#15007 - Economic Restructuring - Labour Law

• 1. REDUNDANCY

  • A. Context and Overview

    • The law must find a way to address the tension between necessary business restructuring and the adverse individual and social costs of job loss and plant closure. The law’s compromise is to provide for:

      • 1. Redundancy payment

      • 2. Fair redundancy selection

      • 3. Consultation

        • Recognises the interest the employee had in that job, regardless of the fact that he may not have a job lined up. The level of that payment will be set at a level that is fair to the employer so he can restructure the business economically.

    • The relationship between redundancy and unfair dismissal can be thought of along a spectrum between flexibility and job security:

    • At one end, the Court might find that the business is under a need to restructure the business and therefore the dismissal will be fair. However, more recently the court has moved to the moderate middle ground. Court finds that there is a redundancy situation, and therefore they are entitled to a redundancy payment, but because it is a redundancy they cannot bring an unfair dismissal to access the higher compensatory award.

    • Employee may argue that he has been dismissed for a non-redundancy reason. Tricky argument as the reason for dismissal still may fall within the very broad SOSR and as he has removed himself from the redundancy ground he won’t be entitled to a redundancy payment. Alternatively, an employee might argue that, even if this is a redundancy situation, he was unfairly selected/the criteria used for selection was unfair/there was no consultation. These procedural defects give access to higher unfair dismissal compensation.

  • B. The 7 Redundancy Criteria

    • According to statute:

      • s.135(1) ERA 1996: An employer shall pay a redundancy payment to any employee of his if the employee:

        • (a) is dismissed by the employer by reason of redundancy, or

        • (b) is eligible for a redundancy payment by reason of being laid-off or kept on short time (ss.147-8).

    • Our focus is on the former rather than the latter.

    • An employee is dismissed as redundant provided the following criteria are satisfied:

      • 1. Employee

      • 2. Satisfying the qualifying period (s.155): 2 years

      • 3. Dismissed (s.136):

        • Redundancy is presumed to be the reason unless the contrary is proved by the employer (s.163(2)):

          • Wilcox v. Hastings [1987] IRLR 298: An example of s.163(2) in action. Mr W and Mr L were originally employed by Mr W’s father. The only other employee was a part-timer. The business was sold to Mr H and Mrs H, who planned to work in it and therefore to run the business with the same number of workers they needed only two employees, one full-time and one part-time. Both Mr L and Mr W were dismissed as Mr H intended to employ his son as a full time employee. They applied to the tribunal for redundancy payments. EAT Held: As the need for one full-time employee and the fact that the proprietor wished to employ his son were equal reasons appertaining to both applicants dismissals, there was no dismissal wholly or mainly by reason of redundancy. CA Held: This was the incorrect approach; the EAT had ignored [s163(2)] which stated that it is presumed that the employees had been dismissed by reason of redundancy and it was for the employer to prove a contrary reason.

          • Birch v. Liverpool University [1985] ICR 470: Voluntary redundancy / early retirement falls outside statutory concept of dismissal so employees have no claim for statutory redundancy pay. Employer, forced by economic circumstances to make a substantial reduction in its staff, issued a series of circular letters inviting its employees to take advantage of an early retirement scheme. Under the scheme, which was advertised as not a redundancy scheme, any application for early retirement was subject to final approval by the employer. Two employees applied and the employer formally requested their retirement on a particular date. The employees subsequently claimed redundancy payments. EAT Held: The employment contract had been terminated by mutual consent and there had been no dismissal.
            CA Held: Agreed: There would be a dismissal where there was a unilateral termination of the contract of employment, with or without the consent of the employee. However, the court should look at the substance rather than the form of the transactions between the parties.

          • Pfaffinger v. City of Liverpool Community College [1996] IRLR 508: Fixed term contracts. EAT Held: An employee who was employed on a succession of FTCs, was dismissed for redundancy on the expiry of each of those contracts – That is the combined effect of the unfair dismissal rules and redundancy.

