The Employment Appeal Tribunal’s recent decision in Mogane v Bradford Teaching Hospitals NHS Foundation Trust [2022] EAT 139: that an employer’s choosing of a selection criterion that inevitably led to a pool of one was unfair, as no consultation had taken place with the employee before that decision; is a reminder to employers of their legal obligations and key considerations in order to carry out redundancies fairly. Eaton Smith’s “Employer’s Guide to carrying out redundancies fairly to minimise Employment Tribunal claims” covers the key factors employers should be aware of.

Employers should be aware that:

• There is no mandatory procedure laid down by statute in Great Britain for fairly dismissing an employee for redundancy.
• Employers should consider whether there are contractual redundancy procedures, whether express or implied, that apply.
• Employers must in any case follow a fair procedure involving individual consultation and make dismissal decisions that are fair and reasonable in the circumstances, following the principles of fairness established by case law in order to avoid claims for unfair dismissal.
• The obligations with regard to an individual are distinct from the employer’s collective redundancy obligations.
• Whenever there is a collective redundancy situation, there will still be a need for individual as well as collective consultation, so the two processes will often run in parallel and may sometimes overlap, although some aspects of the collective consultation will need to take place first.

Before consulting with employees or dismissing for redundancy, the employer must be satisfied that the statutory definition of redundancy (section 139, Employment Rights Act 1996 (ERA 1996)) applies, that is:

That the employer has ceased or intends to cease to carry on the business for the purposes of which the employee was employed by him, or to carry on that business in the place where the employee was so employed.

OR that the requirements of that business for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where the employee was employed by the employer, have ceased or diminished or are expected to cease or diminish.

Where the employer is undertaking a re-organisation falling outside the definition of redundancy, it may be able to rely on some other substantial reason as a reason for any dismissals resulting from that re-organisation.

Dismissing fairly for redundancy

In order for a dismissal for redundancy to be fair:

The employer must establish that redundancy was the real reason for the dismissal.
The tribunal must find that the employer acted reasonably, in all the circumstances of the case, in treating redundancy as the reason for dismissing the employee. In practice, this means an employer must follow the “procedural fairness” guidelines set out in Polkey v A E Dayton Services Ltd [1987] IRLR 503.

The test of reasonableness

A tribunal must consider whether the decision to dismiss an employee was within the range of conduct that a reasonable employer could have adopted (”the band of reasonable responses test”), having regard to section 98(4) of the ERA 1996 and the principles of fairness established by case law.

Reasonableness: Polkey guidelines

• Warns and consults employees, or their representative(s), about the proposed redundancy.
• Adopts a fair basis on which to select for redundancy. An employer must identify an appropriate pool from which to select potentially redundant employees and must select against proper criteria.
• Considers suitable alternative employment. An employer must search for and, if it is available, offer suitable alternative employment within its organisation.

The ACAS Code of Practice

The ACAS Code of Practice on Disciplinary and Grievance Procedures expressly states that it does not apply to dismissals for redundancy. Therefore, the only principles governing procedural fairness in redundancy cases in Great Britain are those established by case law.

Appeals

Failing to offer the employee a right of appeal is not necessarily fatal to fairness in every case, but it may affect fairness depending on the facts. However, it would be good practice to offer the employee a right of appeal since this can enable disputes to be resolved internally without recourse to employment tribunals.

One aspect of consultation is giving the employee the opportunity to contest selection. Where the employee has not been given sufficient information at the consultation stage about the selection criteria, this defect may be remedied at appeal. It will often be to the employer’s advantage to offer the right of appeal, to prevent its absence later being raised as an issue which goes to fairness.

Consultation

Key components of an effective consultation:

• Consultation carried out when the proposals are still at a formative stage.
• Adequate information on which to respond.
• Adequate time in which to respond.
• Conscientious consideration of the response to the consultation.

Relationship between collective and individual consultation

Where there is a proposal to dismiss as redundant 20 or more employees at one establishment within a 90-day period, the employer will have to engage in collective consultation with a trade union or (if no union is recognised) elected employee representatives.

Where there is a recognised trade union, consultation with the union will also be a key element in assessing the fairness of dismissals.

Individual consultation, on the other hand, is all about fairness based on the guidelines derived from case law.

Collective consultation does not eliminate the need to consult with individual employees, but it may, depending on the circumstances, make the employer’s obligations in this regard less onerous. Since an employer is obliged to act in all the circumstances, the extent to which it is required to consult both collectively and at individual level will depend on the facts.

Where there has been no consultation about the redundancy with either the trade union or the employee, the dismissal will normally be unfair.

