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Discrimination pitfalls in redundancy situations

Source: Public Sector Executive Jan/Feb 2012

Employment lawyer Paul Menham, associate at DWF, explains what public sector employers need to look out for when making redundancies.

The public sector is facing unprecedented funding cuts due to the new age of austerity. Cuts across public sector services have affected most, if not all, public services within the UK. Inevitably, this has led to significant numbers of public sector organisations facing the reality of having to make redundancies or, where possible, to restructure. However, there are many potential discrimination pitfalls in redundancy situations which employers in the public sector need to be aware of.

The law on redundancy

It’s important for employers in the public sector to be aware of the rules relating to unfair dismissal. At the moment, employregardless ees with over a year’s service have the right not to be unfairly dismissed. However, under the proposed changes to unfair dismissal legislation, this will soon change to be two years.

Staff who have been with a company or organisation for the one or two year period (depending on when the new regulation comes into effect) will have a greater level of protection and if employers are making them redundant, then they need to be able to clearly demonstrate that the reason for their dismissal is ‘fair’.

Reasons that are deemed fair for making a role redundant include if the business or part of a business was going to close, or if the employer has a reduction in the need for employees to carry out a particular role.

Employers also need to ensure that they are able to demonstrate the process of making a staff member redundant are ‘fair’ as well.

Agreements and terms

Over the years, tribunals have interpreted redundancy guidelines in the following way:
• Employers need to give staff as much warning as possible, collectively consulting with employee representatives or a trade union (where there are 20 or more redundancies proposed)
• The pools for redundancy must be fairly selected
• The selection criteria must be fairly applied to these pools
• Employers should consult with their affected employees individually
• Alternative roles and positions for the employee must be considered before dismissing them altogether
• Employees must be allowed the right to appeal

On top of these points, most public sector organisations will have a redundancy policy or a union agreement in place, which provides staff with a much greater level of protection.

Such policies or agreements are likely to outline what the selection criteria and minimum consultation period should be. They will probably also include clauses saying that a number of alternative options will be explored before making compulsory redundancies, as well as potentially offering enhanced redundancy payments.

Public sector employers who have such policies in place are expected to comply with the terms in the agreement. Failing to do so will more than likely result in an unfair dismissal claim.

However, even if an employer does follow their own redundancy policy, as well as acting with the most honourable of intentions throughout the process, there is still the risk that they could find themselves subject to a discrimination claim.

Expiry of fixed-term contracts

One of the basic errors that many employers are guilty of is treating the expiry of a fixed-term contract as the end of a contract without the need for any other processes.

While this is not a problem if an employee has been with the organisation for less than 12 months, staff who have been on a fixedterm contract for longer than a year have the same right as a permanent employee not to be unfairly dismissed.

In the eyes of the law, the expiry of a fixed-term contract is considered to be a ‘dismissal’ and the non-renewal of a fixedterm contract is the equivalent to an ‘express dismissal’. Therefore, an employee engaged for over a year (or two years if the qualifying period for unfair dismissal is extended) has the right not to be unfairly dismissed. This means that the employer must show that they have a fair reason for the dismissal and that they acted reasonably.

If the reason for not renewing a fixed-term contract is redundancy – for example, if the role was no longer required – then the employer must follow the organisation’s redundancy policy. Failing to do so would more than likely make the dismissal unfair. It would also be contrary to the discrimination legislation, which states that a fixedterm worker should not be treated less favourably than a permanent employee simply because of their ‘fixed-term’ status.

Another situation that often arises is when a fixed-term employee is introduced to a particular department to cover additional work. In these instances, if that worker is employed for over a year and is carrying out the same role as another (permanent) member of staff, then when the fixed-term contract expires, that employee should be pooled with those other staff when making redundancies. Again, failing to do this is likely to lead to a finding of unfair dismissal and discrimination on the grounds of ‘fixed-term’ status.

Making part timers redundant

If an employer has three full-time employees and one part-time employer, it is not uncommon for the employer to decide that they only need three full-time members of staff. Therefore, he or she may decide to make the part-time employee’s role redundant.

However, if the employer does this, they risk an unfair dismissal situation – especially if all members of staff carry out the same, or essentially the same, role. The selection pool for the redundancies needs to include all staff carrying out the role, employregardless of whether they are full- or parttime.

It is more common for female employees who often have childcare commitments to work in part-time positions. If a woman was working part-time and found that her role was being made redundant without any of the full-time employees being considered, then this could amount to indirect sex discrimination.

An easier way for employers to deal with these situations is to state that the preferred outcome is to have three full-time equivalents and that they will consider all members of staff to fulfil their requirements. If ultimately, this means that a full-time employee is offered a part-time contract as an alternative to redundancy, that would be evidence of a fair and nondiscriminatory process.

Agreed selection methods

Redundancy policies and union agreements are generally very beneficial for employers in proving that their criteria for selecting employees for redundancy has been fair – it’s difficult for individual members of staff to argue against a criteria that was agreed by his or her union. However, employers need to be wary of certain selection methods that are laid out in the agreements, particularly in older ones, as they may be in conflict with current legislations.

