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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Shares for Rights

This Government seems intent on tinkering with (for ‘tinkering’ read ‘annihilating’) employment rights.  The latest idea, which is intended to be law by April 2013, is for newly hired employees to be able to trade their workplace rights, including some maternity rights, for shares.  Provided such employees accept that they may be fired at will without redundancy pay, they may be awarded shares in the company with a value of up to £50,000.  Any increase in the value of such shares would be tax free.

Clearly, flesh needs to be put on the bones of this proposal but the main issues with this which spring to mind are as follows:

1.  Not all employers are limited companies.  Surely, if the idea is to encourage business growth without the fear of litigation, the “one man bands” and business partnerships are in as much need of such encouragement as limited companies.

2.  Will the employer be obliged to purchase the shares on termination of employment and, if so, at what value?  Employees are certainly unlikely to be able to sell the shares on the open market.  Furthermore, £50,000 is significantly less than the current cap on compensation for unfair dismissal and takes no account of the uncapped level of compensation which can be awarded for other types of claim.

3.  Making employees shareholders of their employers is no bad thing as it may well improve employer/employee relations.  Should this not be something which can be implemented without eroding employment rights further?  Already employees need to be employed for two years before they can claim unfair dismissal.  Why should they be prevented from claiming it at all?  

4.  What about discrimination claims?  Does the Government intend that the issues of shares will mean employees cannot claim discrimination either?  If so, it doesn’t seem like a very good deal for employees and effectively gives employers the green light to act with impunity.

5.  Will employees be forced to take shares in return for reneging their rights?  Even if not forced by legislation, will employers be able to make the taking of shares a condition of an offer of employment?

So many questions and so few answers which, giving the proposed timing of this new legislation, is a little concerning.  

Reduction in Headcount not Needed for a Redundancy

“An employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to – […]

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

(i) for employees to carry out work of a particular kind […]

have ceased or diminished or are expected to cease or diminish.

It was held in the recent EAT case of Packman t/a Packman Lucas Associates v Fauchon that for a redundancy situation to arise there does not necessarily need to be a reduction in headcount.  The focus must be on the employer’s requirements for employees generally to carry out work of a particular kind as opposed to the requirement for a particular employee to carry out work of a particular kind.  What this means is that the focus must be on the requirements of the business, not the particular contractual obligations of the employee although clearly these will be linked.

The particular facts of this case are as follows:

Ms Fauchon was a book-keeper for Packman.  However, there was a downturn in the business and, at the same time, Packman introduced an accountancy software package.  As a result Packman had a erduced need for book-keeping and therefore asked Ms Fauchon to reduce her hours.  She refused to work reduced hours and was therefore dismissed.  She brought tribunal proceedings against Packman and it was held that she had been dismissed by reason of redundancy and as such was entitled to a statutory redundancy payment.  Packman appealed but the appeal was dismissed.

The EAT held that whilst there may be redundancy situations in which an employer needs fewer employees to do the same amount of work, redundancy situations also arise where the amount of work available for the same number of employees is reduced (as in this case).  However, if there is just as much work for just as many employees, then a dismissal arising out of the situation would not be a redundancy.  It is not sufficient for an employer to simply say that it wants the same amount of work to be done by the same number of employees but over shorter hours.

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.

Blowing the Whistle

Except for dismissals which are deemed to be “automatically unfair”, employees must have  at least 12 months’ continuous employment in order to qualify for unfair dismissal protection.   One such automatically unfair reason for dismissal is because someone has made a “protected disclosure” otherwise known as “whistleblowing”, and this applies to constructive as well as actual dismissal.

For this reason, some canny employees who realise that they are at risk of being fired for poor performance (or some other reason) during the first year of employment, make allegations of wrongdoing to their employers and then when they are subsequently dismissed they try and invoke the whistleblowing protection.  This is naturally something which is of concern to employers, particularly as there is no cap on the level of compensation which can be awarded to someone who has been dismissed for making a protected disclosure.

However, employees who wish to use this ploy* should beware as the protection is only afforded if (a) the disclosure was made in good faith and (b) if the disclosure was the reason (or main reason) for the dismissal.  Furthermore, once the employer has established that the employee has not been employed for a sufficient period to claim ordinary unfair dimissal then the burden of proof is on the employee to show that the reason for the dismissal was because he made a protected disclosure and not some other reason.

The following disclosures are qualifying disclosures:

1.  that a criminal offence has been committed, is being committed or is likely to be committed;

2.  that a person has failed, is failing or is likely to fail to comply with any legal obligation to which he is subject

3.  that a miscarriage of justice has occurred, is occurring or is likely to occur;

4.  that the health or safety of any individual has been, is being or is likely to be endangered;

5.  that the environment has been, is being or is likely to be damaged; or

6.  that information tending to show any matter falling within any one of the preceding paragraphs has been, or is likely to be deliberately concealed.

