Redundancy - Getting it Right

by Kate Russell

The legal risks

Redundancy dismissals in certain circumstances can be unfair and/or discriminatory or you may fail to follow procedure and have to pay protective awards. The key risks and situations leading to them are set out below.

The redundancy is not genuine

For example, a direct replacement is appointed immediately after the employee has been made redundant.

Procedural errors

In a collective redundancy situation involving 20 or more employees, the employer must follow a fair procedure and must adhere to special rules requiring collective consultation with trade union or employee representatives. Failure to comply with the latter entitles each affected employee to a ‘protective award’ of up to 90 days’ pay and is one factor in assessing the reasonableness of the dismissals. Furthermore, even in a collective redundancy situation where consultation has taken place with a union or employee representatives, individual consultation is important, as individual employees usually like to make representations on their own behalf.

Unfair selection

If you select employees for redundancy using an inappropriate mechanism, or discriminatory criteria, you may face claims of unfair dismissal and discrimination.

Failure to offer suitable alternative employment

Employers are under an obligation to determine whether there is any suitable alternative employment within the company available to employees being considered for redundancy. Full details should be provided by the employer to the employee of any alternative positions they offer and the employee should be allowed a trial period in instances where the position differs significantly from the old job.

Discriminatory basis for redundancy selection

As a general rule you should test your selection procedure and ensure it is free from the taint of discrimination.

However, there may be times when it is justified. This may include a situation where employees who put themselves forward for voluntary redundancy were not chosen on the basis of who would cost the least to make redundant, despite this criterion being indirectly discriminatory against a particular group of older workers.

Example

The Land Registry needed to make substantial redundancies as a result of overstaffing and a slump in the property market. Part of this process was merging three offices close to each other. The organisation offered voluntary redundancy on enhanced terms, but received an excessive number of applications and had to conduct a redundancy selection process.

The Land Registry made its selection based on who would be the cheapest to make redundant. This would enable it to pay the severance packages out of its limited budget.

Five employees aged 50 to 54 at the time who were not selected for voluntary redundancy brought claims of age discrimination, arguing that the "cheapness" selection criterion was indirectly discriminatory because their entitlement to early retirement on an unreduced pension meant that they were more expensive to release.

The EAT accepted the Land Registry’s argument. The employer’s aim in having the selection procedure was to bring down the number of applicants to a level that cost no more than the budget allowed (or, more broadly, to reduce the headcount, meaning that costs did not exceed revenue).

The means of achieving this aim were legitimate. It is legitimate for a government body to:

  • seek to break even each year and to make redundancies to help it to do so;
  • offer voluntary redundancy or early retirement schemes; and
  • impose a budget on the amount to be spent on such schemes in each year, even if that might mean that selection has to be made between applicants.

Like a business, the Land Registry is entitled to make decisions about the allocation of its resources.

Discriminatory basis for enhanced redundancy payment

You need to be alert to the fact that if you operate an enhanced redundancy scheme, because it could potentially be discriminatory.

Most schemes link benefits with age or length of service, or both. If the enhanced redundancy scheme mirrors the statutory redundancy scheme, then it is automatically exempt from an age discrimination challenge.

Redundancy schemes that do not fall within the exemption will only be valid to the extent that the employer can show that they establish a legitimate aim and are objectively justified.

Example

The Department for Work and Pensions (DWP) announced a voluntary redundancy programme, which was calculated in accordance with the Civil Service Compensation Scheme, which was based on an age banding system under which older employees benefited more than younger ones. As a 26-year-old leaver with almost eight years’ service, Ms Lockwood was entitled to a payment of £10,849.04. However, had she been over 35 at the time of leaving, with the identical amount of service, she would have received a further £17,690.58.

Ms Lockwood alleged that the disparity in severance payment constituted direct discrimination and argued that she had been less favourably treated compared to an employee over 35, whose term of service was identical to hers. She complained to an employment tribunal.

The employment tribunal rejected the claim, holding that there were ‘material differences’ between Ms Lockwood and her comparator. Statistical evidence showed that younger people who had fewer financial and family obligations could generally react more easily and rapidly to the loss of their jobs than older people. They were also more likely to move into new employment than older people. On this basis, the tribunal concluded that Ms Lockwood had not been treated less favourably than a comparator in materially the same circumstances and therefore had not been discriminated against on the ground of age.

After her appeal was rejected by the EAT, she appealed to the Court of Appeal, arguing that the tribunal had (a) been wrong to rule that her circumstances and that of her comparator were materially different; and (b) that it had applied an incorrect test of justification.

The Court agreed with her on the first issue. The tribunal was wrong to rule that the respective circumstances of Ms Lockwood and her comparator were materially different. The factors that the tribunal had considered to be material differences in circumstances, such as her ability to adjust more easily to the loss of her job, were nothing more than features of being 26 rather than 36. As such, they were all factors consequent upon Ms Lockwood’s age. The comparison was ‘relevant, valid and essential’ for the purpose of answering the question of whether she had suffered less favourable treatment on the ground of age, which she had.

However, the Court of Appeal rejected her argument that the tribunal had applied an incorrect test of justification. In approaching the establishment of a scheme such as this - of applying a limited sum towards meeting the differing needs of former employees at different ages - it was necessary to adopt a banding approach that would involve disparate treatment between employees of different ages. The Court held that the tribunal was entitled to rely on the statistical evidence presented and that the disparate treatment between employees of different ages was a proportionate means of achieving that aim.