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If an employee is dismissed because the work they are doing has ceased or diminished, or because their place of work is closing or being relocated, then the employee is dismissed by reason of redundancy.
This will clearly cover the situation where the job has disappeared through lack of work. The provisions of the Employment Rights Act 1996 (or Employment Rights (Northern Ireland) Order 1996), which sets out the definition of redundancy, must be carefully considered when determining whether employees are redundant, however, because some situations are not as clear, some of which we consider below.
If the same amount of work is still being done by employees, but there is less of a requirement to do the work due to lack of demand for a product, for instance, this will come within the scope of the provisions of the Act (or the Order). For example, initial over-staffing may mean that certain employees are superfluous and their workload can be absorbed by fellow employees.
With new technology, machines may replace employees. Reorganisation of work methods may produce a more efficient system requiring less manpower.
'Bumping' occurs when an employee ('employee A') loses his/her position in the business and is moved to another employee's job ('employee B'), thus displacing the less retainable employee and causing the dismissal of employee B. In these circumstances, the dismissal of employee B will be a redundancy and he or she will be entitled to a redundancy payment so long as they have worked for the employer for two continuous years.
Employers should consider 'bumping' an employee that they intend to make redundant as, depending on the circumstances, a failure to do so may result in an unfair dismissal.
If employees are dismissed because the nature of the work their employer is engaged in has changed so fundamentally that the particular kind of work those employees used to carry out has ceased or diminished, even though it has been replaced by different work, those dismissals will amount to redundancy. A mere relocation of duties or introduction of new methods will not amount to redundancy.
The accepted test to establish whether or not a redundancy situation exists on account of the scenario described above is a three-stage process:
1) Was the employee dismissed?
If so:
2) Had the requirements of the business for the carrying out of work of a particular kind ceased or diminished, or were they expected to cease or diminish?
3) Was the dismissal caused wholly or mainly by that state of affairs?
In determining whether there was a true redundancy situation due to a reduction in the nature of the work, the only question to be asked is whether there was a reduction or an end to the requirements for the employee to carry out work of a particular kind, or an expectation of such reduction or end in the future.
If an employer decides to outsource the work being done by a particular group or class of employees then despite the fact that this would technically give rise to a redundancy situation, since the employer will cease to carry on the particular type of work, TUPE regulations will mean that the affected employees will automatically transfer from the employer to the organisation that has been contracted to provide the outsourced services.
An employee has the right to object to the transfer and, by doing so, will have resigned from their job. In most cases, this will mean that the employee will not have a right to a redundancy payment or to claim unfair dismissal as they have not been dismissed. If the employee resigned because the transfer to the new job would have resulted in a substantial and detrimental change to their working conditions, they may have a claim for constructive/wrongful dismissal.
Note that if an employer dismisses an employee because of a TUPE transfer, or for a reason related to it, it will automatically be an unfair dismissal, unless the employer can show that the dismissal was for an economic, technical or organisational reason requiring changes in the workforce.
See the BIS guide on TUPE for further information.
If an employee is dismissed by reason of the closure of a business, there will be a dismissal by reason of redundancy. This will be the case, whether the closure of the business is permanent or temporary (although temporary closures can be more complex).
If a business closes down by virtue of the death or dissolution of the partnership, then, notwithstanding the fact that the employee's contract of employment may be frustrated, it will be treated as a dismissal by reason of redundancy.
However, if the employee continues in the employment, or if there is effectively only a change in the partners despite the partnership being dissolved, the employee will not be dismissed and there will be continuity of employment. If the employee is re-employed by an associate employer, this will be a re-engagement.
Where a business is sold as a going concern, this will technically give rise to a redundancy situation, as the employer will cease to carry on the business. However, under the Transfer of Undertakings Regulations 2006 (TUPE) employees are protected and should automatically transfer to the new business. For more information see the guide produced by the Department for Business, Innovation and skills (BIS). An employee who has transferred to a new employer will not be entitled to a redundancy payment.
In this situation the place of employment is either closing or being relocated. As simple as this may appear, difficulties do arise. One has to determine whether the place of business being closed or relocated is where an employee works or could be required to work according to the contract of employment. In order to establish what the position is, certain tests are applied:
Mobility clauses require employees to relocate as a result of business needs and cannot be ignored when considering the question of whether an employee is entitled to a redundancy payment.
A mobility clause can be used by you to require an employee to relocate as an alternative to proposing redundancies. This would give you the advantage of not having to comply with the legislation regarding redundancies including the duty to consult. However you should decide whether you want to rely on a mobility clause before making any announcement to the workforce about proposed redundancies as, once you have done this, you will be obliged to follow the legal rules and procedures relating to the conduct of redundancies.
If there is a mobility clause in the contract, but an employee refuses to obey a lawful request from the employer to move in accordance with the contractual term, then the dismissal may be due to the employee's misconduct as opposed to redundancy. In such circumstances, the employee would not be eligible to receive a redundancy payment.
Factors such as the following would need to be considered:
The facts of each particular case will decide whether or not an employee has been made redundant.
In many cases, there will be no dispute as to whether or not your employee is redundant, although sometimes claims are made on the grounds that there was no redundancy situation.
However, if you do not accept the claim and your employee refers the matter to the employment tribunal claiming that they are entitled to a redundancy payment, then the tribunal will be entitled to presume that the employee was dismissed due to being made redundant unless you are able to prove that the reason for the employee's dismissal was not redundancy but for some another reason, such as misconduct.
