February’s Employment Law Digest – Redundancy: Getting it right

Research by ACAS carried out in 2022 showed that 30% of large employers were considering making redundancies in the following 12 months.  Most employers will be familiar with the process for consulting with staff (and trade unions if necessary), but there are a few pitfalls that they should be aware of.

The starting point for a redundancy process is to consider the ‘redundancy situation’.  Although this won’t be scrutinised in great detail by an employment tribunal – they will want to be reassured that the employer genuinely applied its mind to the situation and concluded that there was a need to consider redundancies – it is the basis for what follows.  Whether it is cutting costs, restructuring, or a sudden drop in demand, the ‘redundancy situation’ will dictate what part of the workforce might be at risk, known as the ‘pool’ of employees who are candidates for redundancy, and who will be consulted with.  Again, a tribunal will not readily interfere in the employer’s decision on the scope of the pool and which employees fall within it, but two recent cases have highlighted the risks that arise if only one employee is considered to be at risk of redundancy, and what factors employers need to bear in mind.

Consultation is key

In Mogane v Bradford Teaching Hospitals NHS Foundation Trust (2022), the Employment Appeal Tribunal (EAT) considered a case where the decision on who was in the pool at an early stage, without consulting with the employee, meant that it was inevitable that the employee would be dismissed.  It is also useful guidance on how to deal with the potential redundancy of employees on fixed term contracts.

The claimant was one of two nurses employed on fixed term contracts, both working in a department which needed to cut costs.  The second nurse had recently had her appointment confirmed shortly before the consultation began and the claimant, although they had longer service than their colleague, found herself as the person out of the two nurses with the shortest period left on her fixed term contract .  The claimant – and only the claimant – was placed in the pool for redundancy for that reason and that reason alone.  No other process or rationale was considered.  Following their dismissal, the claimant brought a claim of unfair dismissal.  This was rejected by the employment tribunal, and the claimant appealed to the EAT.

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Take Me There

Consultation must take place at the formative stage, when the consultation might have an impact on the decision on who, if anyone, might be made redundant.  This means that the consultation can be genuine and meaningful.  The claimant argued that using the date on which the fixed term contract expired as the only basis for deciding which employees should be in the pool for redundancy was like a ‘a game of musical chairs’, which the employer could exploit by deciding when to turn the music off.  Since the claimant had not been consulted on this decision, they did not have the opportunity to influence that decision and once that decision had been made there was little else to consult on.  The EAT held that the arbitrary choice to dismiss the employee whose contract was next to expire meant that the claimant’s dismissal was effectively inevitable and therefore that the dismissal was unfair.

Fixed term contracts have their own issues when considering redundancy.  If the staff are employees and have over two years’ service, they will be eligible to bring claims for unfair dismissal and may be entitled to a redundancy payment.  The fact that they are on fixed term contracts should not be used as the sole ground for selecting them for redundancy, although length of service can still be a possible factor in the selection process.  They should not be excluded from enhanced redundancy payment schemes for the same reason.  There are also certain forms of automatically unfair dismissal to be aware of.  Any employer considering a redundancy process that might include fixed term employee should seek further advice at an early stage.

The dangers of a redundancy pool of one

The EAT has also recently considered the appropriate way to decide on the level of compensation for an employee who was placed unfairly in a pool of one in Teixeira v Zaika Restaurant Ltd (2022).

In this case, the claimant was one of ten chefs in a London restaurant.  He had less experience than his colleagues and was the only non-specialist chef.  Due to the Covid pandemic (and the statutory restrictions introduced in response) there was a severe downturn in work.  His employer decided to make redundancies and the claimant was the only person considered for redundancy.  The reasoning for this was that although he could assist in all of the teams he could not run any of them, the other chefs had much longer service, and the only other tandoor chef had much more experience.  However, his employer chose to dismiss him without any form of consultation at all.  He was told by telephone that he would be dismissed by reason of redundancy.

The claimant brought a claim of unfair dismissal.  It was accepted by both parties that the underlying reason for the dismissal was redundancy, and the employer conceded that the dismissal was procedurally unfair.  Their argument (commonly deployed when the procedure is deficient) is that the claimant was not entitled to any compensation at all because he would still have been dismissed at the time that he was even if a fair procedure had been adopted.

The tribunal must award the compensation that it believes is ‘just and equitable in all the circumstances’.  This allows the tribunal to make a ‘Polkey reduction’ (named after the leading case) to reflect the possibility that the employee might have been fairly dismissed following a proper procedure.  This would require the tribunal to consider what the outcome of a fair procedure would have been.  The tribunal decided that if all ten chefs had been placed in the pool, and a fair selection process had been carried out based on a reasonable matrix drawn up by the employer, then the claimant would still have been selected, based on the skills, seniority and experience of the chefs.  The tribunal also concluded that he would have been dismissed at the same time and therefore he was awarded no compensation.

On appeal, the EAT was alive to the possibility of using redundancy as a pretext for getting rid of employees for other reasons, particularly through a pool of one, and the decision about the pool should be considered with ‘worldly-wise care’.  Just because a pool of one was fairly chosen does not mean that dismissal was inevitable.  Some consultation may have widened the pool or affected the selection criteria.  The consultation process would have delayed the dismissal date.  The EAT remitted the decision back to the tribunal to consider the appropriate award of compensation.

What do these cases show us?

Any employer contemplating redundancies should engage in fair and meaningful consultation with affected employees, even if they believe that the result is inevitable.  This is clearly more important when there is only one employee at risk of redundancy, and in order to be meaningful that consultation must include the rationale behind the pool of one.  The recent case law highlights the risks in assuming that a tribunal will accept that the decision was inevitable, as this is an entirely speculative process for the tribunal to engage in.  If no consultation process was carried out at all, as in Teixeira, there is an increased risk that the tribunal may accept that the reason for the dismissal was not actually redundancy but instead for some potentially unfair reason, or that the process was not carried out in good faith.  Unless the dismissal was inevitable (for example, where the business will close or every employee like the claimant was also dismissed), Teixeira also shows that there is no guarantee that the tribunal will reduce the compensatory award to nil.  Consultation can also be a useful process not only to reach the right decision but also to explore any other underlying issues that might give rise to separate employment claims, such as allegations of bullying and harassment or discrimination, or other issues in the workplace such as low morale.  It reduces the risk that an employee raises an argument that, if the employer had been aware of it, might have been addressed such as the impact of a disability, or childcare arrangements.  Few tribunals look favourably on an employer who ignores these well-known processes and the employer will then start the case on the back foot – a situation that can and should be avoided.

How can we help?

HR Protect clients can access our comprehensive redundancy section in our HR Protect portal, which includes a range of advice documents, precedent letters and guidance notes.

If you have any questions relating to anything discussed in the article or if you would like advice on any other matter please do get in touch one of our expert Employment lawyers.

HR Protect clients who have insurance as part of their package will also be covered in relation to any Employment Tribunal claims that may arise from a redundancy situation, so long as they have followed our advice and the redundancies are not implemented or initially proposed  within the first 90 days of the first year of insurance.

Claims relating to redundancy dismissals can be expensive and any employer who thinks they may have to  make redundancies in future should consider whether insurance would be worth having. As with most insurance policies, claims arising from pre-existing situations will not be covered and most policies will need to have been in place for a minimum of 6 months prior to any redundancies in order to be covered.