Often, older union agreements will contain a provision that fixed-term workers should be dismissed before permanent employees are made redundant. As previously outlined, such practice would in fact be unlawful and discriminatory.

Some older agreements may also state the ‘last-in first-out’ approach should be the method of selecting employees for redundancy. The courts have made it very clear that such a practice cannot be used in isolation.

What’s more, when reviewing union redundancy agreements, employers need to be wary of the ‘scoring’ criteria used to assess which employees should be dismissed over others and look out for any that may unfairly impinge against certain employees.

For example, if the level of attendance is measured as part of the selection criteria, employers need to be careful that they are not being biased against women who have taken time off for pregnancy/maternity leave and/or staff who have a disability which has caused them to take time off work.

Recent case law shows that even some law firms can get this wrong. In the case of De Berlin v Eversheds 2011, an employer took the unreasonable step of significantly inflating the score for an employee who had been on maternity leave, putting her at a distinct advantage to her male colleagues. Unsurprisingly, this was found to be sex discrimination against the male colleague.

The Employment Appeal Tribunal made it clear that in such cases, the employer should use a level of discretion to alleviate the disadvantage to a pregnant employee, but not positively discriminate in their favour.

If there is a certain scoring criteria that is going to be affected by a member of staff going on maternity leave, then it is safer to exclude that category as a selection method altogether. Alternatively, the employer could choose a time period to measure when the member of staff was at work, so that a like-for-like comparison can be made with other colleagues.

More on maternity

The Maternity and Parental Leave etc Regulations 1999 specifically outlines what should happen when an employee is off on maternity leave and her role is made redundant. It states that where there is a suitable alternative vacancy, the employee is entitled to be offered that role as long as it is suitable and appropriate for her. This gives the member of staff who is on maternity leave a ‘super right’ to another position, before her colleagues are considered for it.

When dealing with staff on maternity leave, some employers make the error of ‘leaving them out’ of the redundancy process at the time. Often employers will do this with the best intentions in that they don’t want to cause the employee in question any unnecessary stress.

However, this can in fact be detrimental to the employee on maternity leave. If their role is left in isolation and they are not made redundant at the time, then they will lose the ability to apply for alternative vacancies, which they have a ‘super right’ to. Instead, these alternative vacancies will be offered to her colleagues.

Once again, this can amount to unlawful discrimination and is a potential pitfall that employers need to be aware of.

Redundancy payments and age discrimination

Whether through a union agreement, a redundancy policy or a general agreement with staff, many employers will generously offer to enhance redundancy payments. Such a practice demonstrates good industrial relations and can mitigate the effect of redundancies. However, employers need to be careful that they are not falling foul of age discrimination legislation that is now contained within the Equality Act 2010.

As outlined in the Equality Act, the only payments that can be made by an employer under an enhanced scheme that will not fall foul of age discrimination legislation are:

• To pay a statutory redundancy payment as calculated under the Employment Rights Act
• A statutory payment with no cap on weekly pay, or with an enhanced amount of weekly pay
• For each year of employment to be multiplied by a figure of no more than one

If the enhanced redundancy payment is by any other method, then because the sum paid will vary as a result of the employee’s age, it will most likely be deemed as age discrimination, unless it can be ‘objectively justified’ by the employer.

‘Polkey reductions’

In some redundancy cases, the employer may not have carried out the proceedings fairly. If such a case goes to a tribunal, but it is found that the member of staff would have been made redundant even if the proceedings had been carried out fairly, then this will affect the amount of compensation that is paid out to them.

In these instances, the tribunal will apply what is known as a ‘Polkey reduction’, as outlined in the case of Polkey v AE Dayton Services Ltd, and it will cut the amount of compensation to reflect what the employee’s loss would have been if they had been dismissed fairly. Often, this only amounts to a few weeks’ or months’ pay.

The difficulty that arises, in particular for public sector employers, is that while a Polkey argument may still be advanced, an employee’s losses may be significantly more substantial than they would be in the private sector. For example, employees with final salary pension schemes would be very unlikely to be able to replicate the value of this benefit in another role. Therefore, a tribunal may be persuaded not to reduce the amount of compensation paid to the employee.

Even if the tribunal was to reduce financial losses by 50%, or even 80%, to reflect the prospects of an employee’s dismissal being fair, the loss could still be quite substantial. A Polkey reduction takes place before the statutory cap is imposed, so if a member of staff was able to show that their pension loss was worth £400,000 because they wouldn’t be able to find another scheme to match it, the employer may still have to pay the maximum award due to the high level of loss.

In discrimination claims where losses are potentially uncapped, there is even more scope for large compensatory awards to be made to employees – particularly those with significant final salary pensions. Therefore, public sector employers must take even more care than their private sector counterparts in ensuring that dismissals for redundancy are fair both substantively and procedurally.

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