Responsible redundancy: Establishing genuine redundancies and a fair selection process for employers Our subject expert
Simon Gilmour
Partner and Head of Employment Law
The prospect of planning dismissals on the grounds of redundancy is never easy - for you as an employer, or for your team. But if change is unavoidable, it's vital to handle the process with care, clarity, and compliance. There will be a lot to consider and there are several fundamental stages to factor in.
The first step is to understand what is meant by a redundancy dismissal. Then you should establish exactly what changes are required within the business and what impact that will have upon the amount and nature of work carried out, the number of employees required to perform that work. Finally, you will need to plan and achieve a fair and transparent selection process, incorporating the appropriate consultation.
Our expert employment law solicitors can review the process and discuss your options, helping you make informed decisions while treating people with the respect and transparency they deserve.
Redundancy has a technical statutory meaning in employment law, and so fully understanding what redundancy means is critical before embarking on a redundancy process.
Under the statutory definition, redundancy is where the dismissal is wholly or mainly attributable to the closure of the business or place of business where the employee worked or the business' requirements for employees to carry out work of a particular kind is no longer needed.
Leading case law - the three-stage test in Safeway The leading case on establishing whether an employee has been dismissed because of redundancy is the EAT decision in Safeway Stores plc v Burrell. It is important because it sets out a three-stage test, as follows:
- Was the employee dismissed?
- If the employee was dismissed, had the requirements of the business for employees to carry out work of a particular kind stopped or reduced, or was there a business or workplace closure or a reduced requirement for employees to do work of a particular kind?
- If so, was the dismissal of the employee caused wholly or mainly by one of the circumstances in 2, above.
Only if the answer to all three of the above stages is 'yes' will there be a redundancy dismissal.
Cases are still being judged by the Safeway three-stage test today and so considering whether your situation will pass all three stages before moving to a dismissal will assist with your decision as to whether this is a genuine redundancy dismissal.
Is the Redundancy Genuine? When assessing your potential redundancy situation, it is important to understand what constitutes a dismissal. There is a dismissal if:
- an employer terminates the employee's employment with or without notice or
- an employee's fixed term contract expires and is not renewed or
- the employer's conduct entitles the employee to resign with or without notice (constructive dismissal) or
- there is an act of the employer or event affecting the employer such as the death or retirement of an individual employer, which terminates the employment by operation of law (for purposes of redundancypayments only, not unfair dismissal)
The employer mustcommunicate to the employee that they are terminating the employee's employment contract,and the date the dismissal will take effecteither expressly orally, in writing, or by deeds, so that this is clear and unambiguous from the communication, as it would be understood by a reasonable observer.
Where an employer invites employees to volunteer for redundancy, an employee responding to that invitationisvolunteering to be dismissed by the employer by reason ofredundancy. The employee is not agreeing to resign, so where a voluntary redundancy takes place, there is generally a dismissal. You can read more in our article, Establishing that a redundancy is genuine , for more clarity on the topic.
Is there closure of a business? If the employer 'has ceased or intends to cease to carry on the business for the purposes of which the employee was employed' there is a redundancy situation. Even if a closure is temporary and the employer intends to reopen in the future, this could lead toredundancies. It will depend on the facts of the case whether the closure is long enough to qualify.
If a business is closing so that it can change and re-open again, the facts will determine whether an Employment Tribunal decides that the new business is sufficiently different from the original business. If it is, this will mean that the original business ceased, and any dismissals were for redundancy. If a business transfers to a new owner, the employees will likely transfer to the new owner under TUPE and will not be dismissed or made redundant, unless insolvency rules apply in a narrow set of circumstances. TUPE, has its own specific set of rules and employer obligations. If you are unsure whether your business is involved in a TUPE transfer, our employment law solicitors would be happy to assist you with that.
Is there closure of the workplace? If there is an intention for you to cease carrying on your business in the place where the employee is employed, covering relocation and site closure, there is likely to be a closure of the workplace. To establish the workplace of the employee, it is the reality of where the employee works, at the time of the dismissal, that is relevant. If the employee's actual workplace is different to what is written in the employee's contract, it is the last place of work, which matters. Amobility clausecan complicate this and must be looked at when considering the 'workplace' of the employee, where they work or haveworked in more than one location.
If an employee's place of work is two or more places and only one is closing, it may be easier to establish aredundancysituation because of a diminishing requirement for employees, rather than closure of the workplace. However, if there is a mobility clause, and there is enough of the same work available at another location, you may choose to use the mobility clause to avoid redundancy.
Is there a reduced requirement for employees to do work of a particular kind? This category is slightly wider than closure of a workplace, as a dismissal will be forredundancyif it is wholly or mainly attributable to reduced need for employees to carry out work of a particular kind in their workplace place or within the entire business. If you are reorganising the business, you will need to consider carefully whether there is a case for redundancy on these grounds.
Other circumstances may also give rise to a redundancy situation. If two roles are absorbed into one, if a particular type of work or project reduces and so fewer staff are required to fulfil demand, if a change in role function or reduction in hours occurs or is anticipated, further consideration as to whether there is a redundancy should be given.
It isnot necessary for overall headcount to reduce for there to be a redundancy situation, though. If the amount of a particular type of work reduces but other work increases, there may be work available for the same number of employees in different areas of the business; a dismissal of an employee wholly or mainly for that reason can be aredundancy. A department may have a reduced need for a copywriter but an increased need for a business development officer, for example.
When looking at whether there is less of a need for employees to do a particular type of work, acommercial judgement about the priorities of the business by the employer is the starting point. If there is a genuine business reason, the Employment Tribunal will not require you to justify that business decision. What is clear though, is that the focus should be on therequirements of the business foremployeesto do work of a particular kind, not on the contractual requirements relating to a particular employee.
So,what is 'work of a particular kind'? This may be wider than two roles with the same job title, it may also include roles with overlapping tasks and skills. It might be that work is not of the same kind if a different level of experience or seniority is required for two different roles, but generally other characteristics of a role such as salary or hours are not considered, the focus is on skills andtasks.
If there is areduction in the requirements of the business for employees to carry out work of several kindsthis could be capable of satisfying the test of reducing work of a particular kind, as there is a reduction of headcount required, even if staff are all placed in the same pool for redundancy and carry out work of different kinds.
What factors may lead to a genuine redundancy? There are many factors which may mean that making redundancies is the best course of action for your business, and whether there is a genuine redundancy will be fact sensitive, but here are some reasons which you may have for needing to make redundancies:
External economic issues- such as an increase of applicable business rates, tariffs, or taxes, or an increase in the national minimum wage. These external factors over which you have no control, can make it more expensive to employ people. This can lead to a reduced budget to hire and pay employees, requiring a reduction in head count.
- Change in what your business does- if your business pivots because the market in one area becomes bigger, but another area of work reduces, so fewer employees are required in that area of your business . click apply for full job details