      • 4. For reasons wholly or mainly attributable (s.139(1)):

        • Therefore must be a causal link between the dismissal and the redundancy situation:

          • Baxter v. Limb Group of Companies [1994] IRLR 572: No dismissal on ground pf redundancy where dock workers had been dismissed as a result of industrial action – Rather than replacing those workers, their work had been given to other companies in the same group.

          • Fish v. Glen Golf Club [2012] UKEAT 0057_11_2310 (23 October 2012): Redundancy can be a reason for dismissal even where there were other reasons for the dismissal, such as capability or conduct. Financial constraints forced the employer to do away with the employee’s position. Employee argued redundancy was a pretence for terminating his employment and alleged the real reason was that his employer disliked him, and doubted his abilities. EAT Held: The court had to decide what the ‘principal reason’ was for dismissal. On the facts it was for redundancy, even though ancillary reasons existed.

          • Hindle v. Percival Boats Ltd [1969] 1 WLR 174: Lord Denning partial dissent.

      • 5. To redundancy (see below) (s.139(1)(a)-(b)):

        • (a) cessation of business; or (b) diminishing requirements;

      • 6. No offer of suitable alternative employment is made (s.138);

      • 7. The employee is not excluded (ss.140-143).

    • NB: these requirements serve two functions:

      • (a) they are gateways to redundancy compensation; and

      • (b) they are gateways to a potentially fair dismissal (on the grounds of redundancy, albeit that the applicant can claim unfairness in selection, making the dismissal potentially unfair, giving access to higher compensation).

  • C. The Definition of Redundancy

    • 1. Introduction

      • s.139(1) ERA: For the purposes of this Act an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to-

(a) the fact that his employer has ceased or intends to cease-

(i) to carry on the business for the purposes of which the employee was employed by him, or

(ii) to carry on that business in the place where the employee was so employed, or

(b) the fact that requirements of that business-

(i) for employees to carry out work of a particular kind,

(ii) for employees to carry out work of a particular kind in the place where the employee was employed by the employer

has ceased or diminished or are expected to cease or diminish

• This embraces three ideas:

  • 1. the business disappears permanently or temporarily (s.139(1)(a)(i));

  • 2. the employee's workplace disappears (s.139(1)(a)(ii)); and

  • 3. the job disappears (s.139(1)(b)) - either generally or just in the place where the applicant was employed.

• Note the definition of redundancy for the purposes of redundancy consultation:

  • s.195 TULR(C)A 1992: In this chapter, references to dismissal as redundant are references to a dismissal for a reason not related to the individual concerned or for a number of reasons all of which are not so related

  • GMB v. Man Truck & Bus UK [2000] IRLR 636: Illustration of the breadth of this definition in s.195: It does not merely apply when jobs or workers are lost, but also where on the facts of this case an employer sought to harmonise the terms and conditions of employment of two groups of employees by terminating the employees’ contracts of employment and offering fresh employment on new terms following a merger.

• 2. Criteria for redundancy payment

  • For the purposes of a redundancy payment the criteria are:

  • 2.1 Total cessation of the employer’s business (disappearing business)

    • s.139(1)(a) the fact that his employer has ceased or intends to cease-

      • (i) to carry on the business for the purposes of which the employee was employed by him, (...)

    • Business includes any trade or profession or activity carried on by a body of persons. It is not necessary to show that the employer owns the business in question to succeed in claiming a payment on its closure.

  • 2.2 Cessation of business at place of employment (disappearing workplace)

    • s.139(1)(a) the fact that his employer has ceased or intends to cease - […]

      • (ii) to carry on that business in the place where the employee was so employed.

    • Merely requires the place of work for the employee to close down. Does not mean that the employer must stop trading altogether.

    • Meaning of the place: geographic test (physical place of work) v. contractual test (any place where the employee could be required to work under the contract) – Consequence of the latter test was that if the employee could be regarded as being required to work in different places at his employers instruction, if he didn’t he could be sacked for misconduct as opposed to redundancy:

      • UK Atomic Energy Authority v. Claydon [1974] IRLR 6: Employees terms and conditions required him to work at any other establishment. He refused to move to new location and was dismissed. Held: Accepter employer’s...