Restructuring Exercises and Redundancy – Guideline EAT Ruling

Not every corporate restructuring or cost-cutting exercise gives rise to a genuine redundancy situation. The Employment Appeal Tribunal (EAT) made that point in addressing a risk manager’s unfair dismissal claim.

Following a review of its business with a view to cutting costs, the woman’s employer resolved to consolidate its three risk teams into two. She and another risk manager were warned that they were at risk of redundancy. Following consultation and a selection process – in which she was found to have scored lower than her colleague – her employment was brought to an end.

In arguing that her dismissal was unfair, she contended, amongst other things, that there was no genuine redundancy situation in that the number of risk managers remained the same after the restructuring as it had been before.

An Employment Tribunal (ET) found that the two risk manager posts under the old structure had been replaced by two new risk manager posts within the new structure. One of the latter had a leadership function. The ET found on the evidence that a genuine redundancy situation had arisen and that her dismissal was fair.

Ruling on her challenge to that outcome, the EAT noted that, in order to give rise to a redundancy situation, it is not always essential for a restructuring process to result in a reduced headcount or in a diminution of the overall number of hours worked. Such a situation can arise from a reorganisation which enables the same amount of work to be performed by fewer employees or within a smaller number of working hours.

Upholding her appeal, however, the EAT noted that at no point in the ET’s ruling did it expressly seek to apply the statutory definition of redundancy, contained in Section 139 of the Employment Rights Act 1996, to the facts of the case. In particular, there was nothing in the ET’s reasons to explain how it came to the conclusion that the employer’s requirement for employees to carry out risk management work had diminished.

The fact that three risk teams had become two did not, of itself, assist in resolving that issue. Although the ET had described the two new posts within the new structure as not the same as the old roles, the only difference it identified was that one of the new positions included a leadership function. The addition of that function was not directly relevant to the question of whether the employer’s need for risk managers had lessened.

The ET focused inappropriately on the reduction in the number of teams and failed to consider whether that truly gave rise to a redundancy situation. It made no specific finding that there was a diminution in the employer’s need for employees to carry out risk management work. The woman’s unfair dismissal claim was remitted to a differently constituted ET for redetermination.