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EVERYDAY LAW: Redundancy vs reorganisation


EVERYDAY LAW: Redundancy vs reorganisation

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ONE OF THE difficult questions that arises from time to time in employment law is the difference between a reorganisation and redundancy.

If a person works for two years or more continuously, he is entitled to a redundancy payment if the reason for his dismissal is redundancy.

Definitions of redundancy can be found in the Severance Payment Act and the Employment Rights Act. There is no legislative definition of reorganisation.

I should say, however, that it is possible that a reorganisation could produce a redundancy situation as defined in the legislation and if that is so, then the employee is entitled to compensation.

An example of a case in which a reorganisation did not lead to a redundancy is the English case of Lesney Products & Co Ltd v Nolan [1977].

The material facts were: Following a falling-off of sales, the employers reorganised by abolishing the night shift, and splitting the day shift into two new shifts.

This meant that there was no longer any opportunity for day shift workers to work overtime, so some refused to work the new shifts, and were dismissed. The tribunal held that dismissal was for redundancy.

The employers appealed to the Employment Appeals Tribunal, who said they found the tribunal decision difficult to understand, but felt there were insufficient grounds to overturn it.The Court of Appeal, however, allowed the appeal. The Court of Appeal held: (1) The phrase “redundancy situation”, as used in Johnson v Notts. Combined Police Authority, was shorthand for the statutory words, and in each case the dismissal must be measured up against those words.

(2) A reorganisation done in the interests of efficiency, and not as a result of a drop in the amount of work required to be done by employees, does not create a “redundancy situation”.

Lord Denning said: “While I adhere to what I there said, I think the phrase “a redundancy situation may be misleading. It is shorthand and it is better always to check it by the statutory words.”

The dismissal must be attributable to “the fact that the requirements of that business for  employees to carry out work of a particular kind . . . have ceased or diminished”, and so on.

In applying that principle, it is important that nothing should be done to impair the ability of employers to reorganise their workforce and their times and conditions of work so as to improve efficiency. They may reorganise it so as to reduce overtime and thus to save themselves money, but that does not give the man a right to redundancy payment.

Overtime might be reduced, for instance, by taking on more men, but that would not give the existing staff right to redundancy payments.

Also when overtime is reduced by a reorganisation or working hours, that does not give rise to a right to redundancy payment, so long as the work to be done is the same.

It seems to me that the problem in this case is whether this reorganisation – whereby the one long day shift plus overtime was altered into two-day shifts for the machine setters – was done in the interests of efficiency or whether it was due to a drop in the amount of work required for the men employed in the factory.

The employers gave evidence (which was not contradicted) that the amount of work coming into the factory and being done on the day shifts by all the direct operatives was just the same as before. There was no reduction in it.

The night shift was done away with for want of work – and on that account the night shift people would get redundancy payments. But the day shift turned out the same amount of work by the same number of women operatives.”

In advising a person who has been dismissed and who has served the required period to qualify for a redundancy payment the key question to consider is whether the situation is covered by the legislation.

Redundancy refers to a situation in which a person loses a job because their services are not needed by their employer.

Typically, redundancy would cover three situations – the closure of a business, the closure of a workplace or a reduction of a workplace.

One of the fair reasons for dismissal under the Employment Rights Act is known as “some other substantial reason”.

If an employer can successfully argue that the reason for dismissal is a business reorganisation and not a redundancy, the employee will not be entitled to severance payment no matter how many years of continuous employment he has.

• Cecil McCarthy is a Queen’s Counsel. Send your letters to Everyday Law, Nation House, Fontabelle, St Michael. Send your email to [email protected]