What is Redundancy?
Section 139 of The Employment Rights Act ('ERA') states there are 3 types of redundancy situations:
- Closure (whether temporary or permanent) of a business
- Closure of a particular workplace where the employee was working
- Reduction in the need for employees
Closure of the Business
If your employer has ceased trading or has closed down its business completely your dismissal will fall under the category of redundancy. If this occurs you will be entitled to a redundancy payment and notice pay.
If your employer has gone into administration, the following payments can be recovered from the Government’s National Insurance Fund:
- Statutory notice pay
- Statutory redundancy pay
- Up to 8 weeks unpaid
- Up to 6 weeks holiday pay
Closure of the workplace
The place where an employee was employed normally means the place where they are actually working, rather than what is written in the contract. This does not mean the terms of the contract are irrelevant. The tribunal will examine all of the background, including the precise terms of the contract and the applicabilty of any mobility clause (mobility clauses oblige employees to relocate under certain circumstances).
Mobility clauses should not automatically be taken at face value. An employee is not normally in a realistic bargaining position at the start of the employment to negotiate the removal of a mobility clause and the existance of one will not necessarily make it reasonable or enforcable shoud the employer try and rely on it years later.
Reduction in the need for employees
This is the most common type of redundancy situation and involves a two stage test:
- Have the requirements of the business for employees to carry out work of a particular kind diminished?
- Is the dismissal attributable wholly or mainly to that state of affairs?
It is often thought that because an employee’s role still needs to be performed just as it has always done, that they cannot be made redundant. However the tribunal needs to determine whether there has been a reduction in the requirements of the business for employees to carry out work of a particular kind. The focus is on the tasks they peform rather that their actual job per se. It is often the case that as part of a cost saving exercise an employee is made redundant and their duties are redistributed amongst their colleagues. Whether or not the dismissal is unfair depends on a number of factors.
What is bumping?
Bumping is where employee A, who’s role was not at risk of redundancy, is dismissed to make room for employee B, who’s role is redundant.
An employer must show there is a genuine redundancy situation in the first place and also sound business reasons as to why they wished to retain employee B at the expense of employee A.
A failure to consider bumping for Employee B, could mean their dismissal is unfair. The tribunal will need to consider:
- How different the two jobs are
- The difference in remuneration between them;
- The relative length of service of the two employees;
- The qualifications of the employee in danger of redundancy;
- Any other relevant factors which my apply in a particular case.
Suitable Alternative Employment
An employer may offer you other work instead of making you redundant. You then have a choice of whether to accept the offer or not. An employer who fails to consider this may be at risk an unfair dismissal claim.
However an employee who unreasonably refuses an offer of suitable alternative employment may lose their right to a redundancy payment.
When should the offer be made?
The offer must be made before the current employment ends. The timing of the offer can impact on how reasonable it is.
A very late offer, for example in the last week of the notice period will not completely invalid it, although this will be a factor the tribunal will consider when assessing if an employee has been reasonable in rejecting it.
The offer must be for new employment to start either immediately after the end of employment under the previous contract or within 4 weeks of the end of the previous contract. A weekend can be added if the 4 weeks ends on a Saturday.
What should the offer contain?
The offer should be sufficiently precise to enable the employee to identify how the new job will differ from the old.
The employee is entitled to a statutory trial period of at least four weeks to consider the new role and if they consider it suitable.
Can you leave at the end of your statutory trial period?
You have the right to declare the trial unsuccessful by terminating the contract during the trial period or you may choose to give notice during the trial period.
If the trial is unsuccessful then the original redundancy stands and you will be entitled to redundancy pay.
It is also possible to extend the trial period beyond four weeks. The right to extend only applies where that extension is "for the purpose of retraining the employee" in the skills required for the new job, but can be for any length of time.
If you end up rejecting the role unreasonably you may lose your right to a redundancy payment. The question of whether a rejection is unreasonable or not is a question that can only be determined by a tribunal.
