Guide to Redundancy

(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 the requirements of that business -

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

(ii) 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".

This definition therefore applies in two principal cases: where the whole business closes down; and where the business carries on and its requirement for the services of people such as the employee in question cease or diminish. In either case, this can happen either generally or just in the place where the person involved was employed to work.

An employee who has two years' continuous service and is dismissed by reason of redundancy is entitled to a redundancy payment calculated by reference to his age, number of complete years of service and gross week's pay. For this purpose there is a statutory maximum on a week's pay which is currently £270. Statutory redundancy pay is not subject to deductions.

Offers of alternative employment and trial periods

If an employee is redundant, it may be that the employer can make an offer to him before the termination of his employment to renew the contract or re-engage him on suitable alternative work. In this event, two consequences may flow. The first is that if the employee accepts the renewal or re-engagement and there is either no gap, or a gap of less than four weeks between the contract, there is in law no dismissal at the end of the first contract. The second is that if the employee unreasonably refuses to accept the offer, he is disqualified from claiming a redundancy payment.

However, it is important to emphasise that the alternative employment offered must be suitable. This is an objective test and matters such as pay, hours and status will be relevant. If the employer can show that the alternative employment offered is objectively suitable and the employee refuses to accept it, the question arises whether or not his refusal was reasonable and this is a subjective test. For example, if the job is suitable but a change in working hours would mean that the employee could not fulfil some material function outside work, for example, looking after their children in the evening, then the refusal of the alternative work would probably be reasonable.

It may be that an employee is unsure about whether the new employment offered differs from the old employment in a material way and therefore wishes to give it a try. There is a statutory trial period of four weeks from the end of the old employment; if during that period the employee terminates the contract for any reason, or the employer terminates it for a reason connected with the change of employment, the employee is treated as having been dismissed at the date of termination of the old contract and for the reason or reasons prevailing at that date. He will therefore still be entitled to a redundancy payment.

The relationship between redundancy and unfair dismissal

The fact that an employee is dismissed by reason of redundancy does not mean that the dismissal is automatically fair. Redundancy is one of the five potentially fair reasons for dismissal.

It should be noted that for most purposes employees need to have one year's continuous service in order to be able to bring a claim of unfair dismissal.

A dismissal which purports to be by reason of redundancy may broadly be unfair for the following reasons:

1. the circumstances surrounding the dismissal do not fall within the definition of redundancy contained in Section 139 Employment Rights Act 1996;

2. the selection criteria adopted were not fair; or

3. there was a lack of consultation with the individual concerned.

Selection criteria

If there is an agreed or customary arrangement for selecting people for redundancies then this should be followed. If it is not it is likely that any dismissal will be held to be unfair.

If there is no agreed or customary procedure, an employer may rely on any non discriminatory (sex, race or disability) criteria provided they can be objectively justified and are applied in an even handed manner to all employees in the pool for potential redundancies. Factors which employers may wish to consider include the employee's work record, disciplinary record, skills, experience, wages or over all performance. Employers may also consider length of service, but the "last in first out" rule which used to be prevalent is now much less important.

Consultation with the employee

An employee may claim that his dismissal by reason of redundancy was unfair generally in that the employer's conduct was unreasonable having regard to the equity and substantial merits of the case. The House of Lords in Polkey -v- A. E. Dayton Services Limited held that a failure to consult an employee who was likely to be made redundant would almost certainly render the dismissal unfair. The exception to this rule would be where the employer specifically considered consultation but, on the particular facts of the case, decided that such consultation would not be appropriate. This is a difficult exception to fall into, but may be appropriate where it is felt that an employee who thought he was going to be made redundant might misuse confidential information or otherwise damage the employer's business.

A suggested procedure in order to satisfy the consultation provisions is as follows:

1. Make a provisional list of those people who it appears are likely to be dismissed by reason of redundancy.

2. Have individual meetings with the employees concerned and explain to them that it appears that there are going to be redundancies. Explain to them the criteria used to select people for redundancy and tell them that it appears that they are one of the people that is likely to be dismissed. The employee should be asked to consider whether he can think of any alternative employment within the organisation or any other way in which his employment may be preserved. At that meeting the employer should also explain to the employee the financial package relating to his redundancy, that is pay in lieu of notice (if appropriate) and statutory redundancy pay. The meeting should then be adjourned and the employee asked to return for a second meeting some days later. It may well be appropriate for the employee to be sent home on full pay for that period. It is suggested that where possible a minimum period between the two meetings should be four working days. The employee should be told that if he wants to bring a colleague or friend to the second meeting he may do so.

3. At the reconvened meeting, the employer should consider any representations made by the employee as to alternative work or otherwise how his employment may be preserved. The employer should consider these carefully and only after this consideration should it make the decision to dismiss, if indeed that is the decision which is reached.

It may be appropriate to actually have a further meeting in order to allow time for consideration of the representations. This will depend on the complexity of any representations made.

Throughout the consultation process, the employer should consider what alternatives may be available in order to reduce the number of redundancies or to get rid of a need for redundancies altogether.

It is recommended that at least two representatives from the employer are present at each meeting and that full minutes are kept.

Statutory consultation

Where an employer is proposing to dismiss as redundant twenty or more employees at one establishment within a period of ninety days or less, it must consult about the dismissals with the appropriate representatives of any of the employees who may be dismissed. This consultation must be in good time, and in event where the employer is proposing to dismiss one hundred or more employees, at least ninety days and, if more than twenty, at least thirty days before the first of the dismissals takes place.

Where the employees are represented by a trade union, it is appropriate for the employer to consult with the trade union. However, where there is no trade union, the employees must be given the opportunity to elect employee representatives. It is sensible to allow at least all those who are in the potential pool for selection for redundancy to vote, and, in certain circumstances, it may be appropriate to allow the entire work force to vote. Much will depend on the particular circumstances of the potential redundancies.

It is suggested that, in order to reduce the likelihood of challenges, the election is organised in consultation with the work force and is undertaken by secret ballot. It would be prudent for the employer to co-operate fully with regard to the election and then to make available facilities for the elected representatives.

A failure to consult with elected representatives will allow the representative to apply to an Employment Tribunal for a protective award of up to 90 days' pay for each individual affected.

If you have any queries, please contact any member of the Employment Unit.

London office :- (0207) 8420000

Nick Hine :- nick.hine@thomaseggar.com

Paul Gaff :- paul.gaff@thomaseggar.com

Douglas Styles :- douglas.styles@thomaseggar.com

Please note that this guide is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.