We don't normally go in for huge self-promotion but given the Employment Judge's comments in a tribunal last week we feel we ought to. Acting for a multi site international company we advised on a series of site closures across the UK resulting in a number of redundancies. At a tribunal claim resulting from the dismissals recently the Employment Judge said:
"We also note, and the Respondent should take particular note of this, although the Claimant may not know this, the process followed by the Respondent, was almost worthy of being held out as a model examination answer. It is almost perfect. They warned of the prospect of redundancy in general meetings, then specific individual meetings, the issues were discussed and considered at a management meeting, in the third week proposals were considered and some were adopted. Alternative employment was considered and then and only then were the individuals made redundant. It is a tribute the system operated by the Respondent of approximately 40 people who may have been made redundant nearly half were able to be retained"
A good guide for redundancy is to imagine that it is your job that it being taken away. You would want to know why, to have a full explanation and a chance to genuinely influence the decision before it is made. You would also want to be treated with respect and listened to. Furthermore, you would want the Company to do everything reasonable to retain you including giving you a good chance at any job you were suitable for'."
The judgment in the case we have just done follows a recent EAT case where two existing employees at risk of redundancy competed for a vacant role with an existing employee who was not at risk. The facts of that case involved the tribunal considering selection for redundancy and alternative employment. The employer decided to remove a layer of management. Two managers were put at risk. A single new position was created which was open to internal competition. They both applied for the position, along with another candidate who was not at risk of redundancy.
One of the two was selected for the job on the basis that he had the “less insular” management style and the other was made redundant. A tribunal, upheld by the EAT, decided that the dismissal was unfair because there was no objective selection between the candidates. The tribunal first held that the decision to appoint the successful candidate was based on the subjective view of one director only and that this made the dismissal unfair.
The Tribunal also said "If there was a question as to the capability of either person at risk of redundancy to undertake this role, then it should have been established that neither was suitable before opening the new role to further applicants."
That case also reinforces the fact that selection for redundancy must be capable of being objectively justified.
A detailed explanation of redundancy issues is as follows:
These are general notes. They should be supplemented by specific advice. They do not deal with dismissals of women on maternity leave, dismissals following business transfers or multiple redundancy dismissals of more than 20 people.
The ingredients of a fair dismissal by reason of redundancy are set out below:
Given certain conditions a person is entitled to a redundancy payment. The conditions are as follows:
a) That the person was an employee;
b) That he or she had been continuously employed for the requisite period;
c) That he or she was dismissed; and
d) That the dismissal was by reason of redundancy.
A person may be dismissed by reason of redundancy but that dismissal may be unfair. If unfair, the employee may become entitled to compensation for unfair dismissal if successful in a tribunal. The rest of this advice deals with a) redundancy and b) the procedural requirements that are required to make a dismissal for redundancy a fair dismissal. It also sets out various tactics to increase the chance of success in a tribunal.
An individual is only entitled to a redundancy payment if he or she has 2 years’ service or more. That individual can, however, claim unfair dismissal if he or she has more than 1 year’s service.
The definition of redundancy is as follows: -
For the purposes of this Act (the 1996 Employment Rights Act) an employee who is dismissed shall be taken to have been dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to-
a) the fact that his employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed by him, or has ceased or intends to cease, to carry on that business in the place where the employee was so employed, or
b) the fact 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 he was so employed, have ceased or diminished or are expected to cease or diminish.
When the conditions of the above section are satisfied one generally talks about a 'redundancy situation'. In a redundancy situation one then has to go on to consider whether it is fair to dismiss the individual. It is important to remember that an employee is not made redundant - a job is redundant and an employee is dismissed by reason of that redundancy. It is also important to remember that just because a redundancy payment is paid does not mean the dismissal is fair.
The fairness or otherwise of the dismissal will be considered by the tribunal. In doing so they should not investigate the commercial and economic reasons prompting the decision. They will however want to know that the decision (to make redundancies) was made reasonably.
That is to say that they will want to know that it was based on proper investigation. You must therefore be prepared to provide evidence that the decision was based on fact and that a proper business decision was reached. To this end, the Employment Tribunal would expect to see documents such as minutes of meetings that you had with your accountants, copies of accounts and/or anything else you relied on in coming to your decision to make redundancies. You should be prepared to give clear evidence about the process by which the decision was arrived at.
The first stage in a successful defence of a claim that a dismissal by reason of redundancy is unfair is, therefore, to outline the business reason for redundancies and the process by which that decision was reached. The next stage is to show that the dismissal was fair.
A redundancy dismissal may be unfair for two reasons:
- The method of selection made the dismissal automatically unfair, or
- The dismissal was nevertheless unreasonable within the meaning of the general test of whether a dismissal is fair or unfair:
.. the determination of whether the dismissal was fair or unfair, having regard to the reasons shown by the employer, shall depend on whether in the circumstances (including the size and administrative resources of the employer’s undertaking) the employer acted reasonably or unreasonably in treating it as sufficient reason for dismissing the employee; and that question shall be determined in accordance with equity and the substantial merits of the case.
