Redundancy Pool Decisions

Redundancy Pool Decisions – can employers select a pool of one employee?

With financial pressures still dominating the news headlines and organisations having to make substantial savings, redundancies remain a real possibility for many employers. It is more important than ever for employers to implement a fair redundancy process to avoid unfair dismissal claims, and part of that is identifying an appropriate redundancy pool. Mike Smith looks at two EAT cases for guidance to employers.

Background

Once an employer has identified a genuine redundancy situation and considered how many redundancies are necessary, it will need to identify an appropriate selection pool of employees from which it will then need to select employees to be made redundant.

There are no set rules about how the pool should be defined but recent EAT decisions have reinforced how important it is for employers to genuinely apply their mind to the issue of which employees should be included in a pool and the risks which can arise.

Capita Hartshead Ltd v Byard

In Capita Hartshead Ltd v Byard UKEAT/0445/11, the Claimant, Ms Byard, was employed by Capita Hartshead Ltd (‘Capita’) as one of four actuaries and each actuary managed a number of pension funds.  Capita lost a number of Ms Byard’s clients, was unable to obtain new work for her and made her redundant based on a pool consisting of just her. Capita thought a pool of one was feasible as only Ms Byard’s workload had reduced, scheme actuary appointments are personal, there was a risk of losing clients if they were transferred between actuaries and the team morale would have been affected if the other actuaries were also put at risk of redundancy. The Claimant was made redundant and subsequently claimed unfair dismissal.
The tribunal acknowledged that how the pool for redundancy is defined is primarily a matter for the employer to determine and that, as a result, it is usually hard to challenge the employer’s decision on this.  However,it considered that this was less apt when the pool was the same size as the number of employees to be made redundant. The tribunal held that the Claimant’s redundancy was unfair as Capita's decision to limit the size of the pool to one was not reasonable and the other actuaries should have been included. The Tribunal concluded that having a pool of one took a lot of the value away from the resultant consultation period and there was no evidence that it was reasonable for Capita to find that having a wider pool would have been useless and that Ms Byard would almost certainly have been selected for redundancy in any event.

Capita appealed, arguing that the tribunal was wrong in finding that it was not entitled to limit the pool to one. The EAT upheld the tribunal’s decision that the redundancy dismissal was unfair. The EAT held that the tribunal was not wrong when it held that Capita’s decision to limit the size of the pool to one was unreasonable in the circumstances and that the other actuaries should have been included. The EAT concluded that the tribunal was correct to base this decision on its findings of fact that the other actuaries did similar work, the claimant's work had been praised and there was only a slight risk of losing clients if their actuary scheme was changed.

The EAT also gave the following guidance for assessing whether an employer has chosen the correct pool:

• The question is whether the choice of pool is within the range of conduct which a reasonable employer could have adopted – a tribunal cannot decide whether it would have been fairer to act in another way.
• There is no legal requirement that a pool should be limited to employees doing the same or similar work.
• It would be difficult (but not impossible) for the employee to challenge a decision where the employer has genuinely applied its mind to the issue of the pool but Tribunals should consider if the employer has really done so.   

Halpin v Sandpiper Books Ltd

In contrast to the above decision, in Halpin v Sandpiper Books Ltd UKEAT/0171/11,  the EAT upheld a tribunal decision that a dismissal for redundancy was fair where the pool for selection consisted of only one employee. In this case, Sandpiper Books Ltd (‘Sandpiper’) employed the claimant, Mr Halpin, as an Administrator/Analyst in the London office. Sandpiper expanded the business to sell books in China and Mr Halpin moved to China to occupy a sales management role. Eventually, Sandpiper decided to outsource the work to local book agents in China and Mr Halpin's role was put at risk of redundancy. Following extensive consultation and Mr Halpin rejecting an offer of alternative part-time administrative work in the UK, he was made redundant and claimed unfair dismissal.

The tribunal held that Sandpiper had fairly selected Mr Haplin for redundancy and a fair procedure had been followed.  Mr Halpin appealed, arguing that other employees with interchangeable skills should have been included in the pool, and that no reasonable employer would have limited the pool to those workers whose work had diminished.  The EAT upheld the tribunal’s decision. The EAT held that it was not unfair for an employer to use a selection pool of just one employee where it was ceasing its operations in China and the claimant was the only employee who had been sent to China. The EAT confirmed that decisions as to redundancy pools are matters for an employer to decide and a tribunal should rarely interfere with them. Here the decision as to the pool of one in this case was logical and one that a tribunal could not easily overturn.

What does this mean for me?

Employers can still choose a redundancy pool that is the same size as the number of redundancies to be made, even if the pool consists of only one employee, but the employer’s decision should be logical and the employer must have genuinely applied its mind to the issue of who should be in the pool.  It is more susceptible to a successful challenge by employees.   

• Whatever the size of the pool, evidence your decision making process in relation to pool selection to show that you have “genuinely applied your mind” to the issue and considered the options.
• It is still likely to be riskier to select a pool size which is the same as the number of staff to made redundant.  Employers should therefore only go down this route if there are strong reasons for that choice, and should be wary of overstating the risks of a wider pool – if there are real risks, ensure you have the evidence to support that.