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REDUNDANCY
Updated: 01 August 2008

The law:
Trade Union and Labour Relations (Consolidation) Act 1992, s.153; s.188; s.195;
Employment Rights Act 1996, s.98(4); s.105; s.136; s.138; s.139(1); s.155; s.163(2);
Employment Act 2002, Part 3;
Employment Act 2002 (Dispute Resolution) Regulations 2004, SI 2004/752;
Employment Equality (Age) Regulations 2006, SI 2006/1031.
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REDUNDANCY FLOW-CHART - questions to ask.

(1) Has a REDUNDANCY SITUATION occurred? (See definition below)

(2) Does the employee QUALIFY for a redundancy payment?

(3) (i) Has the employer INFORMED and CONSULTED?

(ii) Has the employer considered ALTERNATIVES TO REDUNDANCY?

(iii) Has the employer put in place a PROPER SELECTION PROCEDURE?

(iv) Has the employer offered SUITABLE ALTERNATIVE EMPLOYMENT?

(4) If the employee is redundant, how much COMPENSATION is the employee entitled to?

DEFINITION: a redundancy is a DISMISSAL for the REASON of redundancy: s.139(1),
Employment Rights Act 1996.

A dismissal shall be for the reason of redundancy if it is wholly OR mainly attributable to:

(a) the fact that the employer HAS ceased, or INTENDS to cease, to carry on that business
for the purposes for which the employee was employed; OR

(b) the employer HAS ceased, or INTENDS to cease, to carry on that business in the place
where the employee was employed; OR

(c) the fact that the requirements of that business for employees to carry out work of a
particular kind, OR for them to carry out that work in the place where they were so
employed, have ceased OR diminished OR are expected to cease OR diminish.

It is important to note that this section imposes NO legal obligations upon an employer; it merely states the legal definition of what constitutes redundancy and in what circumstances it arises. The section has a wide rather than a narrow meaning. For example, an employer can make employees redundant in order to achieve short-term financial targets. Such an employer can also dismiss the employees 'for some other substantial reason' instead of or as well as for the reason of redundancy: Kraus v Penna plc and anor. EAT, 2004 IRLR 260.

Tests: neither the 'contract' test, i.e. ask the question: was there a diminution or cessation in the kind of work the employee was required to do under her/his contract? (Nelson v BBC (1977) IRLR 148, CA) nor the 'function' test, i.e. ask the question: was there a diminution or cessation in the work the employee actually carried out (Murray & anor v Foyle Meats Ltd (1999) ICR 827) are appropriate to decide whether an employee (or the employee's job) is redundant within the meaning of the words of s.139(1)(b) - per House of Lords in Murray & anor v Foyle Meats Ltd. Delivering judgment in that case, Lord Irvine, the Lord Chancellor, said that the key word in the statute is 'attributable.' In Foyle Meats Ltd, the facts were that the employer's requirement for employees to carry out work of a particular kind had diminished. That being so, the dismissals of two employees for the reason of redundancy from Foyle Meats Ltd was wholly or mainly 'attributable' to that state of affairs.

For an employer to avoid claims for unfair dismissal for the alleged reason of redundancy, a dismissal must (1) be for the reason of redundancy or some other substantial reason and (2) when dismissing, the employer must act reasonably. To dismiss fairly:

(1) redundancies must be within the definition of the term in the Employment Rights Act
1996 (ERA 1996);

(2) any dismissals must be reasonable; which mean -

(a) the procedure the employer uses to identify the 'pool' of employees who are to be
considered for redundancy must be reasonable;

(b) the selection criteria themselves must be reasonable;

(c) the manner in which these criteria are applied as well as the way the redundancy
dismissals are implemented must be reasonable - 'reasonable' in these instances mean that
the employer must have genuinely applied its mind to the problem and given thought to
identifying the appropriate pool from which redundancies are to be made: Taymech Ltd
v Ryan (EAT 633/94);

(d) however, in Thomas and Betts Mfg Ltd v Harding (1978) IRLR 213, EAT, the Court
of Appeal held that employers have a good deal of flexibility in defining the pool from
which they will select employees for redundancy dismissals;

(e) if an employer has a contractual procedure that states the details of the pool for selection
and/or the criteria by which selection will be made, then the employer should follow the
contractual procedure. An employer who does not follow the contractual procedure will
need to show that it nonetheless acted reasonably, otherwise the dismissal will be unfair:
Russell v London Borough of Haringey (2000) Court of Appeal, 12.06.2000.

Note: a dismissal for the reason of redundancy is a dismissal and, since the 01 October 2004, when going through the process of dismissing fewer than 20 employees, the employer must follow the 3-stage statutory disciplinary and dismissal procedures. A failure to do so will result in the dismissal(s) being automatically unfair. The statutory procedures are stated in Part 3 of the Employment Act 2002 and how these procedures shall operate is given in the Employment Act 2002 (Dispute Resolution) Regulations 2004, S.I. 2004/752 - see Statutory Dismissal and Disciplinary Procedures and Statutory Grievance Procedures

Collective redundancies - 'where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less, the employer shall consult about the dismissals all the persons who are appropriate representatives of any of the employees who may be affected by the proposed dismissals or may be affected by measures taken in connection with those dismissals:' s.188, Trade Union and Labour Relations (Consolidation) Act 1992.

Collective consultation - must begin 'in good time' and in any event at least 30 days before the first dismissal takes effect: s.188(1A), TULR(C)A 1992. The consultation must be about: 'ways of (a) avoiding the dismissals; (b) reducing the numbers of employees to be dismissed and; (c) mitigating the consequences of the dismissals:' s.188(2) TULR(C)A 1992.

An employer must now consult over the reasons for the closure: until October 2007, it was traditional accepted that an employer had no legal obligation to consult employees' representatives about the reasons for the closure of the employer's business even if it is going to lead to redundancies. The traditional view was that consulting about the reasons for closure might be required in continental Europe but not in Great Britain - a view supported by a High Court decision in 1993 (R v British Coal etc ex p Vardy) and generally accepted as correct.

However, a ruling by the EAT on the 22nd October 2007 in UK Coal Mining Ltd v National Union of Mineworkers (2007) made it clear that this is no longer the case. In a business closure context, the EAT held that:
'… the obligation to consult over avoiding the proposed redundancies inevitably involves engaging with the reasons for the dismissals, and that in turn requires consultation over the reasons for the closures.'

The facts in that case were that a coal mine with over 300 employees was closed suddenly after a flood. There was no consultation with the employees. They complained. At first instance, an employment tribunal held that there should have been consultation and awarded maximum compensation. The employer appealed on the ground of an error of law in that there was no duty to consult about the reason for the dismissals and therefore no liability arose. The EAT rejected this argument and dismissed the employer's appeal.

In reaching its decision, the EAT recognised that under the relevant law it is the proposed dismissals which must be the subject of consultation, not the closure itself. Nonetheless, if, as was the case here and indeed would normally be the case, closure of a business and dismissals of employees are inextricably interlinked then the duty to consult necessarily includes a duty to consult over the reasons for the closure.

It was accepted by the EAT that there could be cases when this duty would not arise. As an example, if an employer planned a closure but believed that redundancies would nonetheless be avoided there would be no need to consult over the closure decision itself. But that, the EAT said: '… is likely to be a very exceptional case.'

Note: where an employer is under a duty to consult collectively under s.188, TULR(C) Act 1992, then Reg.4(1)(b) of the Employment Act 2002 (Dispute Resolution) Regulations 2004, SI 2004/752, specifically excludes the requirement to comply with the statutory Disciplinary and Dismissal Procedures if the dismissals are for the reason of redundancy.

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