The UK Employment Appeal Tribunal (EAT) offers guidance for employers when identifying the pool of employees from which redundancies are to be made.
One of the most difficult and contentious problems where an employer has to reduce numbers in the workforce is deciding on how to identify the pool of people from which those who are to be made redundant are selected.
In this case the employer had decided that the redundancy pool consisted of one employee only. The EAT took the opportunity to set out the following principles:
- It is not for the Tribunal to decide how it would have dealt with the matter; if the employer has acted within a “range of reasonable responses” to the situation, it will not interfere.
- The pool need not be confined to those who are doing the work, the need for which has decreased. The test is has the employer “genuinely applied his mind” as to how the pool should be defined?
- The Tribunal will, however, carefully scrutinise the employer’s reasoning to see whether this test has been met.
- If it has, then any challenge as to its fairness will be very difficult to maintain.
What does this mean in practice?
This is a helpful decision for employers. It shows that a tribunal will not treat a decision on the pool from which redundancies are to be made as unfair as long as the employer can clearly show it considered carefully in business terms which employees should be included. In this case, on the evidence, the employer had given no thought to it at all.
For an employer to be able to defend a decision, it would be helpful for documentary evidence to show:
- Exactly how the pool for selection for redundancy was made;
- What factors were taken into account; and
- The possible alternatives which were considered.
It does not end there however. When selecting those to be made redundant from the pool existing case law requires that the selection criteria should be reasonable and, as far as possible, be both objective and capable of independent verification. Any assessments involving criteria such as “performance” will need to be capable of being justified by reference to data – such as performance appraisal ratings – rather than subjective opinions. A recent case (HM Land Registry v Benson) has confirmed that cost of dismissals is a potentially fair criterion so that a decision to select those who would cost the business least in severance terms could be justified – this can be a particularly important consideration for those organisations that have enhanced contractual redundancy terms.
For further information or to discuss the issues raised, please contact David Widdowson on +44 (0)20 3051 5711.