Mark Shulman, Consultant Solicitor at Keystone Law

REDUNDANCY
**Statutory provisions
**A common question is whether a reduction in hours constitutes a “redundancy situation”. The starting point for consideration is section 139 of the Employment Rights Act 1996. This provides (so far as material):

"(1) For the purposes of this Act an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to—

[…] (b) the fact that the requirements of that business—

(i) for employees to carry out work of a particular kind […]

have ceased or diminished or are expected to cease or diminish."

Reduction in working hours
Does a reduction in working hours for a particular employee mean that the requirement of the business for that employee to carry out work of a particular kind has ceased or diminished?

There are apparently conflicting EAT authorities. The Scottish EAT in [Welch v The Taxi Owners Association (Grangemouth) Ltd]() UKEATS/0001/12/BI thought not. However, in [Packman v Fauchon ]()UKEAT/0017/12/LA, the English EAT took a different view.

In Welch the Claimant, a radio control operator for a taxi company was asked to reduce her working hours to save costs. She had pushed for voluntary redundancy, but the taxi company did not dismiss her – it simply decided to reduce her working hours. Ms Welch claimed unfair constructive dismissal on the basis of the unilateral imposition of those changed hours.

Constructive dismissal – but not unfair
First, was there an unfair dismissal? The case provides a helpful reminder that a constructive dismissal is not necessarily an unfair dismissal. The ET held Ms Welch was not unfairly constructively dismissed. The ET accepted that the employer had fundamentally breached the Claimant's contract by their proposed reduction in her working hours. However, the employer had genuine business reasons for doing so and they had acted as they did for "some other substantial reason" (Employment Rights Act 1996 s.98(1)(b)). They had given her plenty of notice of the proposed changes and had consulted with her. It could not be said that they had acted unreasonably in relation to her.

Redundancy
Second, was she dismissed for redundancy? On the facts, she was not. The Claimant had resigned from her employment (as opposed to being dismissed) and her ET1 had not included a claim for a redundancy payment, nor made any allegation that she had been made redundant.

The Claimant argued that the change in her terms and conditions was due to a redundancy situation namely the diminution of the nightshift business. That meant she was redundant. However, the ET decided that there was no question of redundancy since the taxi company still needed the same number of employees to carry out the radio control work. What changed was that they did not need those employees to work between 1am and 6am on 6 nights out of 7.

Pre-requisites for redundancy
The EAT made reference to the statutory provisions in section 139 of the Employment Rights Act 1996 (see above) as interpreted by HHJ Peter Clark in the case of Safeway Stores plc v Burrell [1997] ICR 523 and as endorsed by the House of Lords in Murray and anr v Foyle Meats Ltd [1999] ICR 827.

In Burrell,  HHJ Peter Clark QC had said:

"From time to time the mistake is made of focussing on a diminution in the work to be done, not the employees who do it."

and, at the end of the same paragraph, he continued:

"The only question to be asked is: was there a diminution/cessation in the employer's requirement for employees to carry out work of a particular kind…”

There then followed a fascinating excursion into the commentary found in Harvey on Industrial Relations and Employment Law. Harvey’s view was that a reduction in hours of itself could not give rise to a right to a redundancy payment because a reduction in hours did not constitute dismissal. However, if the reduction of hours was achieved by dismissal (whether actual or constructive), then that would be dismissal by reason of redundancy.

Interestingly the EAT commented that it was not entirely clear as to what the authors of Harvey had in mind when they suggest that an employee's resignation could amount to dismissal by reason of redundancy - except perhaps in the unlikely event of an employer seeking to rely on that as a potentially fair reason – although in the EAT’s view there was no authority in support of that comment.

Employee cannot insist on dismissal
The Claimant's proposition was that the Respondents ought to have dismissed her by reason of redundancy and that the employer was in fundamental breach of contract by not doing so. However, the EAT did not accept that an employer could be in fundamental breach of contract by not dismissing an employee whether on grounds of redundancy or for any other reason. This is important because in practice it is often the case that employees may have a preference for taking favourable voluntary redundancy terms, but clearly do not in law have a right to be selected  for redundancy (voluntary or otherwise).

The EAT commented that whether or not there was a redundancy situation in this case was irrelevant (given that the Claimant had resigned in response a breach of contract relating to a reduction in her hours). But what is interesting is that when looking at the legal principles concerning redundancy, the EAT appeared to say that there would only have been a redundancy situation if there was a reduction in the employer’s headcount. The judgment states the relevant test for a Tribunal is to ask:

“…Did the business still need any employees to carry out that work? Did they need fewer employees to do so?” (emphasis added)

The decision in Welch is to be contrasted with the English EAT’s decision in Packman v Fauchon UKEAT/0017/12/LA where a redundancy claim was made in the light of a reduction in working hours and the outcome was different.

In Packman, the Claimant was a bookkeeper. Her employer’s business suffered a downturn and the employer bought a software package which further reduced the number of hours that a bookkeeper was required. The employer sought to persuade the Claimant to reduce her hours significantly but she refused. Because her contract entitled her to work the hours she was doing and the employer no longer needed her to work those hours, the employer gave her notice of dismissal.

The ET found the reason for dismissal was redundancy, rejecting the principle in Aylward and Ors v Glamorgan Holiday Home Ltd UKEAT/0167/02 that because there would have been no reduction in the number of employees required (the Claimant was still required, but on shorter hours), there could be no redundancy situation. Like the Welch case, the ET relied upon Harvey and referred to a passage in which the proposition was advanced that:

“But it cannot be true to say that reduced demand alone can never constitute a redundancy situation. Suppose an employer employs two employees but demand for his product falls by 50 per cent. It cannot be right to say that there is a redundancy situation if he sacks one employee but there is no redundancy situation if he puts them both on half time. The truth is that there is a redundancy situation in either event...If, however, the reduction of hours is achieved by way of dismissal, actual, constructive or otherwise, then the dismissal is by reason of redundancy, if and in so far as the reduction in hours demonstrates that overall the business now requires less work from its workforce.”

