Will a Tribunal Scrutinise an Employer’s Decision As to the Composition of a Redundancy Pool?

An employer who dismisses an employee without good reason and without following a fair procedure lays itself open to a claim for unfair dismissal. When such a claim is brought, the employer has to establish the reason for the dismissal. Redundancy is a potentially fair reason for dismissal pursuant to Section 98 of the Employment Rights Act 1996.Redundancy situations can come about if an employer intends to cease to carry on the business for the purposes of which the employee was employed by him or the requirements of the business for employers to carry out work of a particular kind have ceased or diminished. It is important to remember that a redundancy situation can occur when there is no downturn in trade. An employer is perfectly at liberty to consider reducing the number of staff if he needs fewer people to do the same work.Once redundancy has been established, a Tribunal will consider whether the dismissal was fair or unfair, depending on whether in all the circumstances (including the size and administrative resources of the employer’s undertaking), the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee (s.98(4) Employment Rights Act 1996). If an employer wants to avoid a successful unfair dismissal claim by reason of redundancy, this essentially means that he will need to ensure that a fair procedure has been adopted, including defining the pool of potentially redundant employees.The courts have recently been considering the extent of their own capacity to interfere with an employer’s decision as to the composition of a pool. In Capita Hartshead Ltd v Byard, the Employment Appeal Tribunal (“EAT”) handed down a judgment on the principles to be applied by Employment Tribunals in cases challenging the decisions of employers on selecting the pool from which employees are to be dismissed for redundancy. Mr. Byard was an actuary. The ‘pool’ was limited to just Mr. Byard, despite the fact that there were other actuaries doing similar work. The employer argued that the actuaries built up a personal relationship with their clients and that the firm would lose clients if any of the other actuaries were made redundant. The firm believed that the bulk of the work that had diminished was identifiable to Mr. Byard. The original tribunal found that the dismissal was unfair as the other actuaries should have been included in the pool. On appeal, the EAT found that the tribunal had wrongly substituted its own view of what would be a fair pool for selection for that of the employer.The EAT placed particular reliance on this quote from the 1994 case of Taymech v Ryan where the judge said that “there is no legal requirement that a pool should be limited to employees doing the same or similar work. The question of how the pool should be defined is primarily a matter for the employer to determine. It would be difficult for the employee to challenge it where the employer has genuinely applied his mind [to] the problem”. However, the EAT in Capita went on to hold that the appropriate test was to apply the statutory language, i.e. to consider whether the employer acted reasonably. In applying this test, it concluded that, because the original tribunal had found on the facts that the risk of losing clients because of a change of actuary was slight, the employer had not genuinely applied its mind to the selection of the pool. As such, the tribunal were entitled to scrutinise the employer’s decision as to the composition of the pool and were similarly entitled to find that the employer did not act reasonably in restricting the pool to one. As a consequence, the original finding of unfair dismissal was upheld and the appeal by the employer failed.This case should not, however, be seen as opening a door to tribunal scrutiny of an employer’s decision as to the composition of a pool. Whilst employers would be well advised to give logical, genuine and transparent thought as to who should be in the ‘pool’, as long as they can satisfy the test of reasonableness, a tribunal is unlikely to examine them further on this point.

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