Redundancy: recognising a genuine redundancy situation

Kate Brittin of Lewis Silkin provides employers with guidance on identifying whether they have a genuine redundancy situation in their workplace.

Overview

In legal terms redundancy is something that happens to jobs, not people. People are dismissed by reason of redundancy. This sounds obvious, but the difference is important because the starting point in avoiding an unfair dismissal claim is making sure that there is a genuine redundancy situation, and that means a job that is disappearing or has disappeared.

If there is a redundancy situation, this has two main consequences: any employee dismissed as a result of it will be entitled to a statutory redundancy payment (assuming that he or she has the requisite service); and a particular pre-dismissal procedure must be followed.

The essential procedural steps are to:

  • identify correctly the pool of people who might be at risk of dismissal by reason of redundancy;

  • develop proper criteria for choosing between them;

  • apply those criteria fairly;

  • inform and consult the affected employees properly (and, in a collective redundancy, their elected representatives);

  • consider alternatives to dismissal.

    These issues will be covered in more detail in the following two weeks' topic of the week articles.

    A genuine redundancy situation?

    The law (Employment Rights Act 1996, section 139(1)) says that a dismissal will be by reason of redundancy if the reason or the main reason for it is:

  • that the employer has ceased or intends to cease:

    -         to carry on the business for the purposes of which the employee was employed by it; or

    -         to carry on that business in the place where the employee was so employed;

    or

  • that the requirements of that business:

    -         for employees to carry out work of a particular kind; or

    -         for employees to carry out work of a particular kind in the place where the employee was employed by the employer,

    have ceased or diminished or are expected to cease or diminish.

    Redundancy situations therefore exist where:

  • the business as a whole is closing down;

  • the particular part of the business in which the employee worked is closing down;

  • the business is closing down in a particular location; or

  • the business needs fewer employees with the redundant employee's skills.

    Common situations

    With this in mind, we consider whether the following common situations are likely to be held to amount to redundancy.

    No reduction in work

    A company currently employs three secretaries. The level of secretarial work has increased but, due to advances in technology, the company now needs to employ only two secretaries.

    This is a redundancy situation. It is irrelevant that the level of work has not reduced. The legal requirement is that the business's need for the number of employees to do work of a particular kind has reduced. The secretary who is selected for dismissal will, therefore, have been dismissed by reason of redundancy.

    No reduction in the number of employees

    A company employs one plumber and one electrician but what it really wants is two employees with both plumbing and electrical skills.

    In this situation there are two jobs and two employees and there will still be two jobs and two employees after the reorganisation has been implemented. However, there may still be a redundancy situation (although, unfortunately, the law at the moment is not entirely clear on this).

    The reasoning in favour of the existence of a redundancy situation is as follows. The needs of the business for employees to do work of a particular kind (100% electrician or 100% plumber) has diminished. In this case the business's need for employees who are only electricians or only plumbers has diminished and so there is a redundancy situation.

    The reasoning against the existence of a redundancy is as follows. The needs of the business for employees to do work of a particular kind (electrical and plumbing work) has not diminished. There is still the same amount of electrical and plumbing work to be done; the business would just prefer interchangeable employees who can do both. If this interpretation is correct, there is no redundancy situation.

    There is a Court of Appeal case to support either view. The first is Murphy v Epsom College [1984] IRLR 271 CA in which a plumber who was replaced by a plumber/heating engineer was held to have been dismissed by reason of redundancy. The second is Shawkat v Nottingham City Hospital NHS Trust (No.2) [2001] IRLR 555 CA in which a thoracic surgeon who was required to do less thoracic surgery and take on more cardiac surgery was held not to have been dismissed by reason of redundancy.

    A company plans to delete the financial controller position, and reallocate most of the duties, apart from a small number which will go to the existing financial director, to a newly created, more junior, role of accounts clerk.

    This sort of reorganisation often happens in an effort to save on salary bills. Because the same work needs to be done and the same number of employees is needed in order to do it, this is not likely to be considered a redundancy situation.

    Changing terms and conditions

    A company employs a machinist to work on the night shift. It decides to reorganise and have all machinists work during the day. The machinist refuses to transfer and is dismissed.

    This might look like a redundancy, because the company no longer needs a night machinist, but it is not. This is because the company's need for machinists has not reduced. The machinist was not, therefore, dismissed by reason of redundancy.

    A company employs a machinist to work on a night shift. One of the daytime machinists leaves and the company decides to transfer the night worker to the day shift and do away with the night shift altogether. The machinist refuses to transfer and is dismissed.

    Although, from the point of view of the employee in question, this is no different from the previous example, this is in fact probably a redundancy situation. This is because the company now employs one fewer machinist overall, so its need for employees to do that kind of work has reduced. If the employee can show that she was dismissed as a result, she will be considered to have been dismissed by reason of redundancy.

    Contractual mobility clauses

    A company closes down its Slough office and plans to transfer all of its employees to the Maidenhead office. Their contracts say that their place of work is Slough but that they can be required to work anywhere in the South East of England.

    If a contract contains a mobility clause like this that allows the employer to change employees' place of work, this can sometimes affect whether or not there is a redundancy. This is because an employee is redundant if the employer's need for employees to do a particular kind of work in the place in which the employee is employed has cease or diminished. In the example, if 'the place where the employee is employed' is Slough there is a redundancy, but if it is anywhere in the South East of England, there may not be. If an employee refuses to relocate, he or she can potentially be fairly dismissed for a reason other then redundancy (such as misconduct).

    Simply having a mobility clause in the contract is not, however, enough. The way in which it has been used in practice is important. If the employee has never in fact worked at any other location, it is likely that the closure of the Slough office will give rise to redundancy and that the mobility clause will not help. If, however, he or she is used to working on different sites, the mobility clause will help the employer to prove that the place where he or she is 'employed' could be considered to be the Maidenhead office, in which case there is no redundancy.

    Bumping

    A company employs three secretaries and one receptionist. There is a reduction in the amount of secretarial work, with the result that only two secretaries are needed. One of the secretaries is transferred to reception and the receptionist is dismissed.

    In this example, there is no reduction in the number of receptionists needed, and yet the dismissed receptionist is properly made redundant. This dismissal of an employee whose position is not redundant in order to make a space to retain an employee whose position is redundant is known as 'bumping'.

    This is legal because the only requirement for a true redundancy is that the business needs fewer employees to do work of a particular kind (in this case, secretaries), not because the business needs fewer employees to do the kind of work the dismissed person was doing (reception work).

    However, it must be remembered that the bumped employee can claim unfair dismissal, and that just because there is a genuine redundancy this does not mean that the dismissal is fair. The employer will still have the show that it was reasonable to treat the redundancy situation as a good reason for dismissing the employee and that a fair procedure was followed.

    Next week's article will consider the steps that must be followed if a redundancy dismissal is to be legally fair.

    Kate Brittin is a member of the employment team at Lewis Silkin (Kate.Brittin@lewissilkin.com)

    Further information on Lewis Silkin can be accessed at www.lewissilkin.com