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ECONOMIC RESTRUCTURING: REDUNDANCY+ TRANSFERS OF UNDERTAKINGS
The law must find a way to address the tension between necessary business restructuring and the adverse individual and social costs of job loss and plant closure.
- Tax payer doesn't want cost to wider economy from lower productivity, nor increased welfare benefit
The law's compromise is to provide for:
1. Redundancy payment
2. Fair redundancy selection
The relationship between redundancy and unfair dismissal can be thought of along a spectrum between flexibility and job security:
Job security approach
No redundancy and dismissal fair (for SOSR)
Redundancy situation but dismissal is fair
Historical and contextual introduction
Redundancies occur due to a) Efficiencies generated as a result of social change, tech developments or corporate takeovers.
b) Reduced demand for ER's goods/services due to recession/ec slowsown.
c) Overreaching- ie too swift an expansion.
d) Corporate restructuring, reorganisation+ outsourcing ec funtions.
e) Nature of UK economy ('liberal market economy') with large corporates characterised by widely dispersed share ownership + strong take over market = less coordination b/w management and labour.
o Pendleton and Gospel - 'the threat of takeover means that listed companies have to deliver high short-term returns to investors to secure their loyalty…workforces have to be sacrificed when firms face adverse economic circumstances whereas shock is absorbed by capital moreso in countries with coordinated market economies.
1965 Act- parl's policy preference was to compromise b/w demands of taxpayer+ workforceseverance payments were limited to max £15,240so the redundancy payment didn't discourage EEs from seeking fresh employment (only gives worker a moderate degree of protection).
- Freedland+ Davies say the 1965 Act then getting taken over by UD regime in 1971 Act to give EEs the real protection they deserved (by legislating that a dismissal could be unfair for the reason of redundancy), gave more protection than the 1965 Act which just gave earnings-related redundancy payment and instead did an intensive evaluation of ER's commercial rationales for the redundancies and to treat those reasons as unfair on the EE. Although, RORR test meant lax intensity of scrutiny.
- Cabrelli: says the UD regime from 1971 Act gives protection not really substantively but in the procedural safeguards it afforded to EEs via the medium of proper selection procedures and advance information and consultation rights
Current statutory regime constructs a floor of redundancy rights, above which the employer and employee may contractually agree to derogate upwards by enhancing the level of protection.
o Regime set out in Parts X and XI ERA and Chapter II TULRCA offering
statutory redundancy payment
protection from unfair redundancy and
information and consultation rights.
It was introduced to meet UK's EU obligations under the Collective Redundancies Directive 1975. ECONOMIC RESTRUCTURING: REDUNDANCY+ TRANSFERS OF UNDERTAKINGS
The 2 statutory rights enjoyed by EEs on redundancy is (i) the right to be paid a statutory redundancy payment and (ii) the right not to be unfairly dismissed for the reason of redundancy.
The triggers for stat rights on redundancy are that:
1. EE must've been dismissed. 2. For the reason of redundancy.
THE 7 REDUNDANCY CRITERIA
S135 (1) ERA 1996
Per s.135(1) ERA 1996 an employer shall pay a redundancy payment to any employee of his if the employee:
(a) is dismissed by the employer by reason of redundancy, or
(b) is eligible for a redundancy payment by reason of being laid-off or kept on short time (not in course).
An employee is dismissed as redundant provided the following criteria are satisfied:
1. employee - see notes on contract of employment;
2. satisfying the qualifying period (2 years - s.155);
3. dismissed (s.136) - redundancy is presumed to be the reason unless the contrary is proved by the employer (s.163(2)).
o Birch v Liverpool Uni (1985)- voluntary redundancy/early retirement falls outside statutory concept of dismissal so EEs have no claim for statutory redundancy pay.
o The presumption doesn't exist where ER seeks to argue that the reason for dismissal was redundancy for the purposes of the unfair dismissal regimeburden is then on ER.
4. for reasons wholly or mainly attributable (s.139(1));
5. to redundancy (see below) (s.139(1)(a)-(b)):
a. cessation of business; or b. diminishing requirements;
6. no offer of suitable alternative employment is made (s.138); and
7. the employee is not excluded (ss.140-143).
