Employers can find themselves in a tricky situation where they have a reduction in work but still require the same number of employees. Can they oblige employees to reduce their hours or does this trigger a redundancy situation? In the case of Packman v Fauchon the Employment Appeals Tribunal ("EAT") has held that a requirement to reduce hours but not headcount can amount to redundancy. The consequence is that an employee who does not accept a reduction in hours and is dismissed may be entitled to a statutory redundancy payment.

Ms Fauchon was employed to provide book-keeping services to Packman Lucas Associates ("Packman"). Packman introduced an accountancy software system which, combined with a downturn in business, led to a significant reduction in the number of hours Packman required her to work.

Packman could not persuade Ms Fauchon to agree to a reduction in her hours and she was dismissed on the grounds that there was no longer any need for her to work her contractual hours. Ms Fauchon did not receive a redundancy payment on the basis that, even though there was a reduction in the amount of work there was in fact no reduction in the number of employees required to carry out the work.

The EAT confirmed that Packman had run out of credit and that Ms Fauchon's dismissal was on the grounds of redundancy as headcount does not necessarily need to be reduced to satisfy the definition of redundancy, provided that there was an overall diminution in the requirement "for employees to carry out work of a particular kind". In the judgment, the President remarked that where the hours of two full time employees are reduced to 50% but both continue working, there is deemed to be a reduction in headcount measured by full-time equivalent.

Where there is a significant reduction in working hours of say, 50%, there is a strong likelihood that this will create a redundancy situation. Anything less is open to debate. Employers need to be aware of this risk as it may affect the way a reorganisation process is run. An attempt to save some staffing budget may actually result in significant redundancy costs as employees ask for severance rather than accept reduced hours. We suggest that you seek legal advice before contemplating significant changes to work structures as these situations can turn into a maze and we would not want any ghosts coming back to haunt you!