Each tenet of fairness is considered below.
Warning
Generally, at the earliest opportunity staff potentially affected must be warned about the possibility of redundancies. There is no separate duty on an employer to warn an employee of impending redundancy. Warning and consultation are part of the same single process of consultation, which should commence with a warning that the employee is at risk. Such warning should be in writing and may come with a request for volunteers. You don't have to ask for volunteers though. You can indicate that any redundancy payment, payment in lieu of notice and/or enhanced redundancy payment is dependent on continued service until the proposed date of dismissal if you are concerned about the staff leaving. There are employee relations’ implications in the way that this warning is communicated. In certain circumstances an employee can leave early, after having given proper notice him or herself, and still have some or all of the redundancy pay.
I advise that you involve the staff in meeting at which you warn them of the possibility of redundancy. Hypothetical or conditional language should be used so as to prevent a successful claim that anything was prejudged.
Consultation
The tribunals consider consultation very important. Save in the case of multiple redundancies of over 20 people there is no specific requirement to consult but a failure to consult will mean that the employer has not acted fairly within the meaning of the general test. Judges in the leading case on the subject stated that that could not think of many dismissals that could be fair without consultation.
Consultation has been held to mean consultation about:
- the need for redundancies,
- the selection criteria,
- the pool from which redundancies are to take place,
- the individual scores, ? alternative jobs and
- measures that the Company and the employees’ can suggest to avoid the need for redundancies.
In addition, you should consult with a view to obtaining volunteers for redundancy. If you do this ensure that the Company reserves the right to reject volunteers. You should, at your initial meeting, discuss how the savings required can be found and if it that is the reason for redundancies. This may involve use of structure charts. Structure or organisation charts are useful and given great weight by tribunals.
Alternatives that the Company should consider and consult on, as a way to avoid redundancies may include recruitment bans, voluntary reductions in wages, part time working, reducing temporary staff to a minimum and voluntary redundancies.
There are no particular rules as to consultation but the tribunals consider that consultation should be:
a) when the proposals are still at an early stage,
b) based on adequate information on which to respond,
c) with adequate time in which to respond, and
d) involve conscientious consideration by an authority of the response to the provision of information.
It is sometimes the case that the employee believes that they have not been consulted but the employer thinks that they have been. This confusion can result from the employer being vague about the purpose of the meetings with the employee or, indeed, simply thinking that a general chat about the situation constitutes consultation: it does not. To avoid the situation of having to explain to a tribunal that you have, despite what the employee says, consulted with them, I advise that a memo is sent either before or after the meetings setting out all the matters to be discussed or that were discussed at that meeting and which uses the word consultation.
Selection
In selection you will have to consider the pool from which selection takes place. You should identify the grade of person to be made redundant. If it is say ‘fitters’ then all of the fitters should go into the pool and then through the selection process. Clearly, if you have two divisions and therefore, two sets of fitters the pool should be all fitters and not just those in the affected division. However, the tribunals accept that you have to keep the redundancy pool within reason so if your two groups of fitters are in different areas of the Company you almost certainly only have to consider those in the affected location
See: http://www.employmentappeals.gov.uk/uploads/UKEAT069104TM21122004/index.htm
For a case where the Tribunal considered that the pool was wrong, that a different pool was correct and that the pool the employer used was no within the band of reasonable responses.
If there is only one person whom it is possible to make redundant the reason for this and for why you have rejected others must be fair and explained to the employee. In effect, in this situation, you have selected a pool of one from which to choose those to be made redundant.
In any event the manner in which the pool is created and the selection process from it must be recorded in writing for evidential purposes later. It will have been a good idea to have consulted on this area first.
Generally, if it has one, the Company should use an agreed selection procedure - either customary or agreed with unions or otherwise. If there is no such procedure then the one that is used must be objective and fair and carried out fairly. The sort of selection process that some companies carry out when choosing from a number of people is to have a number of factors and a score for each one. The forms are filled in by managers and discussed with the individuals. In each case the individual should have as much information as possible including if possible the scores of others. It is a good idea to allow an appeal against the score.
In many cases management’s decision as to who should go is intuitive at the start but this is fairly indefensible unless it is formalised and particularised. What is needed is a worked or structured system or argument, subject to consultation, as to why it is a particular individual and not someone else. My advice is that the more justification and logic there is for the selection and the more involved in and informed / consulted about the process the individuals are the more chance that they will accept it and not go to a tribunal. The Tribunal is looking for an objective system not subjective views.
Williams v Compare Maxam Ltd [1982] IRLR 83,
’Whether or not an agreement as to the criteria to be adopted has been agreed with the union, the employer will seek to establish criteria for selection which so far as possible do not depend solely upon the opinion of the person making the selection but can be objectively checked against such things as attendance record, efficiency at the job, experience, or length of service’.
