UK: Employment Update - April 2012

Last Updated: 8 May 2012
Article by Michael Powner

April has again seen a number of employment law changes which we highlight below; the most significant is the change in the service requirement for unfair dismissal from one to two years. The aim behind this is that it will give more flexibility to employers and help to reduce tribunal claims, but given that claims in relation to discrimination, and most automatic unfair dismissal provisions dont require any qualifying period of service, it is debateable what, if any, real difference this will make.

We are still awaiting the report on tribunals that the outgoing President of the EAT is undertaking. We hope as a result of his review, to see more robust and effective case management powers, which should have a real impact on dealing with weaker claims more quickly and effectively.

Focus: Redundancy – 5 problematic Issues

Dealing with redundancies in an organisation can be a daunting prospect for all those involved. Employers have many issues to deal with: is there a duty to collectively consult? Who should be in the pool? What procedures should be adopted to ensure the process is fair? In this focus, we look at some difficult issues that have been highlighted in recent cases.

Contractual flexibility

In a situation where an office or other site is closing to relocate, it may be possible to use a mobility clause to move staff instead of undertaking a redundancy exercise.

The concept of redundancy is defined by statute and place of work redundancy falls within this. Where, however, there is a valid mobility clause within the employees' contracts, then redundancy may be avoided. For example in Home Office v Evans , when the Eurostar terminal at Waterloo closed, immigration staff were relocated under a mobility clause contained in their contracts. The individuals tried to claim redundancy payments, but the Court of Appeal found that their mobility clauses were effective and there was therefore no redundancy.

Employers wanting to rely on such a clause should obviously ensure that any contractual mobility clause is valid and must also elect to invoke the clause before any redundancy discussions begin, and act consistently throughout. Tribunals will not be sympathetic to an employer who seeks to defend a redundancy claim by invoking a mobility clause after the event.

Collective consultation – the trigger point

If an employer proposes to make 20 or more employees at one establishment redundant in a 90 day period or less, then it must collectively consult as set out by statute. One issue for employers in this situation is at what point does the obligation to consult bite - what is meant by proposing to dismiss? The case law on this point to date suggests that the obligation arises at an early stage of the process, to ensure it allows for effective consultation. If the business decision has already been made to, for example, close a site, then how can meaningful consultation take place?

The consultation should therefore begin at a point before any final business decision has been taken and proposals are still at a formative stage, but consultation cannot begin until it is clear to an employer that redundancies may be necessary.

This approach is currently being challenged before the ECJ. In Nolan v USA, a dispute arose over redundancies made at a US airbase in the UK. The US government is arguing that the obligation to collectively consult is not triggered until an operational decision to close a workplace is made, not at the point that the employer is considering a strategic decision. The Advocate General has given the opinion that the consultation should start whilst there is still the opportunity for it to be meaningful, so before a final decision is taken, but acknowledges that if it is started too early in the process then this would cause unnecessary disruption and uncertainty amongst the workforce.

Employers should clearly therefore start consultation before any final business decision is made, to ensure the consultation process is meaningful. It seems unlikely that Nolan will change this approach. So, if it is a site closure, consultation should start before that decision is finally made; and if it is a headcount reduction and reorganisation, before that decision is made. In practice simple steps should be taken such as minutes of board or management meetings clearly stating that the decisions are in principle and subject to consultation.

What is an establishment?

As set out above, the collective consultation obligations are triggered when an employer proposes to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less. A failure to comply with these obligations could result in protective awards being made of up to 90 days actual pay for each affected employee. The issue of what amounts to an "establishment is therefore key, as the collective consultation obligations may never be triggered if separate locations can be shown to be separate establishments.

The issue of what amounts to an "establishment is therefore key, as the collective consultation obligations may never be triggered if separate locations can be shown to be separate establishments.

The courts will look at organisational as well as geographical factors when considering what an "establishment is. So multi-site redundancies, with headquarters that are an administrative base for all the sites, may result in a finding that the sites are a single establishment.