Subject matter of consultation

The matters that should be discussed during the individual consultation process will depend on the specific circumstances but should usually include the following:

• An opportunity for the employee to comment on the basis for selection, both in terms of the pool and the selection criteria.
• An opportunity for the employee to challenge their redundancy selection assessment and to explain any factors that might have led to their selection and of which their employer might not have been aware.
• An opportunity for the employee to put forward any suggestions for ways to avoid their redundancy.
• Consideration of any alternative employment positions that may exist.
• An opportunity for the employee to address any other matters or concerns that they may have.

Timing and length of consultation

There are no prescribed timescales within which consultation should take place, but the shorter the consultation, the more likely it is that its quality may be called into question.

In Rogers v Slimma Plc UKEAT/0168/06 and 0182/07, the EAT held that the tribunal had been entitled to find on the facts of the case that seven days’ consultation with individuals was the “bare minimum” but nevertheless an adequate period.

If an employee is not consulted until late in the redundancy process, a tribunal will be particularly concerned about the adequacy of the consultation.

Right to be accompanied

Where a worker is required or invited to attend a disciplinary or grievance hearing and reasonably requests to be accompanied at the hearing, the employer must permit the worker to be accompanied by a single companion of their choice, who must be either a trade union representative or work colleague.

Selection

Fair selection involves the fair application of objective selection criteria to a pool of employees. An employer should begin by identifying the pool, the group of employees from which it will select those who are to be made redundant.

Identifying an appropriate pool

Before selecting an employee or employees for dismissal on grounds of redundancy, an employer must consider what the appropriate pool of employees for redundancy selection should be. Otherwise, the dismissal is likely to be unfair.

Employer’s discretion over pool

There are no fixed rules about how the pool should be defined and, unless there is a collectively agreed or customary selection pool, an employer has a wide measure of flexibility in this regard. However, the following principles have emerged from case law:

• In deciding whether a redundancy selection was unfair, a tribunal must decide whether the employer’s choice of pool was within the range of reasonable responses; it should not substitute its own view as to what the pool should have been.
• The question of how the pool should be defined is primarily a matter for the employer to determine and, provided an employer genuinely applies its mind to the choice of a pool, it will be difficult for an employee (or a tribunal) to challenge that choice.
• A particular set of circumstances may give rise to a variety of permissible pools and there is no legal requirement that a pool should be limited to employees doing the same or similar work.

Narrow pools

Usually, an employer will wish to keep the pool for selection fairly narrow, but employees within the pool may want to argue that the pool should be wider, as this will usually lower the risk of being selected.

Tribunals may be prepared to characterise a narrow choice of pool as unreasonable.

Pools of one

It has been held to be fair to place employees in a pool of one in the following cases:

• An export manager who covered a particular geographical territory, even though there were eight export managers covering other territories who could also have been included in the redundancy exercise.
• An employee who had been posted to China from the UK business, when the employer decided to outsource the Chinese work.
• A golf club steward who was the only employee carrying out that role.

In Mogane v Bradford Teaching Hospitals NHS Foundation Trust [2022] EAT 139, the EAT considered the implications of choosing a selection criterion that will inevitably lead to a pool of one, with the practical result that the selection for redundancy is made by that decision itself. This was held to not be within the band of reasonable responses as no consultation had taken place before that decision.

Considerations for identifying pool

Employers must think carefully when considering the choice of pool. The starting point is usually to consider which particular kind of work is ceasing or diminishing and which employees perform that kind of work.

Factors that are likely to be relevant to identifying a pool are:

• What type of work is ceasing or diminishing.
• The extent to which employees are doing similar work (possibly even those at other locations).
• The extent to which employees’ jobs are interchangeable.
• Whether the employer “genuinely applied” its mind to the composition of the pool.
• Whether the selection pool was agreed with the union or employee representatives.

Look at what employee actually does

A sensible starting point for drawing up the pool is what the employee actually does, having regard to their day-to-day activities and the terms of their contract. However, the reality of the situation should be looked at, rather than what the contract says in theory about what the employee may be required to do. Having said that, an employer may also need to consider the issue of interchangeable skills.

Commercial problems with wide pool

Employers are often reluctant to draw up a wide pool; it makes the selection exercise more onerous because there are more employees to consult, and the impact on employee morale is consequently greater. Employers sometimes prefer to either draw up a narrow pool, or simply consult those provisionally selected for redundancy, effectively bypassing the pool stage. This practice will of course make them more vulnerable to claims of unfair dismissal, but it is a matter of commercial judgement whether the risks to morale and other costs of widening the pool outweigh the risk (and cost) of claims.

Selection criteria

As well as considering the reasonableness of the selection pool, the tribunal will consider whether the selection criteria used by the employer are reasonable.

Criteria should be objective

In order to be reasonable, the redundancy selection criteria should, as far as possible, be both objective and capable of independent verification. This means that the criteria should be measurable, rather than just being based on personal opinion.

