Companies experiencing a downturn in business are increasingly looking for alternatives to redundancies.
Recruitment freezes, unpaid sabbaticals and secondments have all been used to avoid making job cuts. In addition, employers often ask employees to reduce their hours of work and take a commensurate drop in salary. Two recent Employment Appeal Tribunal (EAT) decisions have, however, created some confusion as to whether or not a dismissal arising from a reduction in hours, rather than a reduction in headcount, will be on the ground of redundancy. Holly Murphy looks into the cases.
Headcount reduction not necessary for redundancy
In Packman (t/a Packman Lucas Associates) v Fauchon, Ms Fauchon was employed to provide book-keeping services. As a result of a general downturn in business and the introduction of new accountancy software, the employer needed fewer hours of book-keeping services. Ms Fauchon was therefore asked to reduce her weekly hours. She refused and was dismissed as the business no longer needed her to work her contractual hours.
The key issue before the EAT was whether or not there needed to be an actual or anticipated reduction in the number of employees for the dismissal to be on the ground of redundancy.
The EAT decided that if the amount of work available for the same number of employees is reduced, then a dismissal arising out of the downturn in work will be on the ground of redundancy. This is despite the fact that there is no reduction in the number of employees needed. The judgment specifically notes that the decision is consistent with the HR practice of considering the issue of hours and number of employees by adopting a full-time equivalent (FTE) approach: even though the number of employees actually working might stay the same, the FTE workforce is reduced and therefore there is a "real" reduction in headcount.
Headcount reduction required for redundancy
The case of Welch v The Taxi Owners Association (Grangemouth) Ltd was heard by the EAT one month after Packman. Ms Welch was one of two nightshift radio control operators for a taxi company. An increase in competition led to a downturn in her employer's business of at least 50% during the nightshift. It therefore sought to reduce her hours, but she rejected the proposal and indicated that she would be prepared to accept "voluntary redundancy". Her employer did not dismiss her and she resigned, bringing a claim for constructive unfair dismissal.
Ms Welch's claim was poorly pleaded and presented to the tribunal. The EAT dismissed the issue of whether or not there was a redundancy situation as "irrelevant", but suggested nevertheless that there would be no redundancy unless fewer employees were required to carry out work of a particular kind.
What do these conflicting EAT cases mean for employers who want to reduce their employees' hours? The good news is that permission to appeal has been sought in Packman so the confusion arising from these decisions may be resolved in due course by the Court of Appeal.
In the meantime, employers should be wary of relying on Welch, which suggests that there will be no redundancy situation unless there is a headcount reduction. This point was not central to the EAT's decision and there were issues with the way in which the claim was pleaded. A more certain approach to reducing employees' hours is to consult with them regarding the proposed reduction and ask those who accept the proposal to agree to the changes in writing. If some employees refuse, the employer should ascertain their interest in taking voluntary redundancy. If there are not enough volunteers and the employer decides that dismissals are necessary, it should commence its usual redundancy process, including collective consultation where required.
Holly Murphy is an employment and benefits associate at King & Spalding