Business Law: Lloyd Clarke examines the definition of redundancy
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IN A recent case heard in the Employment Appeal Tribunal (EAT), an employer had suffered a substantial reduction in work but still required the same number of staff to carry it out.
One employee brought a claim in the Employment Tribunal claiming that this set of circumstances represented a redundancy situation and, therefore, that she was entitled to a redundancy payment.
Under the Employment Rights Act 1996, a redundancy situation will arise if any of the following three take place: an employer’s business closes, an employee’s workplace shuts down or the employer’s requirement for its employees to carry out work of a particular kind has, or is expected to, cease or diminish.
The case referred to above is Packman t/a Packman Lucas Associates v Fauchon (2012). This case involved Mrs Fauchon, a bookkeeper who worked for Packman. Due to a drastic downturn in work, the firm asked her to “significantly reduce” her working hours, while also making it clear that it still required her skills.
When she refused, the firm dismissed her, citing that there was no longer a need for her to work her contractual hours.
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Mrs Fauchon launched a claim in the Employment Tribunal for unfair dismissal, which she subsequently won. The tribunal agreed with her that the reason for her dismissal was “redundancy”, and not that stated by the firm. She was awarded a statutory redundancy payment totalling some £11,210.
The EAT clarified this area of law by confirming that where the amount of work available for the same number of employees is significantly reduced, any dismissal caused wholly or mainly for that reason is always a redundancy situation, although it failed to take the opportunity to set in stone what exactly constitutes a “significant” reduction,
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The EAT president did seem to allude to it being a reduction in working hours of at least 50% but, frustratingly, from a practitioner’s point of view, his comment, although helpful, is not binding on the lower tribunals and therefore we must wait and see what effect, in practice, this ruling has on law in the area.
It these sorts of situation it is always best to err on the side of caution but, nonetheless, we would advise that any small, yet permanent, reduction in working hours due to less work is unlikely to trigger a redundancy situation, unless such a reduction is “significant” – that is, a cut in workload of 50% or more.
Any smaller, but permanent, reduction is unlikely to be problematic.
: : Lloyd Clarke is an employment solicitor at law firm Attwells.