THE MARSHALL & GALPIN GUIDE TO REDUNDANCY

 

Redundancy is exhaustively defined in Section 139 (i) of the Employment Relations Act 1996 as follows:-

 “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.         That fact that the requirement 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 Lawyer, have ceased or diminished or expected to cease or diminish.”

   


SUMMARY

•   Redundancy is a form of dismissal
 •   Two preliminary questions to be asked in any redundancy situation:
 (a)    Has there been a dismissal?
 (b)    Was that dismissal for redundancy reasons?

 •   Dismissal ?
 There are a number of ways in which a contract of employment is brought to an end:
 (a)    termination by employer with or without notice
 (b)    expiry of a fixed term contract
 (c)    constructive dismissal – employee resigns with or without notice due to repudiatory breach of contract by employer
 (d)   resignation by employee under notice of dismissal
 (e)   termination by operation of law or statute

 However, under ERA 1996, there are 3 other circumstances that may give rise to a redundancy payment:
 (a)   rejection of alternative job during or after trial period
 (b)   anticipation of employer’s notice
 (c)   resignation due to lay-off / short time working

 •   Redundancy Reasons ?
 Possible examples include:
 (a)   work of the employee no longer required
 (b)   employee’s job no longer exists as it is being done by other employee(s)
 (c)   workplace closed as employer no longer trading but employer still solvent
 (d)   place of business or work done by specific employee moves to another location
 (e)   employee laid off or put onto short time working
 (f)    employer’s business taken over / transferred to new employer
 (g)   employer’s business becomes insolvent
 (h)   employer (sole proprietor) dies

 •   Selection
 Employer must use a fair and objective selection procedure. The generally accepted formula of “last in first out” is potentially age discriminatory. A better approach is for the employer to set out a list of criteria and skills required by the business. Each employee is then marked against this set of criteria and the employee(s) with the lowest scores are selected for dismissal.

 •   Planning
 It is important for an employer to clearly identify the reasons why redundancy is necessary. These will need to be communicated to the employee or his representative at some stage. A plan of action should be drawn up including consulting with employees, considering alternatives to redundancy and fixing the number of dismissals. Requirement to notify DTI of proposed redundancies if more than 20 employees to be dismissed.

 •   Redundancy Payments
 There are two different types of redundancy payment, namely statutory and contractual. Statutory redundancy will be paid to any employee with 2 years + continuous employment. It is basically an entitlement to a number of week’s pay depending on age and length of service. Contractual payments will depend on what payments are set out in the original contract or subsequent severance agreement. NB in either case there is an entitlement to payment in lieu of notice over and above the redundancy payment.
 

    


WHAT IS REDUNDANCY ?

 Redundancy is a form of dismissal and unless the dismissal is for genuine redundancy reasons, such dismissals may be treated as unfair. Often problems occur when employers provide advance warning of redundancy. The general rule is that there must be a precise date of termination rather than a general statement of a likely time period. Where the employee is under a notice of redundancy but has not yet been dismissed, it may be possible to resign and claim a redundancy payment where the employee has found new employment requiring a start prior to the date of termination. NB the employer must have given the employee formal notice to terminate the contract and the employee must then give a counter-notice in writing within a specific period (depending on length of service or contract) of earlier termination (S.136(3)(b) ERA 1996).

 The essence of redundancy is a reduction in the need for employees by an employer. This may come about out of 4 sets of circumstances.

 Business Closes – Where the employer ceases to trade, it is usual for termination to be for redundancy reasons.

 Closure of Workplace – Where the employer closes down business at one particular location though continues to trade from another.

 

Job disappears completely – The employer eliminates the work carried out by the employee.

Diminishing need for employees – The number of employees is reduced rather than eliminated totally.

EMPLOYER DUTIES IN REDUNDANCY SITUATIONS

 Numerous statutes and cases have resulted in the establishment of procedures for a reduction in workforce to be fair.

A plan of action should be prepared by the employer starting with reasons why the redundancy is necessary at all and fixing the numbers of employees affected. Where applicable the DTI and/or employee representatives should be notified of the proposed redundancies. Consider alternatives to redundancy e.g. reducing overtime. Where 20 or more employees are to be dismissed, the employer is required to consult employee representatives’ e.g. union officials. Minimum periods of consultation 30 or 90 days depending on the numbers involved. Any failure to consult in such circumstances may result in a protective award by the tribunal. 

The most likely element of any redundancy situation to result in a claim is the selection process. The preferred method of “last in, first out” is favoured by employees whereas employers favour a more targeted approach. The modern approach now consists of two methods, namely if there is an already established method of selection, or where no such method exists, designing a method of selection e.g. choosing a set of criteria and assessing each employee against that criteria with the employee scoring the lowest being selected etc.

Once the selection process has been carried out, the employees will need to be consulted individually about their redundancy before notice of dismissal is given.

The employer should also consider whether there is any suitable alternative employment that can be offered to the employee. This may allow the employer to escape having to make a redundancy payment if the employee unreasonably refuses. The offer must be made before the expiry of the old position and must commence within 4 weeks of termination. The first 4 weeks of the alternative position are treated as a trial period and the employee may still reject the position and claim a redundancy payment.

REDUNDANCY PAYMENTS

 Statutory Redundancy Payment – Under S.162 ERA 1996, and subject to a qualification period of 2 years continuous employment, the redundant employee is entitled to a maximum payment dependant upon his length of service, age and salary. The calculation broadly is:

 •   1½ weeks’ pay for each complete year of service after reaching age of 41 years
 •   1 weeks’ pay for each complete year of service between the ages of 22 and 40  (inclusive)
 •   ½ weeks’ pay for each complete year of service between ages of 18 and 21(inclusive)

The maximum length of service for calculation purposes is 20 years and a statutory maximum pay level is fixed by the government (£310 per week at Feb 2007.

Contractual Redundancy Payment – Many large companies have contractual schemes for severance payments in excess of the statutory requirements.

APPEALS

 There is no absolute right to appeal against selection for redundancy dismissal. If an employer does operate a formal mechanism it should broadly follow principles of natural justice akin to appeals within a disciplinary procedure.

 REMEDIES

 There are 4 possibilities to consider:

Wrongful Dismissal – If an employee is not given due notice or pay in lieu, he will have a claim for wrongful dismissal.

Claim for Statutory Redundancy Payment – where the employer has failed to pay or paid incorrectly statutory redundancy pay, the employee may claim the same through the tribunals

Unfair Dismissal – a dismissal disguised as redundancy is liable to be found to be unfair. The burden of proof for proving the reason for the dismissal rests with the employer. There are various instances where selection for redundancy will be automatically unfair e.g. trades union membership. A successful claim may result in reinstatement, re-engagement and compensation.

Civil Claim for Contractual Severance Payment – A claim for breach of contract may now be brought in the tribunals for damages up to £25,000.


 

For further information, please contact:-

Dharmender Singh Sall  (Oxford) 01865 268602    email - mailto:dharmender.sall@marshallgalpin.com

Stephen Woods             (Oxford) 01865 268603   email - mailto:stephen.woods@marshallgalpin.com

James Stonham             (Thame) 01844 219102   email - mailto:james.stonham@marshallgalpin.com

 

www.marshallgalpin.com

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