A CRITICAL EVALUATION OF THE SCOPE OF AN EMPLOYEE’S ENTITLEMENT TO REDUNDANCY PAYMENT
INTRODUCTION
More often than not, businesses find themselves at the helm of evolution. Be it automation of various processes, the installation of improved models or complex efficiency that no longer requires a human touch or the closure of that business altogether, among other factors. This may have the effect of rendering employees redundant such that they are no longer needed by the business.
Redundancy may be defined as the dismissal of an employee for reasons wholly or mainly attributable to the fact that the employer has ceased or intends to cease to carry on the business for the purpose of which the employee was employed or to carry on that business in the place where the employee was employed. Such dismissal may also stem from the cessation or expected cessation or diminishing or expected diminishing of the requirement of the business for the employee to carry out work of a particular kind.
The second limb of Section 139 of Employment Rights Act (ERA) fits with the questions posed for determination by the House of Lords in Murray v Foyle Meats Ltd;
- Did the requirements of the business for employees diminish?
- Did that cause the dismissal?
If the answer to both is ‘yes’ there is a redundancy.
The ERA does not attempt to set out the guidelines that an employer may follow in determining who to declare redundant. However, some of the factors that may inform the decision to declare some employees redundant and retain others would include age, length of service competence and the ease to adopt to a new employment setting.
The Trade Union and Labour Relations (Consolidation) Act of 1992 requires employers proposing redundancies to consult with recognised trade unions or employee representatives where such employer intends to dismiss 20 or more employees as redundant. There is no obligation to consult where there are fewer than 20 employees at risk of dismissal on the ground of redundancy.
This consultation expected of an employer depends on the specific circumstances of the employment. However, the scope may include an indication that the individual employee has been selected for redundancy, confirmation of the basis for selection, opportunity for the employee to comment on the redundancy selection, consideration as to alternative positions of employment and an opportunity for the employee to address any other matter.
In the event that the employer fails to consult the employee representatives, such employee(s) will be at liberty to apply to the tribunal for a protective award. If the application for the protective award is successful, the amount is paid to all affected employees. The amount is such as the tribunal considers just and equitable, capped at 13 weeks’ pay.
For an employee to be considered for redundancy payment, the employee must have been in employment for a period of not less than two years ending with the relevant date. Effectively, this would mean that an employee who has been employed for less than two years and has been dismissed for the reasons set out under Section 139 of ERA would not benefit from redundancy payment.
An interesting aspect introduced by the sectoral law on redundancy and case law is indicative that for redundancy payment to take effect, the employer must categorically dismiss the employee for the reasons set out under Section 139 cited above. An attempt to mitigate the financial loss or job seeking agony on the part of the employee may result in altogether losing redundancy payment. This was set out in In Morton Sundour Fabrics v Shaw. In this matter, the employee was told that his department would close later that year. He left his employment and got another job, with the assistance of his employer. It was held that he was not entitled to redundancy payment because he had left of his own accord and had not been dismissed for redundancy.
The decision in Morton above casts redundancy in stone which eventually damages the transition process and causes more losses for the employer and the employee by dragging out the process.
Section 142 of the ERA however provides a reprieve for employees who may want to mitigate the loss that may come with an imminent declaration of redundancy. An employee who has been given a statutory notice may serve a counter notice indicating their intention to leave early to take up another job. If the employer accepts this counter notice, the employee may leave early and still get their redundancy. However if the employer serves a notice in response to the employee’s counter notice stating that the employee is needed until the end, the employee might still get their redundancy payment but would have to institute tribunal proceedings and convince the tribunal that it was just and equitable to get the redundancy payment.
Though the reprieve provided for under Section 142 is premised on the magnanimity of the employer, it is nevertheless a reprieve from the black letter law set out in Morton.
Where the end of an employee’s employment is imminent, the employer may offer to renew the employee’s contract of employment or to re-engage such employee under a new contract of employment with such renewal or re-engagement to take effect either immediately or after an interval of not more than four weeks after the end of his employment. Where such an offer is made, the employee is not entitled to redundancy if such employee unreasonably refuses the offer.
Section 141 (3) elucidates the reasonability indicated in Section 141 (2) most likely to apprehend in advance mischief in which unscrupulous employees may attempt to hide behind, by offering or re-engaging employees very unreasonable terms to employees compelling them to decline such an offer and letting such employers off the hook.
For Section 141 (3) to achieve its end, the provisions of the renewed or new contract in regard to the capacity and place in which the employee would be employed and other terms and conditions of employment thereof should not differ from the corresponding provisions of the previous contract. Alternatively, those provisions of the contract as renewed, or of the new contract, would differ from the corresponding provisions of the previous contract but the offer would still be suitable employment for the employee.