Efforts to find suitable alternative employment
There are two types of alternative jobs. There are those that are on all fours with the redundant job. If such a job exists the employer should offer it and could refuse a redundancy payment if the employee unreasonably refuses. On the other hand, there are other alternative jobs. These are not suitable but must be sought and offered to the individuals concerned. It will be up to them to decide whether they accept them. Do not fall into the trap of deciding that the individual would not have accepted it anyway. A good tactic is to ask for a CV and circulate it within the business asking for a response even if no available post can be found. This means that you can prove you did it and do not have to involve too many managers in giving evidence in the tribunal. On that note try to ensure that one senior person who will make a good witness has overall involvement so he or she can give evidence if necessary on all aspects. This avoids the need to have too many witnesses in any subsequent tribunal.
If the matter comes to a tribunal you should be prepared to give provide a lot of evidence as to what you did to find alternative employment. In a larger company one might have to show copies of internal newsletters seeking news of possible vacancies, letters written to managers in all parts of the Company and other such matters. There should be a memo confirming that this was one of the discussion points at a consultation meeting. If an individual says he is not interested in an alternative job record that fact in a memo or letter back to the individual.
My experience is that employers who fail to discuss possible alternatives with potentially redundant employees lose tribunals. The reason for this is that to fail to do so enables the employee to claim with apparent sincerity in the tribunal ‘I would have been prepared to do such and such a job, which was available, if only they had offered it to me?’. The employer may have had entirely the correct view that the employee a) wouldn’t have been able to do the particular job and/or b) might have been a disaster but it has lost the ability to argue those points if the job hadn’t been canvassed first. In those circumstances, the Tribunal might believe the employee that he would have been prepared to do the job and could have done it. Of course, you can't take this principle too far - if the employee couldn't do the job because of lack of experience and qualification or both then you don't have to go through the motions. It will be a good idea, however, to list such jobs on internal vacancy lists in case anyone unbeknown to you has the relevant experience.
Do not fall into the trap of relying on the individual seeking information to make what otherwise might be an unfair dismissal, fair. In other words do not end up in tribunal arguing that you would have explained the process had the individual asked for it but he didn’t. This is because it is for the employer to dismiss fairly not for the employee to ask for a fair dismissal. It is different if you attempt to explain but are rebuffed - in this case prevent later argument by writing to the individual saying ‘in our meeting I attempted to explain the process of … in order to facilitate consultation. You indicated [forcefully] that you were not interested in receiving such information. Nonetheless I enclose a summary of what I would have discussed in detail and invite you to contact me to discuss this further if you require’.
Notice
Although not strictly a requirement of a fair dismissal by reason of redundancy employees should be given their notice period, garden leave for that period or a payment in lieu of notice. It may also be possible to breach the contract of employment and pay damages for the break. This course of action has consequences not least the prospect of saving tax. A fuller explanation of the law relating to this subject can be found on the Steen & Co Employment Solicitors Web Site in the Resources Section.
Redundancy pay
An employee dismissed by reason for redundancy has contract rights such as notice of termination and for a statutory redundancy payment. Employees are entitled to a written explanation of how their redundancy payment is calculated. Redundancy payments over and above the statutory minimum may be paid. Such payments maybe a contractual entitlement. The greater the amount of such a payment the more likely the employee is to sign a valid compromise agreement. It is generally sensible to ensure that such an agreement is entered into where large enhanced payments are made.
Settlements
It is very common for employees who are taken through the initial stages of a consultation and warning process to simply ask ‘how much am I going to get?’ If this happens you may wish to use conditional language to explain that nothing has been decided but to set out what they would be entitled to if they were to be dismissed by reason of redundancy. In many cases the individual is not interested in being consulted and the Company can sensibly trade consultation time for an increased settlement. Leaving early in such circumstances without the full fair procedure having been followed should always be expressed to be as a result of the employee’s request. This is to ensure that the Company can defend itself in the event the employee later changes his or her mind about going early and brings a tribunal (which they can do as long as they haven’t signed a compromise agreement).
Excluding the employees from the business while consultation takes place
This is not generally a good idea as it implies prejudgment and that the consultation is a sham. That said, many employers do precisely this.
Conclusion
I advise that you start on the basis that two or three meetings are to be held. The meetings should become progressively more detailed and involved. A written record must be kept. To avoid being overtly formal I suggest that memos are used to record the discussions. ‘Thank you for coming to the meeting yesterday, as I explained I feel it is very important to consult with you on all aspects of the decision. I will be considering what we discussed over the next few days and will come back to you. Although when we discussed alternative jobs you explained that you were not interested in any of them [….] etc’. I advise that the process of making someone’s position redundant should not be rushed and that 3 weeks to a month should be fast enough to satisfy a tribunal that a fair procedure had taken place.