United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MR P MARSHALL (Of Counsel) Instructed by: Messrs Leo Abse & Cohen Solicitors 40 Churchill Way Cardiff CF10 2SS
For the Respondent	MR J FALKENSTEIN (Of Counsel) Instructed by: Messrs Stuart Cohen & Mae Solicitors 207 City Road Cardiff CF24 3JD


 


JUDGE ANSELL

1. This is an appeal from a decision of an Employment Tribunal sitting in Bristol which following a full day hearing in December 2001 unanimously dismissed the Applicants' claims for redundancy payments and for unfair dismissal. This appeal has concentrated entirely on the dismissal of the claim for redundancy payments.
2. The eight named Applicants had claimed redundancy payments and unfair dismissal following their refusal to accept new terms and conditions which have received upon notice of termination of their employment. The Respondent had contended before the Tribunal that dismissals were consequent upon a business re-organisation and were fair and did not involve any issue of redundancy.
3. The Respondent provides respite and holidays for the elderly, disabled and disadvantaged in its hotel in Porthcawl, South Wales. It is a trading company set up as a charitable trust. Up to March 2000 the business showed a consistent trading record namely that it traded in profit for the ten months from March to December, but suffered losses in January and February. They were advised by the company's accountant that drastic action was needed to avoid imminent insolvency, and a decision was taken to close the hotel for the months of January and February.
4. Various plans were devised concerning the future of the twenty-nine permanent members of staff. The main difficulty was that because of requirements from local authorities and others, the staffing levels during the period that the hotel was open had to be maintained at a certain level. The employees were represented by Mr Payne of the GMB in the various meetings and discussions took place. We need not go into those. They are fully set out and analysed by the Tribunal.
5. The net effect was that proposals were put in May 2000 to change the existing terms and conditions from 52 to 42 weeks paid work per annum, reducing paid sick leave entitlement, increasing the duration of final written warnings from 12 to 24 months and certain other minor alterations. Of the twenty-nine permanent members of staff twenty accepted the proposed new contract nine objected and eventually issued the Tribunal proceedings although one subsequently withdrew her claim thus leaving the eight Applicants who presented the complaint.
6. Some of those 8 Applicants had originally agreed to the new terms, as appears from paragraph 18 of the Tribunal's findings, but they changed their minds when it became clear that they could not claim benefits during the January and February closure. The effect of the proposals was that the staff here being offered was a 52 week contract but they would only be paid and required to work for 42 weeks of the year.
7. Those that did not accept the offer were dismissed and were replaced by new members of staff working under the new arrangements. The case was presented to the Tribunal and to us on the basis that the staffing levels had not altered but what had changed was that they were not required to work full 52 weeks in a year i.e. they were not working during January and February and not being paid for those months.
8. Most of the Tribunal's decision concerned the claim for unfair dismissal which was dismissed. Redundancy was dealt with by the Tribunal firstly in paragraph 29 where they reminded themselves of the definition of redundancy. In paragraph 33 their brief but clear findings here as follows:

"We find first that there was no redundancy situation and that the statutory definition of redundancy is not met. The dismissals were not wholly or mainly attributable to the fact that the requirements of the respondent's business for employees to carry out work of a particular kind ceased or diminished. There was no diminution in the respondent's needs for employees to carry out the work for which the applicants were employed. The respondent wished to retain them. When they left they were all replaced. A reduction in the number of weeks for which the same number of employees were required to carry out the same work is not sufficient in our view to meet the statutory definition."

It is that last sentence which sums up the Tribunal's view on the matter.

9. We remind ourselves of the definition of redundancy in Section 139(1)(b) Employment Rights Act 1996:

"For the purposes of this Act an employee who is dismissed should be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to - ….

(b) the fact that the requirements of that business –

(i) for employees to carry out work' of a particular kind, … have ceased or finished or are expected to cease to diminish …."

10. The Appellant's case focuses on the fact that there was no longer any work in January and February. Therefore the requirement for this business to have employees to carry on that work had finished and therefore there was a redundancy situation. The Respondent's case is that one should concentrate on whether the requirement for the number of employees, rather than the work, had diminished and thus in this case the number of employees had remained the same. All that happened was that there was effectively a change in their terms and conditions. The Respondents contend this was a business reorganisation rather than redundancy which the Tribunal have found was conducted in a fair way.
11. Those are the submissions put before us. We then consider the various cases that have been put to us before drawing our conclusions. Firstly we were referred to Hanson and Others v Wood [1967] 3 ICR 231. It was a Queen's Bench Division case relating to redundancy payment appeals under Redundancy Payments Act 1965 The Respondents ran an engraving business, was losing money and required their full-time employees to work temporarily less hours and thus receive less pay a week than before. They refused and they were dismissed, Lord Parker CJ giving the judgment of the Court at page 236 said this:

"His business was of a sort where it was impossible to dismiss as redundant any one or more of the men because they all separate tasks to perform, and accordingly he approached them and suggested that instead of working as they had been 40 hours in general they should work 32½ hours and of course receive less pay."

