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.


Protected Conversations – Will they Help?

The Enterprise and Regulatory Reform Bill is being scrutinised by Parliamentary committee all this week.  Under proposed legislative reforms the Government has said that employers will be able to have “protected conversations” with their employees to try and negotiate exit terms before dismissing them and those conversations will not be able to be relied upon by the employee in any subsequent unfair dismissal claim. 

In reality, such conversations already frequently take place and the issue of whether or not they can be relied upon in subsequent tribunal hearings is often a moot point on the basis that the conversations almost always result in a settlement governed by a compromise agreement – in future to be called a “settlement agreement”.  Therefore, as with many of the proposed changes put forward by the Government with a view to appeasing business, I cannot see how, in any practical way, things will change. 

Indeed, it is already the case that such conversations can be protected under the ordinary “without prejudice” rule.  If the parties are already in dispute, even if the dismissal has not yet taken place, then the employer can enter into such negotiations on a “without prejudice” basis, knowing that such negotiations cannot then be relied upon in any future court or tribunal proceedings. 

However, the Government wishes to add a new section 111A to the Employment Rights Act 1996:

 111A Confidentiality of negotiations before termination of employment

(1) In determining any matter arising on a complaint under section 111 [an unfair dismissal claim], an employment tribunal may not take account of any offer made or discussions held, before the termination of the employment in question, with a view to it being terminated on terms agreed between the employer and the employee.

This is subject to the following provisions of this section.

(2) Subsection (1) does not apply where, according to the complainant’s case, the circumstances are such that a provision (whenever made) contained in, or made under, this or any other Act requires the complainant to be regarded for the purposes of this Part as unfairly dismissed.

(3) In relation to anything said or done which in the tribunal’s opinion was improper, or was connected with improper behaviour, subsection (1) applies only to the extent that the tribunal considers just.

(4) The reference in subsection (1) to a matter arising on a complaint under section 111 includes any question as to costs, except in relation to an offer made on the basis that the right to refer to it on any such question is reserved.

(5) Subsection (1) does not prevent the tribunal from taking account of a determination made in any other proceedings between the employer and the employee in which account was taken of an offer or discussions of the kind mentioned in that subsection.”

What this means in simple terms is that the conversations will only be protected in claims of ordinary unfair dismissal.  The conversations will not be protected in claims of:

  •  automatically unfair dismissal (such as for whistle-blowing etc)
  • discrimination
  • breach of contract
  • where the conduct of the employer has been “improper”

 It’s going to be interesting to see what happens in reality as any legally represented Claimant who wants to rely on a pre-dismissal conversation (which is not protected by the “without prejudice” rule) will no doubt advance multiple claims, with the unfair dismissal being but one of them.  Indeed, even a simple constructive dismissal is frequently both wrongful (i.e. a dismissal in breach of contract) and an unfair.  In that case, will the employee be able to rely on any pre-dismissal conversations?  Quite possibly.

 I am also looking forward to hearing the arguments about what amounts to “improper conduct” in such circumstances.  No doubt employees will try and advance that argument in every case. 

My feelings about these proposed changes are that they will unnecessarily complicate even simple tribunal claims, resulting in even more unnecessary time spent by lawyers arguing over technical points.  The Government wants to free up tribunals and promote early settlement, but I can see this going only one way – increasing the length and cost of proceedings.  Employers and employees who want to reach early settlement of disputes are already well able to do so and therefore these changes will, in my view, affect only those who would have ended up in tribunal anyway and will affect them negatively.

When is the Last Day of Employment not the Last Day of Employment?

The recent case of Horwood v Lincoln County Council is a salutary lesson to employees and their representatives and, perhaps, gives employers a crafty (if somewhat underhand) way of avoiding being sued. This case involved a long-standing employee of the Council who resigned by way of a letter dated 27th January 2010. The letter was posted on 28th January and was date stamped as having been received by the Council on 29th January. In her letter, the Claimant stated clearly that she was resigning in response to the Council’s fundamental breach of contract. As such, she stated, she did not need to serve notice and therefore her employment would be terminating immediately. She also told the Council that she would, in due course, be issuing proceedings for unfair constructive dismissal. The Council responded to the Claimant confirming that it accepted her resignation and stating that it would be treating the 2nd February as being the last day of her employment. It paid her up to that date.

In evidence given to the Employment Tribunal, the Council stated that it chose 2nd February purely for administrative purposes and both the Council and the Claimant confirmed that the date of termination had not been discussed by them prior to that letter having been sent.

The Claimant’s representative posted an ET1 on the Claimant’s behalf on 28th April 2010 and it was received by the Employment Tribunal the following day. The Respondent argued that the Claimant’s claim had been submitted out of time, the time limit for submission of unfair dismissal claims being 3 months from the Effective Date of Termination of employment (EDT), and that as such the Tribunal did not have jurisdiction to hear her claim. The last date for submission of the Claimant’s claim, it stated, was 28th April (i.e. three months from the date the Claimant’s resignation letter had been received by the Council) and not 1st May, as the Claimant’s representative was asserting. The Employment Tribunal agreed.

In his judgment, the Employment Judge addressed the issue of the EDT. He referred to the provisions of section 97(1) and section 111 of the Employment Rights Act 1996 and he identified the issues as being (a) When was the effective date of termination? and (b) Was it varied by agreement and, if so, what was the new date? He found that the EDT was the date that the Council receive the resignation letter, i.e. 29th January as the EDT operates as a matter of law and he found also that the letter purporting to vary the date was sent by the Council of its own volition and that there had been no agreed variation to that date between the parties. As such, he held, the EDT could only be the date that the Claimant’s unequivocal letter of resignation had been received. He went on to say that he could not allow an extension of time to serve the ET1 as it was plain that there was no extenuating circumstance which prevented the Claimant from being able to issue in time.

The lesson to be learned from this by Claimants and their representatives is obvious – be very clear of the EDT and ensure that any claim is issued well in advance of the time limit – preferably by e-mail or fax. However, a canny employer could use ambiguity in relation to the EDT to his advantage. Say, for example, an employee was to resign in similar circumstances to Mrs Horwood. A devious employer could do exactly as the Council did in this case and respond saying that it would be treating the termination date as being some time later, paying the employee up to that new date. It could then instigate settlement negotiations with the former employee, stating that it would like to resolve any potential claims amicably and without the need for proceedings to be issued. There would, of course, be no obligation on the employer to actually reach a settlement but it could continue to negotiate in the hope that the former employee would hold off issuing a claim whilst those negotiations were ongoing. Clearly, at some point, the employee would need to issue a protective claim to ensure he or she was in time to do so should the negotiations break down. However, hopefully, the decoy of the “new EDT” would mean the employee ended up issuing too late and having his or her claim struck out. This is clearly a devious ploy, is not guaranteed to work and is morally questionable. However, they say all is fair in love and war (and litigation) and who am I to argue?

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