NB: these requirements serve two functions: (i) gateway to redundancy compensation and (ii) gateway to potentially fair dismissal.
Definition in s.136 is broadly similar to definition under s.95 for unfair dismissal.
- Standard dismissal, expiry of Limited Term Contract and constructive dismissal all covered by s.136(1).
- S.136(5) also covers constructive terminations of the contract by virtue of events such as death/bankruptcy - protects EE coz if ER's death/bankruptcy not covered by this provision it could be argued that the emp contract had been frustrated depriving EE of the right to claim dismissal for the reason of redundancy+ right to statutory redundancy payment.
- Summary dismissal (where EE terminates w/o notice by reason of EE's conduct) will not be covered
(s.140) apart from a few exceptions.
S139 (1) ERA 1996
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(a) the fact that his employer has ceased or intends to cease(i) to carry on the business for the purposes of which the employee was employed by him, or
(ii) to carry on that business in the place where the employee was so employed, or
(b) the fact that requirements of that business(i) for employees to carry out work of a particular kind,
(ii) for employees to carry out work of a particular kind in the place where the employee was employed by ECONOMIC RESTRUCTURING: REDUNDANCY+ TRANSFERS OF UNDERTAKINGS
the employer has ceased or diminished or are expected to cease or diminish
The definition in s.139 embraces three ideas:
1. the business disappears permanently or temporarily (s.139(1)(a)(i));
2. the employee's workplace disappears (s.139(1)(a)(ii)); and
3. the job disappears (s.139(1)(b)) - generally or just in the place where the applicant was employed to work.
- Language such as 'intends' and 'or are expected to cease or diminish' means anticipatory redundancy possible ie the business needs have not yet ceased or diminished.
- No need for party seeking to establish 'redundancy' to prove that ER was at fault- the legislation is nonfault based.
- NB: The definition of redundancy in s139 ERA relevant in context of EE's stat right to receive redundancy payment and not to be unfairly dismissed but it has no application to ER's statutory duty to inform and consult TU/employee reps on the redundancy of an EE within s195 TULCRA. 1992.
o Cf. the definition of redundancy for the purposes of redundancy consultation: s.195 TULR(C)A 1992:
In this chapter references to dismissal as redundant are references to a dismissal for a reason not related to the individual concerned or for a number of reasons all of which are not so related.
o GMB v. Man Truck & Bus UK  - this definition is very wide. S195 doesn't just apply where jobs or workers are lost but also where an ER sought to harmonise the T&Cs of employment of two groups of employees by terminating the employees' contracts of employment and offering fresh employment on new terms following a merger.
So for purposes of a redundancy payment the criteria are:
General cessation of the employer's business (s.139(1)(a)(i) ERA)
s.139(1)(a) the fact that his employer has ceased or intends to cease(i) to carry on the business for the purposes of which the employee was employed by him, (...)
Complete cessation (or proposed cessation) of employer's business.
Thomas v Jones (1978)- it's not necessary to show ER was owner of the business, just that the person was in control of the business.
Cessation of business at place of employment (disappearing workplace) (s.139(1)(a)(ii) ERA)
s.139(1)(a) the fact that his employer has ceased or intends to cease[…]
(ii) to carry on that business in the place where the employee was so employed.
Partial cessation of the employer's business, eg where office, plant, factory or unit is closed.
Debate between the narrower 'job package/contract' test and the wider 'factual' test:
Bass Leisure Ltd v. Thomas 
EAT held the place of employment is: "to be established by a factual enquiry, taking into account the employee's fixed or changing place or places of work and any contractual terms which go to evidence or define the place of employment and its extent, but not those (if any) which make provision for the employee to be transferred to another".
High Table v Horst 
COA said the place where the employee was employed was to be determined by "a consideration of the factual circumstances which obtained until the dismissal". Peter Gibson LJ said "It would be unfortunate if the law were to encourage the inclusion of mobility clauses in contracts of employment to defeat genuine redundancy claims.
