Legal Issues Associated with Redundancy - Report Example

Legal Issues Associated with Redundancy Abstract In a world that is becoming increasingly accustomed to rapid changes in the business environment, there is a need to relatively quickly cease unproductive economic activities and to start new ones that are more promising. Redundancy refers to a situation in which a business is faced with having to close down unproductive activities, resulting in the employees associated with such activities being forced to somehow fit themselves into new opportunities. The employment law in the United Kingdom attempts to be fair to both the employer and the employees in such situations, with employees being offered some support while they readjust heir lives and employers are free to explore new economic opportunities. The legal system requires honesty and fairness in the treatment of employees, without proving to be an excessive burden on the employers. This essay attempts to explore the redundancy laws of the United Kingdom through a case study involving the closure of the Aldershot premises of Hydrotec, which also has a business premises in Wokingham. About 80 workers are affected, although some employees are offered a chance to continue working for Hydrotec at Wokingham. Hydrotec’s decisions in regard to three employees are examined in the light of the existing employment laws and the legal situation arising out of the closure of the Aldershot premises is analysed. A broad comparison is then attempted between the employment and redundancy laws of the United Kingdom with those of Portugal. Contents Introduction 3 The Legal Issues Arising out of Hydrotec’s Actions and the Correct Redundancy Procedures under United Kingdom Law 4 A Comparison of the Legal and Procedural Approaches for United Kingdom and Portugal 10 Conclusion 12 References / Bibliography 14 Introduction The contract of employment is central to the relationship between an employer and an employee in which an employee provides their labour for a reward. However, in many cases, the practical application of labour law requires consideration of the so called employment protection laws related to redundancy and unfair dismissal. Strikes and industrial action as well as sex and race discrimination are also an important part of the laws of employment, but in many situations, there are disputes between employers and employees which involve determining if there has been a dismissal, whether the dismissal was fair or if the dismissal occurred as a result of redundancy. It is, therefore, important to be in a position to recognise the legal situation related to employment under changing business conditions involving downsizing, closure of business activities or merger of companies etc. For employees who have been working with an employer for years, redundancy can be a sad end to an employment relationship as businesses are forced to discontinue or diminish certain activities in response to changing business conditions. Termination of employment generally occurs as a result of dismissal, an employee resigning or the employee being made redundant. Fair dismissal occurs when an employee is unable or unwilling to provide the appropriate quality of work which is required to be provided for the compensation that they receive, there is a problem with their conduct, there is a statutory ban on their employment or there are other substantial reasons for their dismissal. Constructive dismissal or the resignation of an employee also terminates the contract of employment, although the conduct of an employer may be such that an employee may have been forced to resign, in which case there is an unfair constructive dismissal. An unfair redundancy is likely when an employer discriminates unfairly in selecting employees for redundancy (Lockton, 2000) and (Todd, 1997). In the United Kingdom, the Employment Rights Act 1996, the Employment Act 2002 and various legislative provisions outlawing discrimination on the grounds of sex, race, disability, sexual orientation, religion and, from 2006, age are the key employment law statuettes which have to be considered in regard to the employment of workers. Employment law cases usually start when aggrieved employees initiate a complaint procedure with an Employment Appeals Tribunal or EAT, after having exhausted all internal disciplinary and appeals procedures that are available with their employer. These Employment Tribunals will hear cases in which an aggrieved party has been deprived of their rights, including cases of unfair dismissal. However, an employee has to be dismissed for a case of unfair dismissal to be heard (Brown, 2000). This essay takes a look at the situation arising out of the downsizing of the activities of Hydrotec Electrical Limited, an employer with about 200 employees at its Aldershot and Wokingham premises. Directors of the company have determined that it is appropriate to close the Aldershot premises, affecting 80 workers and the workforce at the Wokingham premises is to be reduced. All employees who are to be made redundant are to receive the appropriate redundancy packages. However, some employees from the Aldershot premises are required to be relocated to Wokingham. The next section discusses the legal issues involved under the United Kingdom law and the correct redundancy procedures which should have been followed by Hydrotec. A comparison is then made between the legal and procedural requirements for the United Kingdom and Portugal. The Legal Issues Arising out of Hydrotec’s Actions and the Correct Redundancy Procedures under United Kingdom Law Redundancy has been defined in the Employment Relations Act, or ERA 1996 section 139. An employee who has been performing “work of a particular kind” may find that this work is considerably diminished or no longer available. The employer may decide to offer alternative work, but this may not be suited to the employee or they may not be qualified to perform the new duties. Hence, a particular employee may become incompetent in a new job that has been offered by the employer. Relevant cases supporting this line of reasoning are North Riding Garages v. Butterwick [1967] 2 QB 