20 June 2013

Employment Court decisions signal new path in restructuring and redundancy

Employers will need to be much more careful when making redundancies as a result of restructuring, judging by recent decisions in the Employment Court.

Employment law specialist Sarah Townsend, of Duncan Cotterill, said that three recent rulings made it quite clear that employers must be aware that their commercial decisions, and the way in which these are reached, will be subject to greater scrutiny by the Courts in future.

“There was a long held perception that Courts would not interfere with management’s commercial decisions to restructure and make redundancies as they saw fit, even if those decisions were poor ones.

“That has changed with the spotlight now also firmly on the justification for the employer’s commercial decision to restructure,” Townsend said.

In each of the three cases recently before the Employment Court, the employer was reprimanded for making staff members redundant as a result of restructuring based on financial grounds. Employers failed to adequately show enough information about how proposed cost cutting justified the redundancies.

Townsend said that previously the onus of showing that a redundancy was genuine had largely been confined to demonstrating that the redundancy was the result of a genuine commercial decision.

“Unless the employee could show that the redundancy was a sham, motivated by a desire to exit an employee for reasons other than redundancy (for example, poor performance), the Courts tended not to interfere. It was considered a management prerogative to structure the business as an employer saw fit.”

This meant that case law used to focus on the process followed by an employer when implementing a redundancy – and, in particular, whether the employer fairly consulted with affected staff before making a final decision about restructuring and redundancy.

“Now there will be a greater emphasis on employers to justify the rationale for a restructure and to provide employees from the outset with copies of documents which support this,” Townsend said.

“If a decision to make redundancies is because of cost cutting, an employer must show what savings have been achieved and explain what other cost cutting options were considered and why they were rejected or were insufficient.”
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