Employment News: Redundancy – Case Law Update – July 2012

Redundancy law continues to create legal issues for employers to grapple with. Below is a summary of where the law currently stands.

1)       Collective Consultation

Definition of ”Establishment”

USDAW v WW Realisation 1. Following the administration of Woolworths Plc, the Tribunal was required to consider whether all of the Woolworths stores should be taken together as “one establishment” (thereby triggering collective information and consultation obligations), or as separate, individual establishments. This is always a question of fact for the Tribunal to consider, looking at geographical, administrative and organisational factors.

The Tribunal decided that each Woolworths store was a separate establishment, because each of the stores was a physically distinct premises with its own organisation and purpose, and employees were assigned to the particular store in which they worked rather than the whole of Woolworths’ national retail organisation.

This meant that only those stores with 20 or more employees triggered the collective obligations. On the face of it this decision appears to be employer-friendly. However it is likely to be appealed, particularly given the large number of employees who were excluded from a protective award as a result of the decision.

Collective consultation – when is the “trigger point”?

In USA v Nolan, the Advocate General gave an opinion that the obligation to collectively consult arises when the employer has taken a strategic or commercial decision which compels the employer to contemplate or plan collective redundancies. However, this opinion does not provide any particularly helpful guidance for employers, as it simply reinforces the position that consultation must neither be premature nor too late.

Expiry of fixed term contracts – do collective consultation obligations apply?

In University of Stirling v University and College Union, the EAT decided that employees who are dismissed on the expiry of fixed term contracts are not redundant and therefore collective consultation obligations do not apply to them.

This is a very surprising decision as it marks a complete turnaround from previous thinking on this issue. However, an appeal against the decision was lodged on 24 May 2012. The Government is proposing to clarify this issue as part of its collective redundancy consultation (see below) and therefore until this clarification is received, employers are advised to tread carefully when dismissing employees upon the expiry of fixed term contracts.

2)       Individual consultation

Pools of one

In Capita Hartshead Ltd v Byard, the EAT upheld the Tribunal’s decision that the dismissal of an employee who was in a pool of one was unfair. Ms Byard, an actuary, was put at risk of redundancy following a decrease in workload. There were other actuaries employed by Capita, but Ms Byard was put in a pool of one because, in Capita’s view, transferring clients between actuaries would put the business at risk of losing clients. However, the Tribunal held that this risk was in fact only “slight”, and concluded that Capita had not genuinely applied its mind as to who should be in the pool. Therefore Ms Byard’s dismissal was held to be unfair.

A different view was reached in Halpin v Sandpiper Books Ltd. Sandpiper Books’ only employee working inChina (Halpin) was made redundant following a decision to outsource the role locally. Halpin argued the pool of one was unfair as he had interchangeable skills and could carry out the work being undertaken by employees in theUK. The EAT upheld the Tribunal’s finding that the dismissal was fair; the pool of one was logical and reasonable in the circumstances because Halpin’s role was discrete. Further, it was clear that Sandpiper Books had genuinely applied its mind to the correct pool.

These cases confirm the established principle that assessing the pool for redundancy is primarily a matter for the employer to determine, and that it is difficult for an employee to challenge the pool in cases were the employer has genuinely put their mind to what the appropriate pool should be. Nevertheless, where a pool of one is used, the Tribunal are likely to look more closely at whether that pool was correct or whether it should have been wider.

Selection criteria for alternative roles

In redundancy exercises, there are typically two methods for selecting which employees should be made redundant:

1. A simple reduction in the number of employees in the pool. Under this option, all employees in the pool are scored and those with the lowest scores are selected for redundancy. The selection criteria used with this method must be objective and capable of independent verification, such as appraisal records.
2. All individuals in the pool are displaced and must apply for a reduced number of new roles. Those who are unsuccessful are made redundant. In Samsung Electronics (UK) Ltd v Monte-D’Cruz, the EAT confirmed that under this option there is no obligation on employers to use objective assessment criteria. Subjective criteria (such as competency-based interviewing) can be used in order to ascertain who is most suitable.

Interview notes for alternative position

In Camelot Group Plc v Hogg, the EAT held that employers are not under a duty to provide a copy of interview notes where an employee has not specifically challenged the employer’s scoring or interview process. However, employers should remember that an employee may have an entitlement to see his/her interview notes where they have challenged an element of the employer’s scoring or interview process. Further, such notes are likely to be disclosed in any litigation brought by the employee.

Refusal of alternative employment

In Readman v Devon Primary Care Trust, Mrs Readman, a community nurse, refused an offer of alternative employment based in a hospital because she had been employed in the community for the majority of her career and therefore did not want to be hospital-based. The EAT held that this was a sound and justifiable reason for Mrs Readman to refuse the offer and therefore Mrs Readman was entitled to a redundancy payment. The test of whether a refusal of suitable alternative work is reasonable is a subjective one, which employers can often forget.

Bumping

There have not been any recent cases on employers’ obligations to consider ‘bumping’ in redundancy situations (i.e. redeploying one individual into another role to save him from redundancy and in doing so, making another redundant). There is no absolute duty on employers to consider bumping, but a failure to do so may render a redundancy dismissal unfair. We have noticed that an increased number of claimants are using an employer’s failure to bump them to frame unfair dismissal claims, and so this is becoming an increasingly contentious issue.

3)       Reform of collective consultation obligations

The government has published a consultation on proposals that it considers will “revitalise” the rules on collective redundancy consultation. The proposals are based around three objectives, namely:

1. Reducing the minimum consultation to either 30 days for all collective redundancies or 45 days for planned redundancies of 100 or more employees. The aim is to help employers restructure more quickly and easily, reduce administrative and wage costs, provide greater certainty to employees and enable employees to take advantage of career resources and begin their job search sooner. There is no intention to reduce the protective award from a maximum of 90 days gross pay per affected employee.
2. Introducing a new, non-statutory code of practice to address key issues, including: when consultation should start and what it should cover, the definition of “establishment” following the Woolworths decision, TUPE and insolvency situations, and the expiry of fixed term contracts following the decision inUniversityofStirling.
3. Reviewing existing government guidance to ensure that it is accurate, accessible and fit for purpose. BIS intends to work with employers and trade unions to ensure that the guidance covers the required issues, and will also consider whether it could be supplemented by case studies demonstrating effective collective redundancy consultation in practice.

The consultation closes on 19 September 2012.

For more information or advice on the contents of this update, please contact Ranjit Dhindsa or Felicity Fortune.