56, Safeway Stores plc v Burrell Employment Appeal Tribunal [1997] IRLR 200 and Hindle v. Percival Boats [1969] 1 WLR 174. A redundancy dismissal is different from other forms of fair dismissal because an employee who has been made redundant is required to be paid a lump sum for the work performed by them, depending on their length of service and their age in addition to their week’s pay of a maximum of £ 210. Redundancy also means that the employee will no longer be working with the same employer. A reduction in the number of hours worked may reduce an employee’s pay but this will not bring about a redundancy situation (see Johnson v. Notts Police Authority [1974] ICR 170, CA and Lesney Products v. Nolan [1977] IRLR). The employer may offer suitable alternative employment which may have been unreasonably rejected by the employee and this can also be a defence against redundancy. A trial period may be required for a suitable new job which has been offered by an employer who has made an employee redundant. However, the employer is required to consider the domestic situation of an employee prior to asking them to relocate to a new geographic location, even if there is a clause in the contract of employment which requires the employee to relocate for work (see Bass Leisure v. Thomas [1994] I.R.L.R. 104 (EAT) and High Table v Horst, COURT OF APPEAL (CIVIL DIVISION) [1997] IRLR 513). There is an onus on the employers not to exercise any clauses related to geographic mobility which may exist in the contract of employment in bad faith. For situations in which there is collective redundancy involving the dismissal of more then twenty employees at an establishment within a ninety day period, there is a requirement for the employers to consult with “appropriate representatives” of employees. “Appropriate representatives” means that if there is a trade union, then the office holders of the trade union who have been designated to negotiate with employers or, in the absence of a trade union, other employee representatives who may have been selected to represent the group of workers who are to be made redundant (ERA 1996 s.98(4); TULRCA 1992 s.188, Collective Redundancies Directive 98/59/EC and The Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 1999, SI 1999 / 1925. Employee representatives are preferred because it can be difficult to individually deal with a large number of employees (Barrow, 2001), (Todd, 1997), (Employment Law Co. UK, 2005) and (Lockton, 2000). Employees who have been working with an employer but have acquired a disability such as cancer, diabetes or a mental condition etc may no longer be able to perform the job for which they were hired or they may have a diminished ability to undertake tasks. However, such employees cannot be dismissed unfairly because their situation is covered by the Disability Discrimination Act of 1995 (see McLauchlan v Stolt Comex Seaway Ltd, Aberdeen Employment Tribunal, Case No. S/200809/98. 9th August 1999 and Haddock v Sema Group Ltd, Reading Employment Tribunal Case no ET/2700635/99 on 13th September 2000. Such employees may be eligible for sickness benefits or if there is an impending situation in which there are a number of employees who are to be made redundant, then it is more appropriate to make such employees redundant. Any attempts to unfairly dismiss employees who have acquired a disability since the time that they have been working for an employer is likely to result in these employees being awarded unfair dismissal claims. If an employee is still capable of performing their job function despite their disabilities then it is appropriate to let them continue performing their job. Reasonable adjustments may be required to be made by employers for employees who are suffering from disabilities and only if the employee is severely incapable of discharging their job obligations can redundancy be contemplated. A discussion between the employer and the employee about what adjustments can be possibly made may serve to clarify both their points of view and also result in fairer outcomes. It has to be noted that disability which is likely to be permanent or prolonged is different from the temporary disability which may result from a temporary illness, birth of a child or illness in the family (Hemmings, 2000), (Hogan, 2001), (Lockton, 2000), (Todd, 1997) and (Employment Law Co. UK, 2005) . Having considered the broad legal issues associated with employment in the United Kingdom and also the issues associated with redundancy, it is now appropriate to consider the legal situation associated with various Hydrotec employees who have been affected by the decision to close the Aldershot premises of the company. In the case of Janice who has been served notice by Hydrotec to perform her duties at the Wokingham premises, it is quite possible that her employer is not aware of her family situation. Janice may have wanted to relocate if she could find some attraction in working at her new work site. However, her employer is required to act in good faith and consider her family situation even if a geographical mobility clause does indeed exist in her contract of employment. Janice should try to discuss her situation with her employer and tell her employer what, if anything, can persuade her to relocate to Wokingham. Perhaps her employer may be agreeable to meet her terms. Alternatively, Janice too will have to be made redundant because a decision to close down the Aldershot premises of Hydrotec has already been taken. However, her employer is not permitted by the existing employment legislation in the United Kingdom to unfairly dismiss her and try to avoid paying her the redundancy payment that she is entitled to. Janice is permitted to approach the Employment Appeals Tribunal or EAT if her employer refuses to pay her redundancy payment if and when she fails to reach a mutually acceptable agreement with her employer (Lockton, 2000), (Todd, 1997) and (Employment Law Co. UK, 2005). Ted who is suffering from diabetes and has served Hydrotec for six years has been offered two months redundancy payment in accordance with his contract of employment. Unless Ted can show that he has been unfairly