In order to ensure that a redundancy dismissal does not result in an employment claim, you will need to establish that there is technically a genuine redundancy situation and a fair process to dismiss is followed. Below we detail how you can establish whether there is a redundancy situation in the first place, before a fair redundancy process can begin.
What is redundancy?
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 closure of the business or place of business where the employee worked or a reduced requirement for the kind of work the employee carries out.
This means that you will need to establish:
- Is there a dismissal? – there is a dismissal if:
- an employer terminates the employee’s employment with or without notice;
- an employee’s fixed term contract expires and is not renewed;
- the employer’s conduct entitles the employee to resign with or without notice (constructive dismissal)
- there is anact of the employer or event affecting the employer such as death of an individual employer which terminates the employment by operation of law (for purposes of redundancy payments only, not unfair dismissal).
The employer has to communicate to the employee it is terminating the employee’s employment contract, and the date the dismissal will take effect either 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 invitation is volunteering to be dismissed by the employer by reason of redundancy. The employee is not agreeing to resign, so where a voluntary redundancy takes place, there is generally a dismissal.
- 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 to redundancies. 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 to 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.
- 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 which 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. A mobility clause can complicate this and must be looked at when considering the ‘workplace’ of the employee, where they work or have worked 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 a redundancy situation because of a diminishing requirement for employees rather than closure of the workplace. However, if there is a mobility clause, and there is enough 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 for redundancy if 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.
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, a change in role functions or reduction in hours, further consideration as to whether there is a redundancy should be given.
It is not 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 a redundancy.
When looking at whether there is less of a need for employees to do a particular type of work, a commercial 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 the requirements of the business for employees to 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 exactly 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 and tasks.
If there is a reduction in the requirements of the business for employees to carry out work of several kinds this 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.
Leading case law- The three-stage test in Safeway
The leading case on establishing whether an employee has been dismissed by reason of redundancy is the EAT decision in Safeway Stores plc v Burrell  and 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 ceased or diminished 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 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. If you are unsure, our expert employment lawyers can assist.
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 if business rates or taxes increase or minimum wages increase, making it more expensive to employ people or meaning you have less of a budget to hire and pay employees because of costs your business has no control over.
- 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 there may be redundancies required if employees do not have the skills or qualifications for the new work.
- Efficient internal reorganisation – if you wish to reorganise your business so that there are fewer levels of management or roles are merged to make your business more cohesive and efficient, this is a valid business aim and could foreseeably lead to redundancies.
- Technology replacing jobs – if your business can now use technology to save costs and make your business more productive, which will lead to the loss of jobs for your staff, this, again, is a legitimate business objective which is likely to lead to redundancies.
- Relocation – if your business is looking to change its location for cost or other operational reasons, depending on where the relocation is to and the situation of the staff employees, it is likely that this will lead to a reduction in staff, unless there is a valid and reasonable mobility clause.
What is not a genuine redundancy?
- Mobility clauses in employee contracts of employment which are reasonable in scope, may allow for an employee to move and work from a different location. Dismissal for failure to relocate in this situation could be a disciplinary issue and for failure to obey a lawful instruction, rather than for redundancy.
- Where suitable alternative employment has been offered- if suitable alternative employment has been offered then there has not been a dismissal and an employee will just move from their former role to the new employment. With no dismissal, there cannot be a redundancy. Whether a role is suitable in terms of location will involve looking at the mobility and any other flexibility clauses in the employee’s contract, as well as the redundant employee's place of work and current commute. These will help determine whether there has been a workplace closure and whether a redundant employee has unreasonably refused an offer of suitable alternative employment by being offered a similar or the same role in a suitable and reasonable location. An employee will forfeit their statutory redundancy payment if they refuse suitable alternative employment, for more details see this article.
- Changes to the employee's terms and conditions if other terms have changed and the employee refusing to accept the changes, claims that this is both a breach of contract and a redundancy, where the role or location have not appreciably changed, particularly if there is no dismissal or no cause of action for a constructive unfair dismissal claim, redundancy will not be the reason for the dismissal. If there is a dismissal, this is more likely to be for some other substantial reason (SOSR).
- Discriminatory reasons – this may seem obvious, but some of the above changes might be more of an issue if an employee has a protected characteristic. For example, if an employee has a disability discrimination a new location may not have the same physical adaptations or may be more difficult to travel to, causing a significant disadvantage to an employee with certain disabilities when compared to employees without those disabilities. Forcing a change of location might be indirectly discriminatory in those circumstances. Also note there are additional obligations in respect of maternity and redundancies and so in these situations it is advisable to seek early professional advice.
Being clear about what redundancy is and what you anticipate the changes to be in your business, is paramount before you start a redundancy process. If you have any questions about whether what you are planning for your business will lead to redundancies and how best to manage the process, our expert employment solicitors can guide you every step of the way.