The test of whether an employee is acting unreasonably in refusing the new role is an objective test and assessed by comparing the new job to the old one and factors such as:
- Travelling Time
The tribunal will then apply a subjective test and assess it from the employee’s point of view. They are particularly obliged to consider someone's personal circumstances. (Fuller v Stephanie Bowman (Sales) Ltd  /RLR 87).
For example an offer of alternative employment that involves increased travelling time because an employee does not have a car and involves several changes on public transport may well be unsuitable. For another employee who lives close to the place of work, this may not pose a problem for them and rejecting the new role may be unreasonable.
Unfair dismissals and Redundancy
The employer must be able to show that the reason given for the dismissal falls within the list of potentially fair reasons for dismissal set out in s98 of The Employment Rights Act 1996. It is difficult to show that the reason for dismissal was not attributable to redundancy situation.
Bad faith redundancy dismissals, where the employer invents a redundancy situation to dismiss an employee do occur although can be difficult to prove given tribunals are generally reluctant to overly examine the business rationale for making redundancies.
Once the employer has shown that the dismissal was for a potentially fair reason, the tribunal will examine if the dismissal was reasonable in all the circumstances of the case.
Assuming the reason for dismissal was redundancy, the tribunal will normally need to examine:
- · Has the employee been consulted with adequately?
- · The pool for selection
- · Was a fair selection procedure carried?
- · Did the employer identify and offer suitable available alternative work?
An employer should inform the employee at the earliest possible stage that they are at risk of dismissal. They should be issued with an at risk letter which sets out the reason for redundancy and the steps in the process the employee can expect.
During the consultation stage, the employee should also be given the opportunity to comment on his or her pool for selection and redundancy selection assessment, and be given an opportunity to express any views as to how the risk of dismissal could be minimized such as whether any alternative work could be considered.
Pools for Selection
If the employee disputes the pools for selection they should challenge them as part of the consultation process.
A tribunal will generally give an employer a great deal of leeway in determining the pool for selection. It is essentially up to the employer to decide and in most cases is difficult to challenge.
Where only one employee is genuinely performing a particular job, a pool of one is acceptable and no selection procedure is needed, subject to the possible requirement to consider bumping, as outlined above.
Where the redundancy exercise involves more than one employee, the pool should include all those employees carrying out the work. It might however be widened to include other employees who share similarities or are interchangeable with those employees.
If a group of employees doing similar work are at risk, the employer must show what type of work they do and why the work has ceased or diminished, eg it might be unfair if an employer decides to cease with night work, to simply pool only night shift employees. It might be appropriate to include the day shift as well.
To ensure fairness the employer should design selection criteria objectively, and not be based on the whim or opinion a manager. Where possible, it should be verifiable by data. The Tribunal can’t substitute its own view on the reasonableness of the selection procedure. In general, employers are given wide discretion. Whilst it is not an absolute requirement to consult on the criteria itself, an employer may wish to do this. Candidates should be informed of their scores and the basis of how they were arrived at
Common examples of selection criteria:
- Last in First Out. It is recognized that this is now not a fair criteria when used on its own. However length of service may be used alongside other criteria.
- Performance: This can be hard to measure objectively and is often open to challenge.
- Attendance: Employers need to be careful of discriminating against disabled candidates.
- Skill and Knowledge
- Disciplinary record
This is calculated in the same way as the basic award for unfair dismissal, and is calculated in accordance to an employee's age, years of service and average weekly pay to arrive at a figure.
- Weekly pay is capped at £571 per week and the number of years is capped at 20.
- Years of service below 22 years of age - the employee's weekly pay is multiplied by 0.5
- Years of service between 22 and 41 - the employee's weekly pay is multiplied by 1
- Years of service from 41 onwards - the employee's weekly pay is multiplied by 1.5
An employee's contract may give them a right to an enhanced redundancy payment, in excess of the statutory entitlement
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