The Redundancy Process and Unfair Dismissal - What Employers Need to Know
One of the main planks of the government’s reaction to the coronavirus pandemic was the Job Retention Scheme, more commonly known as furlough. Extended repeatedly as the full scale of the pandemic on the UK economy became apparent, the scheme is now scheduled to conclude at the end of September 2021.
The furlough scheme has thrown up many issues, some directly related to the scheme, others peripheral but by no means unimportant to employers. A recent employment tribunal case highlighted the difficulties around redundancy during the furlough and cast a light on what employers should be aware of when planning and carrying out redundancies, not just during extraordinary times but in other circumstances too.
The case was that of Handley v Tatenhill Aviation Ltd.
Tatenhill operates a small private airfield and provides flying lessons, flying experiences, aircraft hire, aircraft maintenance and related activities. Mr Handley was employed by Tatenhill for over 16 years and was one of two full-time flying instructors.
Tatenhill had been struggling financially even before the pandemic hit. When the first lockdown was announced in March 2020, they made the decision to close the flying school.
It was agreed that Mr Handley would be placed on furlough in accordance with the terms of the scheme. He signed a letter agreeing to this. In the letter were the following terms:
“We should like to offer you the opportunity to remain in Tatenhill’s employ whilst remaining at 80% of your salary which we hope to be able to pay as normal. This will be for a period of up to 3 weeks initially or until you can return to work as normal. Furlough to commence Monday 30th March…”
About a month after lockdown started, Tatenhill started to look at the possibility of redundancies. There was no money coming into the flight training part of the business and no prospect of that changing. Mr Handley was selected for redundancy and his job finished in August 2020.
He put in a claim for unfair dismissal, saying that the terms of the furlough agreement stopped Tatenhill from making him redundant. However, the tribunal disagreed with him. The tribunal judge said:
“[Mr Handley] suggested that the fact that he had been placed on furlough and the terms of the furlough agreement prevented [Tatenhill] from dismissing him by reason of redundancy. I disagree. Whilst another employer may have taken a different approach and chosen to leave the claimant on furlough for longer, it cannot be said that it was unfair of the respondent not to do so. It is for an employer, not the Employment Tribunal, to decide how to structure its business and whether to make redundancies… The decision to dismiss the claimant notwithstanding the existence of the furlough scheme does not, in my view, render the dismissal unfair.”
“…that the need to make cost savings and keep the company solvent were an important factor in the decision to make the claimant redundant…The question…is whether there was a redundancy situation within the definition set out in section 139 of the ERA. In this case, the reason for dismissal was that the requirements of the respondent for employees to carry out work of a particular kind, namely flight instruction and flight experiences, had reduced and were expected to reduce in the future. This falls within the definition of redundancy set out at section 139(1)(b)(i) of the Employment Rights Act.”
The tribunal was satisfied that Tatenhill had proved that the principal reason for Mr Handley’s dismissal was redundancy, which was a potentially fair reason for dismissal.
What happened next?
Although things were looking good for Tatenhill at this point, the tribunal went on to say that there were two flaws in the way they had gone about the redundancy procedure. It was clear that the decision to select Mr Handley for redundancy was taken before the consultation process started. Paperwork prepared by Tatenhill’s Director, dated before Mr Handley had even been warned of the potential redundancy situation, let alone been consulted about it, shows that a decision had already been made about who would be selected for redundancy.
In a redundancy dismissal, not only must the selection criteria used be fair, but the application of those criteria must be reasonable. In the view of the tribunal, it was unreasonable of Tatenhill to decide the selection criteria and score both Mr Handley and his fellow instructor before any consultation had happened.
The second flaw was the manner in which the redundancy appeal was carried out, with Tatenhill’s director deciding the appeal against a dismissal decision that he had also made. This flaw would not, in itself, have led to a finding of unfair dismissal, but when taken together with the manner in which the selection criteria were applied, rendered the process unfair.
The tribunal took into account Tatenhill’s small size and limited resources but said that they could have achieved the same outcome without unfairly applying the selection criteria before starting the consultation process and by arranging for someone else to hear the appeal, particularly since the appeal was dealt with ‘on the papers’.
For these reasons, the tribunal ruled that the dismissal was procedurally unfair.
However, the tribunal said that even if a different procedure had been followed, it would have made no difference to the outcome. Taking this into account, the tribunal reduced any compensation by 100%, meaning that Mr Handley received nothing, even though his dismissal was ruled unfair.
What should employers know?
Redundancy can be a straightforward process, provided that a fair procedure is correctly followed, but it is easy to get wrong and – as was the case with Mr Handley – can lead to a finding of unfair dismissal. Although no compensation was awarded to him, circumstances may not necessarily be the case in other claims, so firm adherence to the correct procedures will always pay off.
Under Section 139 of the Employment Rights Act 1996, an employee will be dismissed due to redundancy if the dismissal is attributable wholly or mainly to:
The fact that their employer has ceased or intends to cease:
to carry on the business for the purposes of which the employee was employed by him; or
to carry on that business in the place where the employee was so employed
The fact that the requirements of that business:
for employees to carry out work of a particular kind; or
for employees to carry out work of a particular kind in the place where the employee was employed by the employer have ceased or diminished or are expected to cease or diminish.
Reasons for redundancy
Redundancy is a potentially fair reason for dismissing an employee. However, for redundancy to be considered fair, there must be a genuine reason for the redundancy. It is important to remember that it is the employee’s job or function that is being made redundant, not the person.
Generally, reasons for redundancy may include:
A restructuring or reorganisation
A need to reduce overheads because of falling sales or increases in losses (it will be necessary to produce figures to demonstrate such losses)
An increase in automation, so that there is no longer any requirement to employ the number of individuals previously employed.
Identifying the pool for selection
It is necessary to identify the group or groups of workers from which those to be declared as at risk of redundancy will be selected. This is termed ‘the pool for selection’.
The employer will need to determine whether to include just those performing the same role, or also those whose skills are interchangeable. The pool doesn’t have to be limited to employees doing the same or similar work, unless the relevant categories have been selected by agreement with the union.
When selecting the pool, regardless of the number of employees selected, the employer must be able to show the decision was in the range of reasonable responses.
Fair and meaningful consultation requires an employer to consult when the proposals are still at the formative stage. The employee should be informed they are at risk of redundancy, be provided with adequate information on the redundancy, the time frame in which it will take place and be provided with an adequate time in which to respond.
Consultation must take place before any final decision regarding a person’s redundancy has been taken.
A meaningful consultation should take pace in any event, regardless of the number of employees at risk of redundancy. Consultation should consist of at least two meetings over a minimum of two weeks before any decision is taken to dismiss. This gives the individuals affected the chance to consider the situation. At all consultation and redundancy dismissal meetings, a member of staff has the right to be accompanied by a work colleague or trade union representative.