- He said the existence of mobility clause only relevant where previously invoked by ER in the past and EE
moved in response in the past but otherwise, giving effect to them would defeat Parl intent. Instead,
appropriate test is one of fact: where the EE actually worked, not where the contract says they could be ECONOMIC RESTRUCTURING: REDUNDANCY+ TRANSFERS OF UNDERTAKINGS
Cessation or diminution in the business's requirements for work of a particular kind (s.139(1)(b) ERA)
s.139(1)(b) the fact that requirements of that business(i) for employees to carry out work of a particular kind,
(ii) for employees to carry out work of a particular kind in the place where the employee was employed by the employer has ceased or diminished or are expected to cease or diminish.
This is the most difficult category to define and the courts often say that it is a question of fact or degree to be determined by the ET - e.g. Murphy v. Epsom College . Various tests have been developed to try to establish the meaning of the term.
(a) The Function Test:
Focuses on the need of ERs for the particular work: an employee isn't redundant if the essential tasks remain the same, even though other terms+ conditions may change.
Looked at the work the employee did in isolation from the contract terms.
Hindle v. Percival Boats Ltd 
CoA held that employee who was a skilled woodworker had not been dismissed for the reason of redundancy, since the boatbuilding function continued to exist. Reason for his dismissal was that he was unable to adapt to the employer's new working methods and was thus unprofitable.
Lesney Products Ltd v. Nolan 
ER reorganized the arrangements for machine maintenance by changing its employee machine setters'
shifts from one long day shift plus overtime to two day shifts. Initially, the employer required the engagement of 36 machine setters.
Certain employees objected to changed shift pattern and were replaced
Their dismissal didn't amount to redundancy since the function of machine maintenance for which they've been employed remained the same.
The function test reinforces managerial prerogative: it enables ER to reorganise his business without that falling within the definition of redundancy.
In other words if the job is not less (I.e. the quantum of work is not less) but the method of doing is different or the terms are different this is not a redundancy situation.
As work reorganisation would in principle fall within the heading of SOSR and therefore be a potentially fair dismissal there is no redundancy situation so the EE gets no redundancy pay or unfair dismissal compensation: e.g.
- Johnson v. Notts Combined Police Authority  -no redundancy since the clerical work had not ceased or diminished even though there was no need for the women to work their original hours.
(b) The Contract Test:
Hadden v. Cowan  appears to have adopted the "contract test": focusing on the work the employee could be required to do by contract. Only if all that worked diminished was there a redundancy. This is regardless of if the ER actually does that work.
This shows judiciary resorting to common law of contract of employment in order to infuse content into statutory provisions rather than treating them as self-contained concepts with their own internal logic.
This is v narrow coz scope of work EE might be required to do is often drawn v widely (for flexibility reasons)
in the emp contract eg including flexibility clauseslimits scope of inference to be drawn that EE was redundant. ECONOMIC RESTRUCTURING: REDUNDANCY+ TRANSFERS OF UNDERTAKINGS
These narrow approaches can be contrasted with the cases decided subsequent to the introduction of the unfair dismissal regime. The judges have assumed a more broad-brush approach which is perhaps in response to the fact that it will be the employer, rather than employee must keen to invoke redundancy concept.
(c) The Safeway v Burrell Approach: the 'kind of employee' test
Safeway v Burrell (1997)
The EAT rejected the function test on the grounds that it focused on a diminution of the work to be done rather than on a diminution in the requirements for employees to do that work. It also said that the contract test was wholly wrong: the terms of the employee's contract were wholly irrelevant. The correct approach was to ask whether the employer's requirements for employees to do work of a particular kind had ceased or diminished. The EAT said that the statute required a three stage process:
Was the employee dismissed?
If so, had the requirements of the employer's business for employees to carry out work of a particular kind ceased or diminished or were they expected to cease or diminish?
If so, was the dismissal of the employee caused wholly or mainly by the state of affairs indicated at stage 2?
