Redundancy: do less people need to be employed to justify a dismissal by way of redundancy?

This question was considered recently by the EAT in the case of <em>Packman t/a Packman Lucas Associates v Fauchon UKEAT/0017/12</em>, as Victoria McNeel explains in this article.

31/07/2012

This question was considered recently by the EAT in the case of Packman t/a Packman Lucas Associates v Fauchon UKEAT/0017/12, as Victoria McNeel explains below.

Background  

Mrs Fauchon was employed by Packman Lucas Associates (PLA) to provide bookkeeping services. As a result of a downturn in business which placed economic pressure upon PLA and the introduction of an accountancy software package, PLA had a need for fewer hours to be worked providing bookkeeping services than had been worked previously.  In response to this PLA tried to persuade Mrs Fauchon to reduce her hours per week. She refused to work reduced hours and was dismissed. She did not receive a redundancy payment; on the basis PLA did not consider her situation to be one of redundancy.

By way of a reminder, under section 139(1)(b)(i) of the Employment Rights Act 1996 an employee is dismissed by reason of redundancy if their dismissal is wholly or mainly attributable to the fact that their employer's requirements for employees to carry out work of a particular kind have ceased or diminished or are expected to do so.

The Employment Tribunal (ET) decision

Ms Fauchon brought tribunal proceedings against PLA.  The ET held that she had been dismissed by reason of redundancy and was therefore entitled to a statutory redundancy payment.

The leading case on establishing whether an employee has been dismissed by reason of redundancy is the 1997 case of Safeway Stores Plc v Burrell [1997] IRLR 200 (EAT), which was approved by the House of Lords two years later (in the case of Murray and Another v Foyle Meats Ltd (Northern Ireland) [1999] UKHL 30; [1999] IRLR 562.  Safeway confirmed that "it is necessary to look at the overall requirement for employees to do work of a particular kind; not at the amount of work to be done" and that the reference to "work of a particular kind" does not mean work for which a particular employee is employed and encompasses the requirements of the business for employees to do work of a particular kind rather than its changing contractual requirements in relation to a particular employee or particular employees.

A later case, Aylward and Ors v Glamorgan Holiday Home Ltd EAT/167/02 was considered by the ET in this case; here, the EAT had ruled that for a dismissal to be by reason of redundancy there always had to be a reduction in the number of employees.

However, the ET took the decision not to follow Aylward, asserting that the case had been incorrectly decided.

The Employment Appeal Tribunal (EAT) decision


PLA appealed the ET’s decision, arguing that Aylward was a binding authority on the point in issue and should have been followed by the tribunal.  The EAT, however, dismissed the appeal, and stated that in such cases, the statutory wording must be specifically considered. Therefore, the need "for employees to carry out work of a particular kind" had diminished in this case, even though there had been no reduction in the need for a specific number of employees. 

On that basis, therefore, they too departed from Aylward and did so for the following reasons:

  • Aylward had misunderstood Safeway to mean that the focus of section 139 of ERA 1996 should be on "employees" rather than on "the amount of the work done" and that, as such, a reduction in headcount was required.
  • The effect of Safeway is that there must be a focus on the employer's requirements for employees generally to carry out work of a particular kind as opposed to the requirement for the claimant to carry out work of a particular kind.

In reaching their decision the EAT observed that this decision fitted in with the industry approach to the question of hours and number of employees which adopted an FTE (a full time equivalent) approach, rather than looking at whether there has been an actual reduction in the number of employees. This means, for example, that if the hours of two employees are reduced to 50% but both choose to remain working, there is deemed to be a reduction in headcount, measured by FTE.

What does it mean for me?

This case is particularly relevant at this moment in time, where we are seeing a large number of employers looking at ways to reduce their headcount so as to make efficiency savings.  What this case makes clear is that 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 can give rise to a “redundancy situation” and, therefore, a potential entitlement to a redundancy payment. This is the case even if the there has been no need to have a reduction in the number of employees carrying out work of a particular kind. 

Equally, if there is the same amount of work but the employer needs fewer employees to do that work, if the employees are dismissed for this reason, they are dismissed by reason of redundancy.

Finally, employers should be aware that a reduction in hours will not always amount to a redundancy and that, if faced with this situation, close regard should be had to the specific facts to consider whether a change in working pattern or reorganisation does lead to a redundancy.

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