Summary and implications

With headlines heralding losses of 490,000 public sector jobs and the general tightening of the government purse strings as a result of the spending review, both private and public sector businesses alike may be reviewing headcount and redundancy policies.

Whilst there is hope that the private sector may benefit from David Cameron’s self-styled “pro-enterprise attitude”, a more pessimistic (some may say realistic) view shows a fragile economic recovery, with government contracts and funding drying up.

We present here a roundup of some key case law on redundancy law focusing on the following topics:

  • How does collective consultation work?
  • How must you select and consult for redundancy?
  • How should you handle re-deployment?
  • What will it cost the business?

A Reminder – What is a redundancy?

Redundancy is a potentially fair reason for dismissal if you:

  • Close a business;
  • Close a place of work;
  • Need fewer employees to carry out work of a particular kind.

There may be a redundancy for the purpose of collective redundancy consultation in the case of:

  • A reorganisation or reallocation of work;
  • A change in an employee’s terms and conditions of employment; or
  • The non-renewal of fixed-term contracts.

1. How does collective consultation work?

In a collective redundancy situation, you must consult with elected representatives.

Consultation must begin “in good time” and must last for a minimum period, depending on how many people are affected (please see the table).

However, the minimum period does not apply if there are “special circumstances which render it not reasonably practicable” to consult for that period.

“Not reasonably practicable” does not solve everything

Even if it is not reasonably practicable to consult for the minimum period, the employer still has to do what is reasonably practicable in the circumstances towards providing the statutory minimum information about the proposed redundancies and consulting on the usual matters, such as ways of avoiding the redundancies (Shanahan Engineering v Unite, EAT).

Collective consultation and unfair dismissal

If you fail to comply with the technicalities of collective redundancy consultation, the employee will not necessarily win an unfair dismissal claim (Hammonds LLP v Mwitta, EAT). The tribunal will look at whether the dismissal was fair in all the circumstances as usual.

2. How must you select and consult for redundancy?

If you have a group of people potentially at risk of redundancy you must use objective criteria to select between them.

The selection criteria should be transparent…

The employee should receive a copy of the basic selection criteria which have been used and also his/her own individual assessment against them to understand why he/she was chosen (Bond v Urmet Domus Communication & Security UK Ltd, EAT). The employee needs time to respond to his/her own selection matrix (Carclo Technical Plastics v Jeyanthikumar, EAT).

 …and fairly applied

Double counting one incident under different headings so that an employee’s overall score is reduced twice is not fair (Carclo Technical Plastics v Jeyanthikumar, EAT).

A tie does not make selection unfair

A tribunal was wrong to say that an employee was unfairly selected for redundancy if his score was equal to another employee in a selection pool of two people; if that were right, neither of the employees could be fairly selected for dismissal (Semple Fraser LLP v Daly, EAT).

3. How should you handle re-deployment?

Employers should consider alternative employment for employees at risk of redundancy.

Helping employees on maternity leave

Employees on maternity leave must be offered any “suitable alternative employment” in preference to any other employees. It is up to the employer, knowing what it does about the employee, to decide whether or not a vacancy is suitable (Simpson v Endsleigh Insurance Services, EAT).

Jobs in group companies

It is best practice to offer re-deployment in group companies but you are only under a duty to assist the employee and to consider alternative work in the group. The company “should not unfairly influence the appointing officers of the subsidiary companies in [their] decisions” (Parfums Givenchy Ltd v Finch, EAT).

4. What will redundancies cost the business?

The statutory redundancy payment is currently capped at £11,400. You may also pay “enhanced” redundancy, either as a one-off, as a matter of custom and practice or pursuant to your contracts or policies.

Enhanced redundancy and age discrimination

Employers can cap the payout under enhanced redundancy schemes to what the employee would have earned if he/she had stayed in employment until retirement (Kraft Foods v Hastie, EAT). Otherwise, the employee would receive a “windfall” from the redundancy.

Compensatory Awards

What’s in the bank is irrelevant

If the employee successfully brings an unfair dismissal claim, the tribunal does not have to consider whether the employer can afford to pay compensation (Tao Herbs & Acupuncture Ltd v Jin, EAT). The tribunal can award such compensation as is “just and equitable” (currently capped at £65,300 unless there are discriminatory factors).

Protective Awards

Breaching collective consultation requirements can result in a protective award of up to 90 days’ (actual) pay per affected employee.

Protective awards exclude discretionary bonuses

A discretionary bonus scheme is excluded from calculating an employee’s pay for the purpose of a protective award, if the date for deciding or paying such a bonus has not passed (Canadian Imperial Bank of Commerce v Beck, EAT).