As such, if an employee is offered a renewal or re-engagement in accordance with the provisions of Section 142 (3) and declines the same, such an employee would not be entitled to redundancy payment regardless of the fact that they may have satisfied other aspects of entitlement to redundancy payment. However, if the terms of the renewal or re-engagement are unreasonable, the employee may decline as demonstrated in Taylor v Kent County Council where it was held not to be suitable alternative employment to offer a redundant headmaster employment in a pool of mobile teachers even though he was to be paid the same salary as he had earned as a headmaster. The loss of status made this unsuitable and therefore an unreasonable alternative.
Other factors that would form a reasonable refusal would include alternative employment that involves a long move away and the employee has a spouse or partner with a job in the original location or children at an important stage of schooling.
Another delicate balance that ensues during the redundancy notice is set out under section 140(1) of the ERA. It states that if the employee, while on notice of redundancy, commits an act of misconduct which would have otherwise entitled the employer to dismiss without notice, no redundancy payment is payable. This rule however sets out exceptions to mitigate its harshness. The first exception is contained in section 140(2) and anticipates situations where an employee takes part in industrial action in opposition of the redundancy notice and is thereafter dismissed on that account. A redundancy payment is still payable in this instance which is communicative of the fact that the law takes cognizance that industrial action is a common reaction to declarations of redundancy.
The second exception is in regard to all other misconduct while on notice of redundancy. In this instance, Section 140(3) allows a tribunal to reduce the redundancy payment to the extent it considers equitable. In Bonner v Gilbert the Employment Appeal Tribunal held that misconduct had to be established. Unlike unfair dismissal a reasonable investigation will not suffice which is indicative of the higher threshold required in order to write off an employee’s entitlement to redundancy payment.
As indicated in the introduction of this essay, businesses are dynamic in nature. As such, employers may find themselves in situations where redundancy is imminent and seemingly inevitable thereby issuing a redundancy notice to an employee (s). However, before the redundancy notice period notice lapses, the employer’s needs might change and negate the need to dismiss any employee. This was demonstrated in British Polythene Ltd (t/a BPI Stretchfilms) v Bishop. In this case, difficulties occurred within a business that led to a call for volunteers for redundancy and Bishop put himself forward. An agreement for Bishop to be made redundant was reached but before it could be implemented the employer’s needs changed and BP Ltd sought to revoke the agreement. Bishop maintained that the agreement was binding. He resigned and claimed that BP Ltd was in breach of contract. A tribunal upheld his claim and awarded a sum representing the promised contractual redundancy pay under the agreement. On appeal, BP Ltd contended that the tribunal had failed to recognize that the agreement was subject to a condition precedent that the voluntary redundancy would only take effect if there was a genuine need for it prior to the date assigned for termination of Bishop’s employment. In rejecting this, the Employment Appeals Tribunal held that there was nothing in the agreement to indicate any conditionality. It provided for dismissal on the ground of redundancy, and Bishop was entitled to rely on it. In the absence of any conditionality, the agreement could only be changed by the consent of both sides.
As such, it would be prudent for employees in as far as foreseeable to restrain from issuing redundancy notices without a well-informed forecast on the trajectory that the business is taking.
In the event that the employee has successfully walked the tight rope of redundancy requirements and fulfilled all of the conditions, such employee is entitled to redundancy payment and would be at liberty to legally enforce the same should the employer decline to pay the employee voluntarily.
CONCLUSION
The employee is seemingly required to fulfil more requirements than the employer in a bid to benefit from a redundancy payment. Whereas these stringent measures may be aimed to cushion the employer who may be reasonably going through financial difficulty, it may be necessary to consider the employee who often times is on the verge of financial impoverishment for the reason that the employment that they lose is their main source of income. Conversely, it is also encouraging that the court system protects employees who may be disadvantaged. As such, as long as the employee fulfils the stringent requirements, they are at liberty to claim their redundancy benefits.
REFERENCES
Statutes Cited;
- Employment Rights Act 1996
- Trade Union and Labour Relations (Consolidation) Act of 1992
Cases Cited;
- Murray v Foyle Meats Ltd [2000] 1 AC 51
- Morton Sundour Fabrics v Shaw (1966) 2 KIR 1
- Taylor v Kent County Council [1969] 2 QB 560
- Bonner v Gilbert [1989] IRLR 475
- British Polythene Ltd (t/a BPI Stretchfilms) v Bishop EAT 1048/02:in 2001
Journal Articles Cited;
Chris McDowall, “Is an employee’s age ever truly redundant?”, Emp. L.B. 2008, 88(Dec), 6-8
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