Still left open the question: what work? The statute says "work of a particular kind". This suggests that where employees are replaced by others with different skills this is a redundancy situation. This was the situation in
Murphy v. Epsom College .
(d) The Murray v Foyle Meats Approach (A question of factual causation)
◦ Murray v. Foyle Meats (1999)- The dismissals had been wholly attributable to the diminished requirement for employees to work in the slaughter hall
FACT Employers had slaughter business. Applicants were employed as 'meat plant operatives'. They normally
worked in the slaughter hall but could under their contracts of employment be required to work elsewhere in the factory and occasionally did so.
In 1995 due to a decline in business, fewer employees were required in the slaughter hall. Applicants selected for redundancy from among the employees working in the slaughter hall and dismissed on the basis that they were 'redundant' in that their dismissal had been wholly attributable to the fact that the requirements of the business for employees to carry out work of a particular kind, namely on the slaughtering line had diminished.
HELD 'My Lords, the language of section 139(1)(b) is clear. It asks two questions of fact:
1. Does one or other of various states of economic affairs exists. In this case, the relevant one is whether the requirements of the business for employees to carry out work of a particular kind have diminished.
2. Is the dismissal is attributable, wholly or mainly, to that state of affairs…'
'In the present case, the tribunal found as a fact that the requirements of the business for employees to work in the slaughter hall had diminished. Secondly, they found that that state of affairs had led to the applicants being dismissed. That, in my opinion is the end of the matter'.
'Both the contract test and the function test miss the point. The key word in the statute is 'attributable'
and there is no reason in law why the dismissal of an employee should not be attributable to a diminution in the employer's need for employees irrespective of the terms of his contract or the function he performed'
Strong argument that redundancy will be inevitable in many cases owing to the emphasis which the causation test places on the requirement to establish a drop in ER's need for EEs to perform work, rather than in respect of the individual EE claimant's job.
- Shows judiciary's tendency to construe the stat provisions in a manner which is pro-employer and defers to the ER's managerial prerog.
'Means that 'bumped' employees will more often than not be held to have been made redundant. ECONOMIC RESTRUCTURING: REDUNDANCY+ TRANSFERS OF UNDERTAKINGSBumping = particular position disappears and the employee occupying that post is transferred to another position duly bumping the employee occupying the latter out of a job. Common reason why employer may adopt such an approach is that it wishes to retain the individual with the most experience, skills etc. 'Bumped' employees will more often than not be treated a redundant coz it is about the ER's reduction in need of employees to perform work of a generic type rather than the question of whether there's a diminution in need for this employee to perform his particular job or function.
Approaches (a) and (b) (function test and contract test) focus on diminution of work; approaches (c) and (d)
(Safeway / Murray) focus on diminution of the need for the employee.
Eg D identifies efficiencies in IT department. No longer needs IT director (James), but wants to retain his skills so terminates emp contract of IT assistant (Andrew) instead. James then moves into Andrew's old position.
- Contract Test:, Andrew isn't redundant since ER's requirement for the position of IT assistant set out in
Andrew's emp contract continues to exit.
- Function test: Actual work of IT assistant hasn't ceased and has instead been taken up by James
- Causation test: D's requirements for work of a particular kind have diminished since no longer needs an IT
director. Secondly, Andrew's dismissal is attributable to that state of affairs.
Packman v Fauchon (2012)
EE was redundant when there was a material reduction in his working hours coz ER needed less work of the sort done by that employee.
So even if staff numbers and the functions may be the same, as long as there's evidence of a substantial reduction in ER's need for work or hours of workdismissed EE is entitled to claim she's redundant.
- This is even the case where ER has a labour surplus (ie it requires fewer employees for the existing work) coz this is a change in the employer's requirements to do work (s139(1)(b) mentions change in requirements not a reduction in head count or working hours.
- Means that even where the actual work available and no. of EE's actually increases e.g where a single post is replaced by 2 new posts that were materially diff from the former, an EE will be redundant on the basis that the ER's requirements for the work performed by EE in the old single post has ceased.
Cabrelli: Murray v Foyle Meats disturbs the requirement for some identifiable function to disappear for s139(1)
(b) ERA to be engaged.