Potentially fair selection criteria include:

• Performance and ability.
• Attendance records.
• Disciplinary records.

It is legitimate for an employer to attach weightings to the criteria, reflecting their relative importance, but it should be able to justify any such weightings. Employers also need to avoid any criteria which are discriminatory.

Where possible, the criteria should be measured by reference to HR records covering such things as performance and attendance. Where such records are patchy or do not exist, the employer will have to do its best to measure employees, but this will make it all the more important for there to be more than one manager involved in the process and for there to be evidence of the reasoning applied.

Selection on purely subjective grounds is likely to be unfair. This is to ensure that an employee is not selected by a manager due to personal animosity, or for an automatically unfair or discriminatory reason. Examples of criteria that have been rejected by tribunals as too vague, imprecise or subjective a basis for selection include:

• Employees “who, in the opinion of the manager concerned, would keep the company viable”.
• Employees who were “best suited for the needs of the business under the new operating conditions”.
• ”Costs savings” (a comparison with who cost most in terms of overheads but generated least revenue).
• ”Attitude”.

Employees should be consulted about scores

The employer should disclose individual scores to the employee, explaining how they were arrived at, and give the employee a chance to challenge his individual markings as part of individual consultation.

Where the employer is considering sharing the scores of other employees it is necessary to consider any data protection implications of doing so. If the other employees can be identified from the scores or break point (whether or not they are named) then the employer would need to consider whether the scores contain personal data or special category personal data (previously sensitive personal data). If so, the employer should consider its obligations under data protection legislation.

The duty to look for alternative employment

A dismissal is likely to be unfair if, at the time of dismissal, the employer gave no consideration to whether suitable alternative employment existed within its organisation.

Extent and duration of the search

The employer is not obliged to create alternative employment for redundant employees where none already exists. However, they should make sure that they undertake a sufficiently thorough search for alternative employment and that their search is documented (to show the steps that they have taken should it become necessary to produce evidence in defence of an unfair dismissal claim). Since the fairness of a redundancy dismissal is judged not only at the date on which notice of termination is given to an employee but also when an employee’s employment actually terminates, an employer should ensure that it continues to search for possible alternative employment until the date on which an employee’s dismissal takes effect.

Trial periods

If an employee accepts an offer of alternative employment, it might be subject to a statutory trial period. If the employer refuses to allow the trial period, any subsequent redundancy dismissal could be unfair and the same could be true if the employer, in breach of contract, refuses a contractual trial period entitlement.

Alternatives to compulsory redundancy

A dismissal is more likely to be considered fair if the employer has considered whether it is possible to avoid or reduce the need for dismissals. Indeed, this is one of the matters on which employers must consult employee representatives in a collective redundancy situation. Options that employers might consider to reduce cost without compulsory redundancies include:

• Reducing headcount – voluntary redundancy, recruitment freeze, withdrawing new job offers, deferring new joiners, reducing agency staff, redeployment or secondment of staff, early retirement.
• Temporary stoppages - sabbaticals, unpaid leave, holidays, lay-offs.
• Reducing hours - short-time working, part-time or flexible working, overtime bans.
• Reducing payroll costs - salary sacrifice, pay freezes, pay cuts, pension changes, withdrawal of bonus.

Voluntary redundancies

Before the consultation process begins, an employer should consider asking for volunteers for redundancy. There is no obligation on the employer to consider offering voluntary redundancies, but it is sensible to do so in order to minimise the effect on morale of compulsory redundancies. To keep control of the process (and to ensure that the employer does not lose key staff), the employer should make it clear that it will consider all requests for voluntary redundancy but that it reserves the right not to accept all applications for voluntary redundancy, particularly if there are more applications than the proposed number of redundancies or it considers that it is in the long-term interests of the business to retain certain employees. It should also state that it may still have to make compulsory redundancies if it does not receive a sufficient number of appropriate volunteers).

Early retirement and redundancy

Employers with an occupational pension scheme may consider offering an early retirement pension in situations where the employee would otherwise simply be made redundant. However, employers should be wary of adopting a compulsory early retirement policy, as this may:

• Amount to unfair selection, on the ground that older workers will be automatically selected for redundancy.
• Be unlawful age discrimination, because younger employees will be excluded (employees are likely to have to be at least aged 55 to receive a pension at present.
• Indirectly discriminate against women and part-timers, because such groups tend to have less pensionable service and early retirement will be more attractive to employees with longer pensionable service.
  

This is not legal advice; it is intended to provide information of general interest about current legal issues. You should seek specific legal advice before acting in reliance on any of the information provided.

If you need help with the redundancy process or preparation of settlement agreements, we will be happy to help you. Please call Senior Employment Solicitor, Emma Elmerhebi on 01484 821415 or send an e-mail to emmaelmerhebi@eatonsmith.co.uk.