He then goes on page 237 to say this:

"Finally as the result of an affidavit sworn on behalf of the applicants, the chairman makes this comment.

"Since the dismissal by the employer … followed the [appellant's] refusal work at 32½ hour week, the tribunal found that that was the cause of the dispute which led to their dismissal."

I think myself that that last passage that I have read out is probably the real decision in this case. It is based on the supposition that the respondent was fully entitled under the contracts which must have existed, whether implied or expressed or oral or in writing, to require these men to work 32½ hours for a proportionately less weekly wage, and that as they had refused to do so he was dismissing them for misconduct and not by reason of redundancy. That is a possible view if the contract between the respondent and the appellants enabled him to require that. If he was entitled to require them so to work, then as it seems to me he was fully entitled to dismiss them for misconduct if they refused to do so. On the other hand, if he had absolutely no right to require them to do that, and yet dismissed them, the dismissal was due to the real cause behind all this, namely his work was falling off and diminishing, even albeit temporarily."

12. In Chapman and Others v Goonvean and Rostowrack China Clay Co Ltd [1973] ICR 310. This was a case where the employers during a trade recession discontinued free transport that had been provided hitherto as a part of their contract. Seven employees who left claimed redundancy payments. They were replaced by the equal number of men living nearer the works. Lord Denning said this on page 315D:

"I come back, therefore, to section 1(2)(b): and I am afraid that I cannot read into it the words "on the existing terms and conditions of employment." I think the two cases were wrongly decided. I have less hesitation in overruling them because I notice that Lord Parker CJ himself decided as he did with reluctance: and I can see why. It is very desirable, in the interest of efficiency, that employers should be able to propose changes in the terms of a man's employment for such reasons as these: so as to get rid of restrictive practices: or to induce higher output by piece work: or to cease to provide free transport at an excessive cost."

The Respondents in this case would seek to add to that list a reduction in the numbers of hours or even days worked by employees provided there is no reduction in the number of employees themselves. Later on Lord Denning said this at 315F:

"The employers can properly say to the men:

"You have not lost your jobs because you are redundant. You have lost your jobs because you live so far away that it is not worth our while paying the cost of bringing you here – when we can get all the men we need nearby."

At 315H, he said thus:

"I would, however, remark that if an employer sought to reduce the wages of his men on the plea that otherwise he could not keep the business going – or if he employed women in the place of men to save expenses – with the result that some men lost their jobs, then I think the employer would have difficulty in resisting a claim."

Further Lord Denning deals with the issue in the case of Lesney Products & Co Ltd v Nolan [1977] ICR 235 where at page 238 he said this:

"The relevant principle was stated by this Court in Johnson v Nottinghamshire Combined Police Authority [1974] ICR 170, 176:"

"It is settled by those cases that an employer is entitled to reorganise 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."

Lord Denning went on:

"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 "the fact that the requirement of that business of employees to carry out work of a particular kind … have ceased or diminished,"

In applying that principle, it is important that nothing should be done to impair the ability of employers to reorganise their work force 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 a right to redundancy payments. Also when overtime is reduced by reorganisation of working hours that does not give a right to redundancy payment, so long as the work to be done is the same.

It seems to be 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 accord the night shift people would get redundancy payments."

That later passage in the Lesney case is criticised by the Respondents because they submit that whilst Lord Denning at the beginning of the passage reminded himself of the statutory definition, he fell into error later in the passage in referring to the reduction or diminution in work rather than concentrating on employees.

13. Mr Marshall for the Appellants referred to Pfaffinger v City of Liverpool Community College [1996] IRLR 508. In that case a Liverpool College lecturer who had been employed on a continuing fixed term contracts for every term of the academic year for some thirteen years. The last contract had ended on 25 June 1993 when the term ended and the summer vacation began. The college then sought to downgrade the hourly rate. Mrs Pfaffinger refused the offer of a new contract at the reduced hourly rate and never worked for the college again the decision of this Court concerns whether there could be a redundancy situation at the end of each fixed term contract. Paragraph 40 of the judgment says as follows:

"It was held by the Court of Appeal in Lee v Nottinghamshire County Council, that in interpreting equivalent provisions in earlier legislation, it was necessary to ask, in the case of a fixed-term contract which expired and had not been renewed: 'Why was not the employee's contract renewed? If the answer was in the case of a teacher, that there was no more work for him to do and the requirements of the school or college for teachers or lecturers had diminished and were expected to be diminished, there was a dismissal for redundancy. Lord Justice Eveleigh pointed out in that case:

'The fact that the failure to renew was foreseen right from the beginning in no way alters the conclusion in my view that the dismissal was attributable to the "redundancy situation".'