- The 'work of a particular kind' has been interpreted broadly by the judiciary shows pro-ER approach coz it narrows the concept of redundancy as the extent to which the work must change is considerable before it can constitute work of a different kind
- e.g the courts generally hold that an EE isn't redundant where the amount of work remains the same and the no.. of staff needed to discharge that work is broadly the same or even greater but there's a reduction in ER's need for certain skills or specialism with an attendant change in the organisation of the responsibilities which EE is required to perform.
Diminution of the requirements of the business for the employees to carry out work of a particular kind in the place where the employee was so employed by the employer (s.139(1)(b)(ii) ERA)
Bass Leisure Ltd v. Thomas  - the principles must be the same as case law on s.139(1)(a)(ii).
- E.g if the contract test is applied where there's a mobility clause in the contract, EE won't be redundant coz of the wide scope of the clause eg places where EE could legally be required to work.
THE RIGHT TO RECEIVE A STATUTORY REDUNDANCY PAYMENT:
S135 and s155 ERA: a redundant employee who's been continuously employed for 2 yrs or more has the right to receive stat redundancy pay.
Disqualification from a redundancy payment: ECONOMIC RESTRUCTURING: REDUNDANCY+ TRANSFERS OF UNDERTAKINGS-Summary Dismissal: ER could terminate employment for reason of misconduct - s.140(1) ERA. The misconduct must lead to dismissal without notice or with reduced notice. This is an odd provision because if the employee can be dismissed for misconduct then he is not dismissed for redundancy. But if the employee takes part in a strike during the period of notice and then the employer terminates the contract for that reason he is not disqualified from receiving a redundancy payment - s.140(2).
If the employee is under notice of redundancy and then wishes to leave earlier because, e.g coz he or she has another job, the EE may give notice. If the employer contests this then he can request the employee to withdraw the notice and then warn him that he will contest the redundancy payment.
EEs of foreign govs, civ servants, public officials+ those which Sec of State have excluded won't get stat redundancy payment.
If there's an offer of new employment which is rejected:
OFFER OF NEW EMPLOYMENT
Under s.138(1) the employee will not be regarded as dismissed where the employee's:
o contract of employment is renewed; or
he is re-engaged under a new contract of employment; and
offer is made before the end of his employment under the old contract; and
the renewal or re-engagement takes effect immediately or within 4 weeks of the end of the old contract.
S146(1): References to renewal or re-engagement apply to re-engagement by an ER or an associated ER.
If the employee accepts the new job offered he retains continuity of service, even if the terms and conditions are changed, provided that the offer was made before the end of the previous employment AND
THIS MEANS HE WON'T BE ENTITLED TO STATUTORY REDUNDANCY PAY.
If the provisions of the renewed contract or the new contract differ (wholly or in part) from the corresponding provisions of the old contract as to
the capacity in which the employee is employed; or
the place in which the employee is employed; or
other terms and conditions
Then the employee has a trial period of four weeks (or longer if agreed between the parties) to test the new terms (s.138(2)).
During the trial period the employee can decide whether he or she likes the new job. If, during that 4 week period, the employee terminates the renewed or the new contract for whatever reason the employee is treated as being dismissed for reasons of redundancy (s.138(2)(b)(i)).
Alternatively, the employer can terminate the renewed or new contract if he can show a reason connected with the change of terms and the employee is then treated as dismissed for reasons of redundancy
However, the EE won't be entitled to a redundancy payment where, during the trial period of a contract on different terms, he unreasonably terminates the contract and the employment is suitable for him.
Refusal of the Job Offer
In this situation it is necessary to look to see if the terms differed from the old contract.
Terms do not differ from the old contract
In this case the tribunal must decide whether his refusal was reasonable (s.141(3)(a)). In this case the employee is not entitled to a redundancy payment where he unreasonably refuses the offer (s.141(2)).
Terms do differ from the old contract
In this case the ER must show that (i) the offer was one of suitable alternative employment and (ii) the employee was unreasonable in refusing it. (s.141(3)(b))
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