In the current economic climate, numerous employers are considering redundancy, albeit that the possibility of unfair dismissal claims might put many off. However, a recent Employment Appeal Tribunal (EAT) decision signalled what many believe to be a change in the law on redundancy criteria.
Redundancy process
It is a well-established principle that employers need to show that any redundancy process is fair, and that the selection of redundancy criteria are objective and capable of independent verification through, for example, length of service, attendance records and disciplinary records. It means that the criteria should be measurable and not based on personal opinion.
However, in the case of Mitchells of Lancaster (Brewers) Ltd v Tattersall, the EAT held that subjective criteria are not necessarily grounds for an employee to complain of unfair selection, noting that all redundancy criteria “involve a degree of judgment, but they are none the worse for that.”
In Mitchells, the employer needed to reduce the numbers of their senior management team, of which Mr Tattersall was a member. The directors decided that if Mr Tattersall’s role was cut from the senior management team, this would have the least detrimental impact on the business, as all the other members had the requisite skills to bring in revenue.
Redundancy criteria for selecting staff
The employer consulted with the staff and Mr Tattersall was selected for redundancy, based on an assessment of which role could be lost with the least impact.
The Employment Tribunal found that Mr Tattersall’s dismissal was unfair and applied a 20 per cent ‘Polkey deduction’, reflecting the chance that he would have been dismissed in any event. The Tribunal found that the selection of Mr Tattersall for redundancy was “wholly subjective and based solely on the views of the directors rather than being objective selection criteria.”
In the crucial paragraph of the Employment Appeals Tribunal’s judgment, they disagreed with the Employment Tribunal’s criticism of the respondent’s subjective selection criteria. The Employment Appeals Tribunal noted that “just because (subjective) criteria […] are matters of judgment, it does not mean that they cannot be assessed in a dispassionate or objective way,” and went on to say: “The concept of a criterion only being valid if it can be ‘scored or assessed’ causes us a little concern, as it could be invoked to limit selection procedures to box-ticking exercises.”
Polkey reduction
The Employment Appeals Tribunal concluded that it was hard to see how Mitchells, being a relatively small company in serious financial difficulty, was wrong to apply the criteria it did and that the criteria themselves were “unexceptionable”. The Employment Appeals Tribunal overturned the Employment Tribunal’s decision that a 20 per cent Polkey deduction was appropriate, commenting that this was too low, given that the claimant’s fair selection based on the criteria was significantly more likely. The matter has now been referred back to the Employment Tribunal for determination on this point.
The decision has since been followed by the Employment Appeals Tribunal in the matter of Nicholls v Rockwell Automation Ltd, where the Employment Appeals Tribunal again stated that “if, overall, the redundancy criteria [are] reasonable […] then the fact that some items [are] not capable of objective verification is not fatal to the scheme.”
These decisions seem to reflect a change in attitude of the tribunals in the current economic climate, representing a more lenient approach and a welcome development for employers. Given the longstanding case law to the contrary, employers are nevertheless advised to take a cautious approach.
If your business is considering making redundancies, Lyons Davidson’s employment teams are happy to provide advice on this and any other area of employment law. For more information, please contact us on 0117 904 6000.
