England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL

		Royal Courts of Justice
		19th October 1976

REVISED

THE MASTER OF THE ROLLS: This is a very difficult case. It arises under the Redundancy Payments Act. The firm of Lesney produces little model toys for children. They have factories in several places. This case concerns the factory in Lee Conservancy Road Hackney.

Early in 1975 there had been a falling off in sales. So the firm had to look round for some means of covering their output and reducing their staff. They did it by re-organising the way the work was done.

There were two kinds of work. One kind was called the "direct" work. This was done by 200 or 300 women. They handled the little toys as they came out of the machines, assembling them, putting them together, labelling them and so forth: and afterwards packing them up for despatch. This work was done in three shifts, day, evening and night shifts-

The other kind of work was called the "indirect" work. This was done by about 36 men. They were machine setters. They were skilled fitters who looked after the machines, maintained them and saw that they were working properly. They covered their work in two shifts. One shift covered the day and evening shift of the ''direct" operatives, doing very long hours of overtime. The other shift covered the night shift of the direct operatives.

The reorganisation took this form: The company cut out the night shift of "direct" operatives altogether. And also the night shift of the indirect operatives. That achieved a considerable lowering of output and saved costs. J3ut we are not concerned with that change. It has all been dealt with.

We are only concerned with the re-organisation of the day shift and its effect on the "indirect operatives", that is, the machine setters. Before April 1975, there were 36 machine setters. There was one day shift. It started at 8 o' clock in the morning and went on until 5 o' clock at night for four days a week, Mondays to Thursdays: on Fridays from 8.00 a.m. to 2.30 p.m., but also on Fridays a further two hours at overtime rates from 2.30 p.m. to 4.30 p.m. In addition after the end of a normal day's work many of the men would work overtime until 10 o' clock at night, and of course at overtime rates. So there was one day shift with very long hours of overtime.

That was the position until April 1975. The company then re-organised the work of these 36 machine setters. Instead of these 36 machine setters working one day shift plus long overtime they changed over to a double-day shift, that is two shifts a day. One shift would work from 7.30 a.m. until 3.30 p.m. and the other shift would work from 2.00 p.m. until 10.00 p.m., and the men would work alternative shifts week by week. That was the proposed re-organisation. The company said they did it in order to organise their work more efficiently.

Those terms were offered to all 36 machine setters. They were asked to stay on in this new situation whereby they would work two day shifts instead of one shift with extensive overtime, line agreed to stay on on those terms, 27 refused and were dismissed, but subsequently 18 of those 27 changed their minds and came back. But still there were nine who refused to take the opportunity of working under this new system. Because of their refusal, they were dismissed. Out of those 9, six of them claimed, first, for unfair dismissal; but that claim could not succeed because the conduct of the employers was entirely reasonable and there were good reasons for re-organising the business in this way. Then they claimed redundancy payments. They claimed it on the ground that there was a redundancy situation because the requirement of the business for their kind of work had diminished. They said that they were entitled to redundancy payments under section 1(2) (b) of the Redundancy Act 1965.

Four men came before one tribunal and two before another, and both tribunals found in favour of the men for redundancy payments. There was an appeal by Lesney Products before the new Employment Appeals Tribunal,, presided over by Mr. Justice Phillips. The Appeal Tribunal thought that there were well-founded criticisms of the decisions of the tribunals and that it was difficult to understand exactly the reasons on which the decisions were based; but, on the whole, they felt that the Appeal Tribunal should not interfere, bearing in mind the burden of proof which is laid on the employer under section 9(1)(b) of the Act. But in view of the difficulties, the Tribunal reserved their decision and the reasons for it, and gave leave to appeal.

Now the matter comes before this court. I must say that it is a difficult case. The relevant principles were stated by this court in Johnson v. Nottingham Combined Police Authority (1974) 1 Weekly Law Reports 358 saying at page 362:

"It is settled by those cases that an employer is entitled to re-organise his business so as to improve its efficiency and, in so doing, to propose to his staff a change in the terms and conditions of their employment: and to dispense with their services if they do not agree. Such a change does not automatically give the staff a right to redundancy payments. It only does so if the change in the terms and conditions is due to a redundancy situation".

