bumping in a particular case. The Leventhal case suggests that the duty placed on an employer to act reasonably does not impose an absolute obligation to consider bumping as an option, but that, in particular circumstances, the failure to do so may fall outside the band of reasonable responses.

Redundancies of 20 people or more

A collective redundancy is where an employer is making 20 or more employees at one workplace redundant over a 90-day period. An employer making a collective redundancy must consult with a recognised trade union where there is one. Where there is no recognised trade union, an employer must consult with employee representatives before issuing redundancy notices.

The agenda for consultation should include ways of avoiding redundancies or of reducing the numbers affected. Agreement does not have to be reached as a result of the consultation, but the employer must consult in good faith, that is, with a view to reaching agreement. Certain information must be disclosed to the representative body including:

  • The reasons for the redundancies
  • The numbers and descriptions of those affected
  • The proposed method of selecting those to be made redundant, such as ‘last in, first out’ (the method must not be discriminatory, for example, by selecting jobs which are predominantly done by women)
  • How any redundancy payments better than the legal minimum will be worked out.

There are minimum periods during which representatives must be consulted.

  • If 20 to 99 employees are to be made redundant at one establishment over a period of 90 days or less, consultation must last at least 30 days.
  • If 100 or more employees are to be made redundant, as above, consultation must last at least 45 days.

Individual notices of redundancy should not be issued until there has been sufficient consultation in line with these requirements.

Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992, relates to an employer’s duty to consult with representatives when they are proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less.

Example

TSE is an organisation formed to promote tourism. TSE decided that it was necessary to restructure the business and in January 2004 they announced details of the restructuring as it affected the Tunbridge Wells office. The Tunbridge Wells office was to be closed as part of the reorganisation. Some 26 employees worked at that office, including H. All would need to be dismissed as redundant or redeployed. H complained that TSE had not carried out the statutory consultation. TSE accepted this, but said that it was not proposing to dismiss as redundant 20 or more employees at the same establishment.

The tribunal found that, although there were 26 employees at the Tunbridge Wells office which was to be closed as part of the restructuring, TSE then only expected 12 redundancies, with the rest being redeployed. It concluded that the numbers TSE was ‘proposing to dismiss’ did not reach the requisite number of 20.

H appealed. She claimed that the proposal to close the Tunbridge Wells office was necessarily a proposal to dismiss more than 20 employees as redundant. It was inherent in the proposal that existing contracts of employment would terminate on closure and there would therefore be dismissals. The reason for those dismissals would be redundancy. The fact that it was hoped that some of the displaced employees would apply for, and be offered, different jobs in different parts of the organisation, and in different locations, did not alter this conclusion.

The EAT agreed. Where an employer ‘proposes to dismiss’ an employee, the mere fact that the employer proposes to redeploy is not decisive. If the employer only proposes to keep the employee in his employment on what is in reality a different contract of employment, he will be proposing to terminate the existing one. Some employees may have been re-deployed but, if so, it would be to jobs for which they would have to apply, in one or two different locations, with fresh job descriptions. The EAT therefore held that TSE should have followed the guidelines in s188 of the 1992 Act as this was a case where collective consultation should have taken place, even though only 12 employees were actually likely to be made redundant.