selected for redundancy and discriminated against, there is nothing that Ted can do but to accept the redundancy payment. Whereas the amount of redundancy payment that is to be made to Ted depends on his age, the number of years worked and his pay, even if Ted was 45, the two months amount that is owed to him appears to be appropriate and in accordance with the amount stipulated under legislation (Department of Trade and Industry, UK, 2005). Ted’s employer is being fair with him because in the event of the closure of Hydrotec’s Aldershot plant, it will be inappropriate to ask Ted to relocate to Wokingham especially when he is suffering from diabetes. Had the Hydrotec premises at Aldershot been continuing with its normal activities, it is quite possible that Ted will have continued to work with Hydrotec in his job. However, it is unfair to ask Ted to relocate when he can try to seek the support of his local community of which he is a part and not be put through the added burden of relocating (Lockton, 2000), (Todd, 1997) and (Employment Law Co. UK, 2005). Betty who has been working with Hydrotec’s Aldershot premises for three years as an accounts assistant has also been given two months notice that her services are no longer required and that Ken who also works with her will be taking her place at Wokingham. Betty may feel that she has been discriminated against and may have wanted to continue with her employer Hydrotec at Wokingham. If this is the case, then Betty can try to bring this to the attention of her employer. However, she has to try and understand that someone had to be made redundant when there is a closure at Aldershot and unless she can present strong evidence to prove that she has been discriminated against on the grounds of her sex or that Ken was somehow less entitled to be retained then her, then she has to accept the Hydrotec decision. The EMPLOYMENT RIGHTS ACT 1996 s.86 requires that employees be given one week notice for each year that they have served with her employer. Also, it is unlikely that Betty will have qualified for redundancy payments exceeding three weeks for her three years service. Hydrotec is required to provide written reasons for dismissal in accordance with EMPLOYMENT RIGHTS ACT 1996 s.92 and Unfair Dismissal and Statement of Reasons for Dismissal (Variation of Qualifying Period) Order 1999, SI 1999 / 1436. Such reasons should satisfy Betty unless she can prove that she has been discriminated against or in some way unfairly treated. If Betty wants to relocate to Wokingham then it is her employer prerogative to retain her in her employment or to offer her an alternative position and this is something which can be discussed between the employer and the employee (Lockton, 2000), (Todd, 1997) and (Employment Law Co. UK, 2005). Employers who have to handle a situation in which a substantial number of employees are required to be made redundant have to operate within a well defined procedural framework and are required to follow specific legal provisions. Redundancy is one of the fair grounds for dismissal and has to be discussed with union or employee representatives under section 188 of the Trade Union and Labour Relations (Consultation) Act 1992 (TULR(C) A). Employee or Trade Union representatives have to be appraised about the reasons for the redundancy, the number of employees that are to be affected and the manner in which employees are to be selected for redundancy. Details of redundancy payment should also be presented. The period for consultation should be a minimum of 30 days if 20 – 99 employees are to be made redundant and this period is a minimum of 90 days if more then a hundred employees are to be affected (see GMB v Man Truck & Bus UK [2001] IRLR 636 EAT (Advisory Bulletin 421). Although the employers are not required to consult individuals, it is preferred that they are warned and consulted about impending redundancies (see Polkey v A. E. Dayton Services Ltd [1988] ICR 142 HL). In the absence of any unions or employee representatives, individual employees are to be consulted otherwise there is a danger that the employer will be exposed to unfair dismissal claims (see Mugford v Midland Bank plc [1997] IRLR 203 EAT). Consultations are required to commence prior to the posting of dismissal notices and if the consultation is considered to be inadequate, then the employers may be ordered by EAT to have a protective award for the employees. The employer is also required to inform the Secretary, Department of Trade and Industry about the redundancy of 20 or more employees in a 90 day period at any one establishment. Although the term “establishment” has not been defined, it is expected that this term is to have the broadest possible meaning in accordance with the ruling of the European Court of Justice for the purpose of protecting employees who are likely to be affected (see Rockfon A/S v Specialarbejderforbundet I Danmark, acting for Nielsen & ors [1996] IRLR 168 ECJ). Women who are on maternity leave cannot be made redundant until their leave expires and employees leaving early will not have their right to redundancy pay invalidated. If alternative employment is available, then it should be offered and employees who are reengaged within four weeks will have continuity for the purposes of redundancy, but not for any other statutory provisions. An employee committing an act of gross misconduct may loose their right to be paid redundancy. In the event of a transfer of ownership of a business, the new employer assumes the contracts of employment for the employees. Employees should have served continuously for a minimum of two years to qualify for redundancy. Efforts should be made by the employer to minimize the risk of having to pay unfair dismissal compensation by acting fairly and honestly within the statutory requirements for redundancy (Employers’ Organisation for Local Government, 2005), (Hemmings, 2000), (Lockton, 2000) and (Todd, 1997). Despite the emergence of the European Union as a uniform regional group in Europe, the laws of those countries which are aspiring to become members of the European Union may be different to those which exist in countries that