Whilst 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 for employees " the fact that the requirements of that business/to carry out work of a particular kind ... have ceased or diminished", etc. In applying that principle, it is important that nothing should be done to impair the ability of employers to re-organise their work force and their times and conditions of work so as to improve efficiency. They may re-organise 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 a right to redundancy payments. Also when overtime is reduced by a re-organisation of 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 re-organisation - 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 accord the night shift people would get redundancy payments. But the day shifts turned out the same amount of work by the same number of women operatives. So far as the machine setters were concerned, they did the same work for the day shifts as they did before. They saw that the machines were properly set and maintained, and turned out the toys as before. In these cases the re-organisation was not done because of less work but it was done in the interests of efficiency and to save the employers having to pay so much overtime.

It is shown by the evidence that the employers did not reduce the number of machine setters. They still wanted the whole of the 36. When some of them refused to come back, the employers needed others to replace the men. They put advertisements in the papers for them. So they wanted the same number of men.

No doubt the men at work would not get as much overtime as they had done under the previous system. But the company had a scheme for alleviating the position. The men got compensation in that they received the basic wage plus 171/2 per cent shift premium. It seems that on average a person who previously received £70 a week might now only be getting £54. So there was to that extent a saving in the money which the company spent on overtime.

The decisions of the tribunals were very carefully considered; but they do seem to have been led into error by asking whether there was "a redundancy situation" instead of looking at the words of the statute and asking whether the amount of work had ceased or diminished.

It seems to me on the evidence that it was sufficiently proved so as to satisfy the burden of proof given in section 9(1)(b). So, although it is a difficult case, it seems to me to be covered by the Johnson case and I think the appeal should be allowed.

LORD JUSTICE STEPHENSON: Have the employers proved that the applicants were dismissed by reason of something other than redundancy, that is to say, that the applicants' dismissal was not attributable wholly or mainly to the fact that the requirements of the employers' business to carry out this machine setter's work had diminished? The burden is undoubtedly imposed upon the employers by section 9(2)(b), Mr. Justice Phillips and his colleagues did not think - their language was very cautious - that they could say that the tribunals were obliged to find that the onus had been discharged. I share the doubts of Mr. Justice Phillips and his colleagues. But I also agree with them that the decisions of both tribunals are not altogether easy to understand. It is plain that they rejected the contention of the employers that it was a mere coincidence that their trade should have been falling off, and that they should have had cash flow difficulties, at the same time as they abolished the night shift and they re-shuffled (if I may use that term) the day shift.

It is also on the face of it potentially significant that as a result of that re-shuffle there was, at any rate, some reduction of hours of work and some reduction of earnings.

All those matters seem to have led both tribunals to be satisfied that there was not merely a general redundancy situation but that it was not met, as the employers contended, by the abolition of the night shift, and it was, as it were, extended after that abolition to the day shift and the restructuring of it. But there is in the judgment of the tribunal an apparent failure to distinguish between the dismissal of all the night shift setters because of redundancy and the dismissal of some of the day shift setters because of their refusal to work the new day shift system. I am as reluctant as was the Appeal Tribunal to reverse the carefully considered judgments of these two tribunals, who obviously considered the evidence they heard, and heard directly, with the greatest care, and who had a far greater knowledge of industrial conditions than I could possibly pretend to have; but I am not willing to disagree with the Master of the Rolls, and I am prepared to hold that the redundancy situation had been dealt with by these employers', abolishing the night shift, and that there was therefore no residual redundancy situation, the requirements of their business did not diminish, and it was not because of the diminution of those requirements that the applicants were dismissed.

I would therefore agree with my Lord that the appeal should be allowed.

LORD JUSTICE SHAW: I agree also. It seems in each of these cases that a material consideration which influenced the tribunals was the finding that there had been a falling off of work which affected the day shift so that a redundancy situation arose in regard to it. This finding appeared to be based on matters which were in part conjecture and was refuted by work schedules produced by the appellants. The validity of those schedules does not appear to be challenged. It is this consideration that has led me to the conclusion that the respective tribunals appear to have misdirected themselves. If accepted the contents of those schedules appear to me to have discharged the onus on the employers.

I agree that this appeal should be allowed. (Order: Appeal allowed with costs)