Mon 30 Jul 2012

Case law update - Redundancy

There have been two recent cases which are of interest to employers needing to embark on redundancy exercises.

The first case, Nicholls v Rockwell Automation Ltd considered whether an Employment Tribunal was entitled to closely examine the scoring in a redundancy selection process in order to determine whether the dismissal was unfair.

The general rule of thumb when coming up with redundancy marking criteria is that they should be as objective as possible (or even if subjective, for example performance, they should be measurable objectively, for example by looking at the most recent performance management appraisal gradings).

In this case the Employment Tribunal considered the categories that the candidates for redundancy were scored under, determining that several of these were not capable of objective assessment and that Mr Nicholls’s marks in these categories were lower than they should have been. They therefore held that the dismissal was unfair.

The more subjective categories were:-

  • performance including a section entitled “flexibility”
  • skills/ability
  • competency in role (which was weighted most heavily)

However, at appeal the EAT held that unless there were overt signs of unfairness it was not appropriate for the Tribunal to undertake a detailed assessment of the individual items of scoring. In critiquing the scoring system in minute detail, the Tribunal at first instance had failed to follow the earlier precedent of British Aerospace v Green. The EAT therefore allowed the appeal.

With regard to the objectivity of the marking criteria it made the point that:-

“It is not the law that every aspect of a marking scheme has to be objectively verifiable (by which we mean verifiable independently of the judgment of management) as fair and accurate. If overall the redundancy criteria were reasonable then the fact that some items were not capable of objective verification is not fatal to the scheme.”

This decision is a positive one for employers albeit it remains the case that the safest way for employers to proceed is to have as objective selection criteria as possible or, alternatively, if there is an element of subjectivity to allow this to be measured objectively. Subjective criteria measured subjectively will not though, in light of this decision, necessarily be fatal.

The second case, Packman (t/a Packman Lucas Associates) v Fauchon provides some welcome clarification on the question of whether a need to reduce the number of staff performing the work is required for section 139(1)(b)(i) of the Employment Rights Act 1996 to apply – i.e. for there to be a redundancy situation.

This arises, in particular, if an employer wishes to reduce the number of hours per week that an employee works but still requires them to perform the role. Is the employee entitled to a redundancy payment if they refuse the reduction in hours?

Until now, the law on this point has been unclear. Under s 139(1)(b)(i), if an employee is dismissed because their employer’s requirements for employees to carry out work of a particular kind has ceased or diminished, then this is a redundancy situation.

In Aylward v Glamorgan Holiday Home Ltd the EAT held that to satisfy the provisions of s139(1)(b)(i), a reduction in the headcount is required, and that accordingly where employees were dismissed for refusing to work reduced hours there was no redundancy. However, Aylward contradicts the earlier decision in the case of Hanson v Wood in which it was held that a dismissal following a refusal to accept a requirement to reduce working hours did constitute a redundancy.

In Packman (t/a Packman Lucas Associates) v Fauchon Ms Fauchon was employed as a book-keeper by Packman Lucas, but a downturn in business and the introduction of new accountancy software meant that the company did not require the same amount of hours of book-keeping services as before. They therefore asked Ms Fauchon to accept significantly reduced working hours, but she refused. She was then dismissed by her employer on the grounds that they no longer required her to work the hours she was entitled to under her contract.

When deciding whether Ms Fauchon had been dismissed by reason of redundancy, the EAT preferred the approach of Hanson over that of Aylward. It held that the approach taken by Aylward did not seem to accord with the wording of the legislation, which applies when the requirements of that business for employees to carry out work of a particular kind have ceased or diminished: they observed that “the need […] is not just a need for employees in a vacuum: it is associated with work”. They therefore held that Ms Fauchon had been dismissed by reason of redundancy.

Employers should bear this decision in mind when seeking to reduce hours of work as it may give rise to a redundancy payment liability depending on the circumstances. It is though possible that, depending on the terms of the contract relating to working hours, that it may yet still be possible to argue that there is not a redundancy.


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