are already members of the European Union. The next section takes a look at the employment laws of Portugal in comparison with those of the United Kingdom. A Comparison of the Legal and Procedural Approaches for United Kingdom and Portugal The employment laws of Portugal are fairly strict and the contract of employment between an employer and an employee has specified beginning as well as termination dates. Hence, although Portugal has been working on improved legislation to bring its employment laws in line with those of the European Union, at the time of writing this essay, there are a lot of fixed term contracts that govern employment relationships. However, a contract of employment may not have a specified term in which case there is no termination date that is mentioned. The contract of employment clearly stipulates the location at which the employee will work, the category and designation of the employee, their wages and when these are to be paid as well as any delays associated with the termination of a contract. Discrimination is forbidden and all employees get paid equally for equal work. Redundancy or the so called economic dismissal is not permitted except with the approval of the Ministry of Employment. Redundancy is permitted only when an employer is facing a serious economic crisis such as bankruptcy. Dismissal of employees must follow the strict procedures that have been in the Labour Code. Any worker who has been unfairly dismissed can challenge the action in court and has the right to reintegration with his employer or the right to financial compensation. For unfair dismissal, an employee has a right to claim damages that have been suffered and if an employee chooses not to reintegrate with an employer, then the court can award a compensation ranging from 15 days to 45 days for each year of the contract that has been served. Collective bargaining agreements negotiated by trade union are also common and such agreements may be accepted by the Ministry of Labour, giving them the status of general law, required to be followed by all employees (Mercer Human Resource Consulting. 2005), (Harvey, 1992) and (Ramm, 1977). Article 53 of the Portuguese Constitution states that "Workers are guaranteed security of employment, and dismissal without just cause or for political or ideological reasons is prohibited". This means that dismissal by an employer is only permitted if the behaviour of the employee is such that immediate termination becomes so legally compelling that the protective tendency of the law has to be discarded (see Bernardo Xavier, 1992). The Constitutional Court of Portugal decided that individual dismissals are only possible for severe disciplinary reasons. In cases of collective redundancy, there is a burden on the employer to show that it is impossible to retain employees due to severe financial limitations such as impending bankruptcy. Employees in Portugal facing collective redundancy are entitled to have paid time off to find new work and are entitled to one month’s pay for each year or part year worked, with a minimum of three month’s pay. The process of collective redundancy involves employee representatives who may also be trade union members and the Ministry of Employment and Social Security must be notified by the employer who also has to provide documents comprising: a description of the economic, financial and technical reasons for the impending redundancy; a list of the workforce; a statement of the criteria to be applied in selecting the employees to be dismissed; and a statement of the number of employees to be dismissed and their occupational categories. The Ministry of Employment and Social Security participates in the negotiations between the employer and the employee representatives with a view to bringing about reconciliation and the negotiations can involve methods for carrying out the dismissals or adoption of any possible measures to reduce the numbers affected. After these negotiations and in line with any agreement, the employer gives notice of redundancy to those who are affected. However, if no agreement is reached, then the employer can give notice after one month of the initial notification. Employees have to be given sixty days prior to their redundancy and if any employee chooses to resign, then their redundancy rights and any amount to be paid is not affected. A failure to comply with the procedure leading to redundancy makes any dismissals illegal. Hence, unlike the United Kingdom, the government in Portugal takes part in the negotiations between the employer and the employee representatives because under the Constitution of Portugal, the government has a stated responsibility to maintain employment. The payouts are also higher and longer term wages are involved (European Foundation for the Improvement of Living and Working Conditions. 2005) also see (Constitutional Court of Portugal. 2003) and (Court of the Relation of Évora, 1997). It can, therefore, be concluded that making workers redundant in Portugal is presently far more difficult then it is in the United Kingdom. From a human resource management perspective, employers in Portugal are expected to provide a career for their employees and the emphasis is on long term relationships. Hence human resource management in Portugal can be far more challenging because there is a longer term view for employment. Conclusion Redundancy refers to the situation when “work of a particular kind” has been considerably diminished and employers have to decide what to do with the workers who had been performing this work. The employment law in the United Kingdom tries to balance the needs of the workers and those of the employees, providing a certain level of support to the workers while they try to get on with their lives by trying to fit themselves into alternative forms of economic activities. Employers, on the other hand, can try to device new economic activities that can be productive. The legal system in the United Kingdom places an emphasis on honesty and fairness, while making it easier to start alternative economic activities in a changed business environment. 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