In a recent case involving the Woolworth stores, a tribunal had to consider whether all of the stores together were a single establishment, or whether each individual store was an establishment. This obviously had important consequences for the 27,000 employees based across 814 stores. The tribunal found that each store was a distinct establishment as they had their own organisation and distinct purpose. As a result, those stores that employed fewer than 20 employees were excluded from the scope of the protective awards which had significant financial consequences.

Selection pools – can they be challenged?

A redundancy dismissal will only be fair if there is a genuine redundancy situation, a fair procedure is followed and the dismissal is within the range of reasonable responses open to a reasonable employer. Part of a fair process will involve identifying the pool of employees at risk of redundancy. An employer will usually want to keep the pool fairly narrow, but employees prefer wider pools as this lowers their chances of being selected, so, who decides?

There are no fixed rules about how a pool should be put together and a tribunal cannot substitute its own view of the appropriate pool, but it must decide whether the pool chosen was within the range of reasonable responses open to the employer. Provided the employer has genuinely applied its mind to the correct pool, it is difficult for an employee, or tribunal, to challenge this. The fact that a different pool may also be reasonable, does not make the employer's choice unfair.

However, a pool will be closely scrutinised if it is the same size as the number to be made redundant, but even a pool of one will not always be unfair. In the recent case of Halpin v Sandpiper Books , the EAT held that it was not unfair for an employer to adopt a selection pool of one where it was ceasing operations in China and only one employee was based there.

"Ah Joe ... I've been compiling a selection pool for redundancy and I'm very much afraid you're in the deep end"

What some employers may choose to do, in order to avoid pools and selection criteria, is to make redundancies as part of a broader restructuring, where all positions are put at risk of redundancy and existing employees have to apply for positions within the new structure. As can be seen below, this potentially offers an employer more flexibility. It does, though, increase the number of proposed redundancies which may trigger or increase the period of collective consultation.

Alternative employment

An important element of a fair process is considering suitable alternative employment, but when considering an employee for alternative employment, the employer does not have to approach the process in the same way as when selecting for redundancy. The selection criteria for redundancy must be objective, rather than subjective, so that they are clear and measurable.

However, when considering alternative employment, the employer does not have to limit itself to objective criteria and can appoint who it considers best for the job, even if this is based on a subjective view. This was demonstrated recently in Samsung Electronics (UK) Ltd v Monte – DCruz. As part of a re-organisation, Mr Monte-DCruz applied for a position that he felt was very similar to his old job which had disappeared in the reorganisation. He did not get the position and an external candidate was appointed. Mr Monte-DCruz was made redundant. He was scored for the alternative position against 10 competencies: creativity, challenge, speed, strategic focus, simplicity, self control/empowerment, customer focus, crisis awareness, continuous innovation and team work/ leadership. These clearly involved subjective elements and a tribunal found that the selection process should have been conducted differently.

On appeal, the EAT found that the tribunal had approached the process incorrectly. The process of selecting for redundancy and the process of selecting for alternative employment are separate and the tests are not the same. In terms of alternative employment, the employer has considerable flexibility over the process and who is appointed.

In a full reorganisation therefore an employer may prefer to put all employees at risk and invite them to apply for roles in the new structure. This avoids the need for pools and a selection process.

The process of selecting for redundancy and the process of selecting for alternative employment are separate and the tests are not the same.

Cases: Discrimination round-up

"Costs plusjustification still needed In Woodcock v Cumbria Primary Care Trust the Court of Appeal held that the notice of dismissal given to Mr Woodcock before his 49th birthday, without full consultation taking place, had not been served solely to avoid him becoming entitled to an enhanced pension (which would have cost at least another £500,000) which he would have been entitled to if he was employed at 50. The Court found that he was genuinely being made redundant, but the notice was served at that time to reduce the cost to the Trust of making him redundant.

The case relied on very particular facts including that Mr Woodcock knew of his potential redundancy for nearly a year before he was actually given notice, and the Trust tried to arrange consultation meetings which were rescheduled delaying the date further. It does not mean that as a general rule employers can terminate employment early in order to avoid expensive pensions costs.