However, if the employer can establish that the employee did not make the disclosure in good faith then the employee’s claim will fail.   So what does it mean to make a disclosure in good faith?  The point is illustrated clearly in the case of Street v Derbyshire Unemployed Workers’ Centre [2004].

In this case the Claimant was employed as an adminstrator for Derbyshire.  In May 2000 she wrote to the treasurer of the borough council making various allegations against a colleague, a Mr Hampton.  The matters she raised were eventually investigated and Mr Hampton was exonerated of any wrongdoing.  The employers then commenced disciplinary proceedings against Mrs Street which resulted in her being dismissed for gross misconduct and breach of trust.  Mrs Street claimed that she had been dismissed for making protected disclosures and that her dismissal, therefore, was automatically unfair.

This case went all the way to the Court of Appeal and it was held that Mrs Street’s claim must fail because even though Mrs Street reasonably believed in the substantial truth of her allegations; even though she had not made the disclosures for personal gain and even though it had been reasonable for her to make the disclosures, the Court of Appeal (and the earlier tribunals) found that her disclosure had been motivated by her personal antagonism towards Mr Hampton and that this meant that it was not made in good faith. 

*This article is assuming that the employee is reporting the wrongdoing to his employer.  Other hurdles may need to be overcome if the employee makes the disclosure to another prescribed person.

In times of recession, is it ok to “embellish” or “edit” your C.V.?

It can be very tempting for job applicants in difficult times to think about embellishing or “airbrushing” their c.v.s to make themselves stand out in a growing pool of job seekers.  However not everyone who lies on his or her c.v. will be as lucky as Apprentice winner Lee McQueen who won the show despite claiming he had spent two years at Thames University when, in fact, he had been there for only four months.  Possibly the reason he succeeded despite his economy with the truth was that he was not, in the end, chosen for the job on the basis of his qualifications.

Others have not been so lucky.  Alison Ryan lost her £125,000 a year job as a communications manager at Manchester United once it was discovered that she had not, as she had claimed, received a 1st class degree from Cambridge but had received a second class degree and had been struck off as a solicitor.   Ronald Zarella, the Chairman and Chief Executive of Bausch and Lomb, was not quite as unlucky but nevertheless found himself significantly worse off financially when it was discovered that he too had lied on his c.v.  He he had achieved his position by falsely claiming that he had received and MBA from the Stern School of Business at New York University.  When his lie was discovered he offered to resign following an “error of judgement” but luckily for him the Board backed him to continue.  He did, however, forfeit a bonus of more than £500,000.

If you are an employer who has discovered that an employee has put false information on his or her c.v. what recourse do you have?    False information on a c.v. is clearly a misrepresentation of the facts, however from a legal standpoint there are two types of misrepresentation:  negligent and fraudulent and the latter is arguably a lot more serious than the former – although that is not necessarily the case.  Take the following two examples:

John Smith is trying to get a job on a very popular graduate management training scheme with a well known company.  John knows that there will be a huge number of applicants and that the competition will be fierce.  He has a 2:1 degree in business studies from a new university but his A levels were pretty poor.  He therefore decides to embellish them changing his grades from CDD to ABB to increase his chances of being called to an interview.  John is shortlisted for interview and is ultimately offered the job.  Just after he has completed a year’s employment with the company, his manager discovers the truth about his grades.   The decision to enhance his grades was deliberate and fraudulent rather than negligent but the lie is probably not serious enough to warrant his dismissal unless the employer can show that the deception was so great as to completely break the duty of trust and confidence.   He got the degree he said he got from the university he said he went to.  He was therefore a graduate and was eligible for a graduate management training scheme. 

Contrast this with the following real case of Anthony v Governing Body of Hillcrest School:

Mr Anthony applied for a job as a history teacher and his c.v. stated that he had an MSc in European Studies.  He had attended the course but had not completed the 10,000 word dissertation.  His undergraduate degree had not been in history nor had it had any element of history in it.  In fact, the only relevant post-school studies Mr Anthony had ever undertaken which contained an element of history were the studies undertaken for the MSc he never completed.  Mr Anthony claimed that he had made an innocent mistake in failing to make it clear on his c.v. that he had not actually completed his MSc and the deception only came to light 2 years later.  However, had it not been for the fact that Mr Anthony had claimed that he had the MSc, he would not have been offered an interview, let alone the job and therefore his dismisssal was found to have been fair in all the circumstances.

His is a cautionary tale for candidates, but employers would also be advised to ensure that they make all such checks as may be necessary to ensure the veracity of the applications that are submitted.

 

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