The EAT dismissed the employer’s appeal. The issue was whether the requirements of section 139 of the Employment Rights Act 1996 are such that there needs to be a reduction in the number of employees before there is a redundancy.

The EAT referred to the Aylward decision where it was held that no redundancy existed when there was a reduction in the work done, but no change in the number of employees in the workforce. However, the EAT then went on to consider Johnson v Nottinghamshire Combined Police Authority [1974] ICR 170 and the judgment of Denning MR which stated that:

“The business may be no longer profitable so that the employer has to cut down somewhere. Or he may be overstaffed. The employer may meet such a situation by dispensing with the services of some of the men: or alternatively he may lower the wages: or put men on part time. If he does it by making a change in the terms and conditions of employment, it is due to a redundancy situation. Those who lose or leave their work in consequence are entitled to redundancy payments."

The EAT in Packman pointed out that the reference to an employer meeting a situation of low profitability by lowering wages or putting workers on part-time exactly covered the position in the case under consideration. Thus, there may be situations, as Denning MR recognised in Johnson, in which the needs of the employer's business are for fewer employees to do the same amount of work. If employees are dismissed for that reason, they are dismissed by reason of redundancy. But also, if the amount of work available for the same number of employees is reduced, then a dismissal of an employee caused wholly or mainly for that reason is also a redundancy.

Interestingly, as in the Welch case, reference was made to the same passage from Burrell:

"From time to time the mistake is made of focusing on a diminution in the work to be done, not the employees who do it".

In the EAT’s view, the error was to take the words as having a wider impact than they did. The EAT accepted the observations of Harvey (in the extract cited above) as well-founded. The example given in the middle of that paragraph demonstrated what would be an unfortunate consequence if it amounted to a correct interpretation of the statute. Aylward would not be followed, since it was inconsistent with previous Court of Appeal observations, and had erroneously relied upon a misunderstanding of observations of HHJ Peter Clark in Burrell.

**Redundancy situations
**The EAT affirmed that:

* where the needs of the employer's business are for fewer employees to do the same amount of work, this is a redundancy. (Examples might be increased efficiency or decreased production (or a combination of the two). Also, mechanisation, new systems of work, reorganisation, or increased productivity per head may create a need to reduce the workforce); * where the amount of work available for the same number of employees is reduced, then, a dismissal of an employee caused wholly or mainly for that reason is also a redundancy; if there is, as in Johnson and Lesney*, just as much work for just as many employees, then a dismissal would not be for redundancy, because there would be no reduction in the requirements of the business for employees to carry out work of a particular kind.

Accordingly, in Packman there was a redundancy situation and the employers’ appeal was dismissed.

The full time equivalent analysis
Finally, the EAT commented that the lay members were glad that the result of the appeal was as it is. Their take on the question of hours and number of employees was by adopting an FTE (a full time equivalent) approach. Essentially, the full time equivalent workforce may for example be cut from two to one (a job share), even though the number of employees actually working remains the same. There is a real reduction in headcount, measured by FTE. It was therefore entirely consistent to approach section 139 with that interpretation.

**Is non-renewal of a fixed term contract a redundancy?
*In [Greater Glasgow Health Board v Lamont ]()*UKEATS/0019/12/B1, the Claimant worked a 2-year fixed term contract whilst another employee was on secondment. This fixed term contract had followed a period of 3 years during which she worked for the Health Board on a permanent contract. Her fixed term contract was terminated when her colleague returned and the Health Board informed her that she was not entitled to a redundancy payment because she had not worked the required number of years.

The Claimant took her claim for redundancy to the ET and won. The employer denied that she was entitled to a redundancy payment because she was not redundant - the work which she had been carrying out whilst her colleague was on secondment was still required and the reason for her dismissal was not redundancy but that that colleague had returned from secondment to resume that work. The ET disagreed, placing the onus the Health Trust to rebut the presumption in favour of redundancy (section s.163(2) of the Employment Rights Act 1996), which they had not done. The Health Board appealed.

The EAT allowed the appeal. The Employment Judge had not asked herself the right question, namely whether or not the reason for the termination of the Claimant’s employment fell within the statutory definition of redundancy.

The requirement for the post had not ceased or diminished - one employee was required to carry out the work before the Claimant was dismissed and one was required after she was dismissed. It was plainly proved that the reason for the dismissal was not redundancy. The EAT considered that had the Employment Judge considered the relevant facts, she would have realised that there was no evidence of any reduced need for employees and the test for redundancy was not met.

Evidential burden
One interesting evidential point arose in relation to the presumption of redundancy (section 163(2) of the Employment Rights Act 1996). The Employment Judge had approached matters on the basis that there was an onus on the Health Board to disprove redundancy.
However, the EAT confirmed there was no such onus.  As stated by the authors of Harvey:

"Onus of Proof
It will normally be the employer who leads evidence tending to refute redundancy, but there is no formal onus of proof on him. The tribunal will decide in the light of all the evidence whether the presumption has been rebutted – and that evidence may be adduced by the employer or some third party (eg BIS) or even by the employee himself."

The statutory presumption could be displaced by evidence from any source and was displaced in this case by the agreed facts. If, on those agreed facts the reason for the dismissal was not redundancy, that was the end of the matter.

In these circumstances, the EAT made an order upholding the appeal and entered a judgment that the Claimant was not dismissed by reason of redundancy.

Mark Shulman is a Consultant Solicitor with Keystone Law and an accredited workplace and employment mediator.