26 November 2007
Employers can often find themselves in a situation which requires them to make changes affecting the terms and conditions of employees. Whether these changes amount to a genuine redundancy or trigger a duty to collectively consult will depend on what is being proposed and any flexibility in the terms and conditions of those affected.
Under the Employment Rights Act 1996 a redundancy is a dismissal which arises as a result of:
- the closure of the business; or
- the closure of a place of work; or
- a reduced requirement for employees to carry out work of a particular kind.
It is relatively straightforward to determine a redundancy situation when either of the first two scenarios occurs. However, both employers and employees can misinterpret the third test and believe there is a right to redundancy following any restructuring exercise, including changes to working methods or duties. In these circumstances though, strictly speaking a redundancy will only occur if the employer needs fewer employees as a consequence of the changes. If not, any dismissal which arises as a result could still be potentially fair under the heading of “some other substantial reason” but this would not entitle the employee to a redundancy payment.
In Loy v Abbey National Financial and Investment Services (2005) the Court of Session held that redundancy does not follow simply because of changes in the way a job is done. In his claim for a redundancy payment, Mr Loy argued that some aspects of his job were to be significantly different with the result that his old job no longer existed. The court held that in this case there was no suggestion that the work which Mr Loy was expected to do had ceased or diminished; all that was proposed was that the work would be done in a different way. A distinction had to be drawn between the employee's contractual arrangements with their employer and the requirements of the business. Material changes to the contract may entitle an employee to resign and claim constructive dismissal but this does not mean that the dismissal is by reason of redundancy.
In order for a redundancy situation to arise when a workplace is closed it is not a necessary requirement that the jobs cease to exist. Therefore, redundancy can still apply where an employer moves its operation with the intention for all staff to relocate. The employer can seek to agree a variation to terms and conditions but in the event that an employee objects will, in most cases, need to follow a redundancy process and treat the offer of employment at the new place of work as a suitable alternative to redundancy. Whether it is suitable alternative employment will depend on if it is a reasonable request taking into account the individual’s circumstances. Employers may not need to agree a variation to terms and conditions to avoid the redundancies if they can require employees to relocate under a mobility clause in the contract.
Earlier this month, the Court of Appeal in Home Office v Evans (2007) overturned a decision of the EAT to make it clear that following a closure of part of the business an employer can exercise a contractual right requiring the affected employees to relocate as against making them redundant. The EAT had wrongly interpreted Securicor v Curling Limited (1992) which held only that an employer once embarked on a redundancy exercise could not later rely on a mobility clause to defend a claim for a redundancy payment and not that it was unable to rely on the mobility clause in the first instance. Provided the employer makes it clear that it is invoking the mobility clause and does so reasonably, with reasonable notice, so as not to breach the implied term of trust and confidence and acts consistently throughout it will not be legally obliged to follow a redundancy procedure.
Employers should also be aware that under the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), the definition of redundancy is wider and is classed as a dismissal "for a reason not related to the individuals concerned". This means that where changes to terms and conditions are to be introduced by way of a re-engagement on new terms, the termination of the existing contract is treated as a dismissal on grounds of redundancy. Therefore, depending on the numbers involved the employer could have a duty to collectively consult and notify the Secretary of State. These obligations will apply where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less.
Due to the legal risks involved in changing terms and conditions and/or making redundancies, it is important that employers have a well thought out strategy for implementing any proposed changes. How the change is communicated can be critical to its success and employees should be clear about the reasons for the change, how it will be carried out and how it will affect them. Give Buddy a call, if you need help on a change management programme in your organisation.