Although the Court considered there was a degree of artificiality in approaching the question of justification on the basis that cost alone cannot be a legitimate aim, but is if linked to a non-cost factor, the position remains that employers need to justify on the basis of costs plus i.e. cost alone is not sufficient.

The position remains that employers need to justify on the basis of "costs plus i.e. cost alone is not sufficient.

Age discrimination and justification

In HM Land Registry v Benson and others the EAT found that selecting for redundancy those who could be made redundant at least cost was justified, even though this indirectly discriminated against employees who were aged 50 – 54 who were entitled to take early retirement on an unreduced pension and therefore cost more. This resulted in age discrimination claims being made by those not selected for redundancy.

HMLR had allocated a budget of £12 million for dealing with redundancies and early retirements, but when they asked for volunteers, too many came forward and had they accepted all the applicants they would have needed an additional £19.7 million. At this point they had to select and did so primarily on a cost basis, i.e. the greatest headcount reduction for the budgeted cost. They also had to ensure they retained the right mix of skills.

Unusually, the claimants in this case were a group of employees who had not been made redundant, and were therefore still in employment, but who fell in the most expensive early retirement age bracket. The EAT held that it was legitimate for HMLR to seek to make costs savings, and impose a budget. It was reasonable to reduce headcount by the greatest number for the budget available.

Stereotypical assumption that black employee was "playing the race card was discriminatory In Royal Bank of Scotland v Morris a manager assumed that a black employee with a grievance against his manager must be alleging race discrimination and "playing the race card when in fact the employee had raised no such issue and found the suggestion demeaning. The EAT held that the managers remark which betrayed an "almost certainly unconscious racial stereotype of a rather subtle kind was direct race discrimination. If the employee had been white and the manager black the same stereotypical assumption would not have been made.

Employers should ensure that assumptions and stereotypes are dealt with as part of equal opportunities training and addressed as part of any training in dealing with grievances.

News

From April 2012 a number of changes came into effect including the following:

  • The unfair dismissal qualifying period increased to 2 years for those who started employment on or after 6 April.
  • The maximum deposit order increased from £500 to £1000 and the maximum amount of costs an employment tribunal can award increased from £10,000 to £20,000. These changes relate to cases presented on or after 6 April, and should help deter and weed out weaker cases.
  • SMP has increased to £135.45 a week, SSP to £85.85 a week and the weekly earnings threshold has risen to £107.
  • Any apprenticeship agreement entered into under the Apprenticeships, Skills, Children and Learning Act 2009 must be in the "prescribed form. This means that from 6 April it must contain the basic terms of employment required to be given to employees under s1 of the Employment Rights Act 1996, plus a statement as to the skill or trade for which the apprentice is to be trained.
  • Contracting out of the second state pension on a money purchase basis was abolished from 6 April.
  • BIS has issued a call for evidence on dealing with dismissals. Views are sought on whether the ACAS code could be made simpler. The Australian Small Business Fair Dismissal Code is suggested as an alternative that might be successfully applied in the UK. It is also calling for evidence on the proposal for compensated no-fault dismissals for micro-businesses (i.e. those with fewer than 10 staff).
  • NMW rates from October 2012 are: Adult rate will increase from £6.08 to £6.19, development rate (workers aged 18 – 20) will stay at £4.98 and young workers rate will remain at £3.68. Rate for apprentices will increase to £2.65 (from £2.60).
  • HMRC has published guidance on two aspects of dual contract arrangements. These are its view of when duties in the UK are merely incidental to duties outside the UK and the documents HMRC expects employees and employers to make available in response to an HMRC dual contract enquiry. For the guidance please click here.

KEY POINTS TO TAKE AWAY

  • Collective consultation should begin before any final business decision has been made.
  • It is not possible to justify discrimination on cost alone.
  • Stereotypical assumptions should be addressed as part of equal opportunities training.
  • Unfair dismissal qualifying period has increased to 2 years for those who started employment on or after 6 April 2012.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Michael Powner
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