23 February 2012

Do you really know what 'redundancy' means?


Melissa Paz
Associate | UK

It can sometimes feel as though a redundancy situation is like an elephant – difficult to describe but you know when you see it. However, the reality is that there is no one redundancy situation – there are many types of redundancy, some of which many employers will not recognise. An overly simplistic view can restrict an employer’s options unnecessarily and may lead to antagonistic capability dismissals when, in fact, redundancy could have been given as the reason for dismissal.

The definition of redundancy

To determine what redundancy means, it is best to go back to basics: the statutory definition. This is set out below.

An employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to

  • the fact that his employer has ceased or intends to cease
  1. to carry on the business for the purposes of which the employee was employed by him, or
  2. to carry on that business in the place where the employee was so employed,

or

  • the fact that the requirements of that business
  1. for employees to carry out work of a particular kind, or
  2. for employees to carry out work of a particular kind in the place where the employee was employed by the employer,
    have ceased or diminished or are expected to cease or diminish.

Interpreting the statutory definition

The first part of the statutory definition envisages classic redundancy situations such as business and workplace closures. Obvious examples of the second part of the definition are where there is the same amount of work, but fewer employees needed to do it (e.g. where a business decides it can consolidate two roles into one), or where there is less work and a reduction in headcount is therefore required (e.g. where a customer reduces the amount of its orders).

However, changes in requirements of a business are often less obvious. What if work levels have not dropped and you still need the same number of staff, but there have been subtle changes (e.g. increased expectations) in role requirements? Just because the job title is staying the same, does that mean there is no redundancy situation?

The answer turns on the meaning of ‘work of a particular kind’. Case law indicates that this can mean “work which is distinguished from other work of the same general kind by requiring special aptitudes, skill or knowledge. The leading case of Murphy v Epsom College presents a simple example, using plumbers. After the introduction of a more sophisticated heating system, Epsom College required less general plumbing work and more specialist heating technician work. It therefore replaced Mr Murphy (a general plumber with some heating technician skills) with an employee who did mostly heating technician work but who had some general plumbing skills. Epsom College still needed a plumber – just a different type of plumber. The Court of Appeal upheld the tribunal’s finding that Mr Murphy had been dismissed for redundancy. There are more recent examples of this approach at white collar level.

Many employers will not recognise the potential for using ‘redundancy’ as a reason for dismissal, thinking that ‘capability’ is actually the reason. For example, imagine a manager coming to HR and saying: “our accountant is not very good – we need a better one”. This sounds like a possible performance (capability) issue. Now, let’s think about it a different way: is it that the individual is not performing the kind of work that he was engaged to do, or has that work changed? If the latter (for example, if the business used to need someone (possibly unqualified) to do bookkeeping, but now needs a qualified chartered accountant with different skills) then arguably there is a redundancy situation.

There are real advantages to the redundancy approach if this is properly arguable. Not only are employees generally more receptive to redundancy than facing dismissal for poor performance, but redundancy can also lead to dismissal in a much quicker timeframe than a performance dismissal. In addition, this makes a better foundation for a sensible discussion about a negotiated exit under a compromise agreement.

Of course, if an employee’s dismissal is by reason of redundancy, they may be entitled to a statutory redundancy payment (or, if relevant, a redundancy payment based on the express or implied terms of their contract of employment). However, many employers would consider this a small price to pay for a less antagonistic dismissal process.

Finally, it is important to remember that the above approach cannot be used in all cases where there are performance issues. Over-engineering a redundancy situation can be catastrophic for the defence of an unfair dismissal claim, so employers should seek legal advice in these circumstances.

Category: Article