What is Redundancy?

When a factory or an office closes down completely, it is clear that the employees who work there are redundant. However, the situation is not so clear cut if the factory or office continues as usual, but only some of the people who work there are to be “let go”. There is in fact a definition of redundancy contained in Section 139(1)(b) of the Employment Rights Act 1996 which provides so far as is material:

“(1) For the purpose 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, or
(ii) 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.”

The important feature of the definition is not whether the need for the job (“work of a particular kind”) done by the employee has ceased or diminished (or is expected to do so). Instead, the question is whether the requirements for employees to do that type of work has ceased or diminished. In other words, the amount of work needed to be done might remain the same or it might even increase but if it can be done with a reduced head count then there is a redundancy situation.

It follows from the definition that there are 3 tests to be considered when deciding whether redundancy was the reason for dismissal. The first is to ask whether the employee has been dismissed. The second is to ask whether the requirements of the business for employees to carry out work of a particular kind have diminished – in other words whether there was a redundancy situation. The third is to ask whether the dismissal is “wholly or mainly” attributable to that redundancy situation.

The first test, dismissal, is rarely in dispute. Except where an employee provides credible evidence querying the need for redundancies, an Employment Tribunal will not investigate the business case as to whether there needed to be any redundancies, so that the second test again is not usually in dispute. The dispute is most likely to be about the third test, as to whether the dismissal was “wholly or mainly” attributable to the redundancy situation. If there is a genuine redundancy situation but notwithstanding this, the Tribunal finds that in fact it was not the cause of the dismissal, the employee will not have been dismissed by reason of redundancy. This means that the employer will not have shown what was the reason for the dismissal. The burden is on the employer to show what was the reason for the dismissal so that having failed to do that, an unfair dismissal claim would succeed without further need for fact finding and decision by the Employment Tribunal.

If the employer establishes that redundancy was the reason for the dismissal, the procedure adopted in selecting the employees becomes crucially important in assessing the fairness of the dismissal. The employer needs to follow a fair procedure. He will need to identify the group of employees from which the redundancies will be made, often referred to as “the pool”. When it comes to deciding upon the pool, then provided the employer genuinely applies his mind to the question and acts reasonably in determining it, the decision will not normally be open to question. Other aspects of a fair procedure involve the employer formulating and applying appropriate selection criteria, consulting in a meaningful way with the employees in the pool and allowing them to make comments and representations, looking for suitable alternative work for the employee, and giving the employee a right of appeal.

If the Tribunal makes a finding that the dismissal was procedurally unfair, it will then ask itself what would have happened if the employer had carried out a fair procedure. It might decide that even if a fair procedure had been carried out, the result would still be a dismissal. In this case, it would award compensation for the period which it estimates that it would have taken the employer to carry out a fair procedure – if it is thought that the procedure would have lasted, say 4 weeks, then the award would be 4 weeks’ compensation.

Another approach which the Tribunal might take is to find that there was a chance that if a fair procedure had been followed, the employee would have retained his job and would award compensation based on that chance. The loss of the chance of the employee retaining his employment following a fair procedure, will fall in the range of 0-100%. For example, if the employee was say 1 of 4 employees who might potentially have been made redundant, then the dismissed employee had a 3 in 4 change of keeping his job meaning that the Tribunal would award him only 75% of what he has lost as a result of being dismissed; put another way, there was a 1 in 4 chance that he would have lost his job so that his loss as a result of his dismissal is reduced by 25%. It might even he that the Tribunal combines both approaches rather than adopting one or the other.