Redundant Employees were Unfairly Dismissed

In the EAT case of Contract Bottling Ltd v Cave (1) and McNaughton (2) it was held that the reason for the Appellants’ dismissals was, indeed, redundancy even though the jobs they had both performed continued to exist after their dismissals. How so?

The key statutory provision is section 139(1) of the ERA 1996, which defines redundancy in the following way:

“For the purposes of this Act an employee who is dismissed should be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to—

(a) the fact that his employer has ceased or intends to cease—

(i) to carry on the business for the purposes of which the employee was employed by him, or

(ii) to carry on that business in the place where the employee was employed, or

(b) the fact that the requirements of that business—

(i) for employees to carry out work of a particular kind, or

(ii) 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.”

In this case the employer’s case was that it had a reduced requirement for employees to carry out work of a particular kind. However, strangely, although the cuts were only needed amongst administration and accounts staff, it decided to put ALL its staff in the pool and apply a generic selection matrix in order to determine who would be dismissed. What this meant was that people were retained in administration and accounts and others from other departments where such a reduction in headcount was not required, were dismissed. The Employment Tribunal mistakenly held that, because the individuals who were dismissed were not from the departments where the reduction in headcount was needed, their dismissals could not have been by reason of redundancy. However, the EAT overturned this decision on the basis that it was perfectly clear that there was a reduced requirement in the company for employees to carry out work of a particular kind. It was irrelevant, for the purpose of the definition, whether the pool from which the staff were selected went beyond the areas where reduction in headcount was needed. What the pool for selection does is help determine whether or not the decision to dismiss for redundancy was fair.

As a result, the EAT upheld the company’s appeal against the Tribunal’s finding that the reason for the dismissals was not redundancy. However, it agreed with Tribunal’s finding that the dismissals were, nevertheless, unfair. It then remitted the case back to the original Tribunal for it to assess whether the compensation awarded to Cave and McNaughton should be subject to a Polkey reduction on the basis that they would likely have been dismissed anyway even if a fair procedure had been followed.

Interestingly, the original tribunal’s finding of unfair dismissal was not centred around the somewhat unusual (to put it mildly) pool for selection, but was instead highly critical of the process for selection from that pool. This case is therefore also useful as an illustration of how difficult it is for an employment tribunal to criticise the pool from which employees are selected for redundancy provided the employer can (a) show it has given real consideration to the pool and (b) provide evidence to establish that it was not outside the range of reasonable responses to select from such a pool.

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Discovering Gross Misconduct after Redundancy Dismissal

The recent Court of Appeal case of Cavenagh v William Evans Limited raises a very interesting issue for employers when considering what provisions to make for termination without notice in their contracts of employment.

The usual situation is for contracts of employment to stipulate that employment can be terminated with a specific period of notice or, in cases of gross misconduct, without any notice at all.   Sometimes contracts of employment provide that employment can be terminated without notice provided that a payment in lieu of notice is made instead.  However, I have never come across a contract of employment which deals with what happens to a payment in lieu of notice if, subsequent to the dismissal, the employer discovers that the former employee had committed an act of gross misconduct which would have entitled the employer to dismiss summarily.  Reading this case, however, I may advise my clients to consider this situation when drawing up their contracts and to make specific contractual provision for payments in lieu of notice not to be payable if subsequent gross misconduct is discovered. 

Mr Cavenagh’s employers made him redundant and, as per its entitlement to do so under his contract of employment, paid him in lieu of 6 months’ notice rather than requiring him to work his notice.    However, after Mr Cavenagh’s employment was terminated, but before the payment in lieu was made to him, the employer discovered that he had committed an act of gross misconduct which would have entitled the company lawfully to dismiss him without notice, or pay in lieu of notice (or indeed, without any entitlement to a redundancy payment).  The company therefore withheld the notice pay.   Mr Cavenagh sued.

The Court of Appeal held that, as Mr Cavenagh’s contract had been terminated by reason of redundancy and not by reason of gross misconduct, and because the contractual provision to exercise the right to make a payment in lieu of notice had been exercised and not the right to dismiss summarily for gross misconduct, Mr Cavenagh had acquired an accrued right to the payment and the company was therefore not entitled to withhold it.  Specific mention was made of the fact that there was no provision in the service agreement denying him the right to the payment in lieu if the company subsequently discovered that he had committed a prior act of gross misconduct.   Something that the company (like most companies) had probably not even contemplated when drawing up the contract of employment but which it will probably ensure is dealt with in subsequent contracts.

This contrasts with the position where a former employee sues for unfair dismissal and the employer is able to show that conduct discovered post-dismissal amounted to gross misconduct.  In that situation, even if the dismissal at the time was unfair, any award can be reduced to zero because the conduct subsequently discovered mitigates any entitlement to compensation.

Defending the Right to Claim Unfair Dismissal

The latest attempt to appease businesses is a proposal that the current law, which gives employees who have been unfairly dismissed the right to claim compensation of up to almost £70,000, should be scrapped.  Instead, it is proposed that employers who wish to get rid of underperforming or lazy workers should simply be able to do so by making a small one off payment equivalent to a redundancy payment.  However, without the protection of the employment tribunals to bring unfair dismissal claims, employers will simply be able to dismiss whoever they want, whenever they want, for a relatively small amount of money and without having to follow any sort of fair process.  Arguably, that would also apply in redundancy situations as there would be no longer any such thing as an unfair selection for redundancy and it may well be that consultations and fair selection criteria go out of the window – although employees will still have the protection from discrimination afforded by the Equality Act 2010.  

The idea has been mooted as a way to appease business owners who spend on average £8500 each time they have to defend an employment tribunal claim for unfair dismissal.  However, what the Government appears to be ignoring is the fact that the majority of the claims which are brought before the tribunals are not spurious and without merit but are brought because the employer has failed to properly manage the employee by way of regular performance appraisals and warnings.   Whilst the employee may, indeed, not be performing to the required standard, he or she frequently has no idea of that fact until dismissal as managers are notoriously bad at managing.

As an employment lawyer who acts for both employers and employees, I see the situation very clearly from both sides.   I hear from disgruntled employers and shell shocked employees all the time and both sides believe wholeheartedly that they are right.  However, I can count on the fingers of one hand the number of employees who I have genuinely felt have been “trying it on”.   Similarly, I have very rarely spoken to an employer who wishes to dismiss who doesn’t have real cause for concern about the employee in question. 

I often get calls from employers who want to dismiss an employee and want to know how best to go about it without performance management which takes time and is often fruitless.   I advise them to try and negotiate an exit on mutually agreed terms.  Such a negotiated exit strategy has never, in my experience, failed and therefore there is already a route for employers to dismiss “unfairly” if they want to, and that is by way of a compromise agreement.  In return for an amount of compensation which is agreed with the employee, the employee agrees to leave and to waive his or her rights to pursue any claims against the employer.  Therefore, in my view, there is absolutely no need to change the law.  Employers who want to avoid any risk of litigation already have this option.   It is not, however, for the Government to determine what  a fair amount of compensation is in such circumstances.  The amount will clearly differ depending upon the particular circumstances and, in particular, on the salary level of the employee concerned.

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