The combined effect of the definition of 'dismissal' and the definition of a 'redundancy situation' in statutes is that, where there is a succession of fixed-term contracts which expire, there may be a dismissal for redundancy on the expiration of each contract. So, for example, where a part-time lecturer has three-fixed term contracts, one for each term during the academic year, he may be dismissed three times during that year for redundancy. This may sound surprising to some but, on the present state of the authorities and the legislation, that is the position."

And later on in paragraph 48 the Court held as follows:

"(4) The reason for Mrs Pfaffinger's dismissal on the expiration of the fixed-term contract on 25 June 1993 was redundancy within the meaning of the then sections. Liverpool College's need for part-time lecturers to carry out the function of part-time lecturing ceased or diminished from the beginning of the vacation at the end of June 1993 to September 1993. There was no teaching during that period. There was no need for teachers during that period. That is 'redundancy situation'. Mrs Pfaffinger is therefore entitled to redundancy payment."

The Respondents submit that in that case the Court was dealing with a series of fixed-term contracts whereas in this case what was being offered to the new employees or existing employees was a continuous contract for the year albeit that the terms and conditions were different from that which had been previously given to them. We agree with that distinction.

14. We pass on to consider the most recent authorities. Firstly the decision of this Court in Safeway Stores Plc v Burrell [1997] ICR 523. At page 530 Judge Peter Clark said this:

"Reduction in the work

From time to time the mistake is made of focussing on a diminution in the work to be done, not the employees who do it. One example will suffice. In Carry All Motors Ltd v Pennington [1980] ICR 806 the applicant before the industrial tribunal, employed as a transport clerk, was dismissed by his employers following their decision that his depot was overstaffed; they concluded that the work of the transport manager and transport clerk could be carried out by one employee only. The transport manager was retained and the applicant dismissed. On the applicant's complaint of unfair dismissal, the employer relied on redundancy as the reason for dismissal. An industrial tribunal held that requirements of the business for employees to carry out particular work had not ceased or diminished. The same work remained. Accordingly, there was no redundancy but simply a reorganisation. The dismissal was unfair.

On appeal the appeal tribunal reversed the industrial tribunal's findings. It held that the question was not whether the requirement for particular work had diminished, but whether the requirement for employees to do that work had diminished. Since one employee was now doing the work formerly done by two, the statutory test of redundancy had been satisfied. In reaching that conclusion the appeal tribunal followed and applied the approach of the National Industrial Relations Court in Sutton v Revlon Overseas Corporation Ltd [1973] IRLR 173."

And Judge Clark concludes at the end of that paragraph:

"It is necessary to look at the overall requirement for employees to do work of a particular kind; not at the amount of work to be done."

That passage was cited by approval by the House of Lords in the most recent authority Murray v Foyle Meats [1999] IRLR 562 where Lord Irvine in the leading speech said at paragraph 5, dealing with section 139(1)(b) said:

"My Lords the language of para. (b) is in my view simplicity itself. It asks two questions of fact. The first is whether one or other of the various states of economic affairs exists. In this case, the relevant one is whether the requirements of the business for employees to carry out work of a particular kind have diminished. The second question is whether the dismissal is attributable, wholly or mainly, to that state of affairs. This is a question of causation. In the present case the Tribunal found as a fact that the requirements of the business for employees to work in the slaughter hall had diminished. Secondly, they found that the state of affairs had led to the appellants being dismissed. That in my opinion, is the end of the matter.

This conclusion is in accordance with the analysis of the statutory provisions by Judge Peter Clark. In Safeway Stores plc v Burrell [1997] IRLR 200 and I need to say no more than I entirely agree with his admirably clear reasoning and conclusions."

15. Having reviewed the authorities we are in no doubt that the Tribunal decision in this case was correct focussing as it did on the requirement for employees to do work of particular kind rather than the amount of work to be done. The requirement for employees at this hotel had not altered. The number working there was to be the same before and after reorganisation. What occurred was a business reorganisation which involved a change in the terms and conditions and particularly the number of days that were to be worked by the same number of employees; a variation to the terms and conditions of their employment.
16. In so far as the earlier authorities are in conflict, we follow the clear guidance in Murray v Foyle Meats approving Judge Peter Clark's review in Safeway Stores Plc v Burrell. We have no doubts that the Industrial Tribunal in paragraph 33 adopted the right definition and the right approach namely that a reduction in the number of weeks which the same number of employees was required to carry out work did not satisfy the statutory definition. We would accordingly dismiss this appeal.