Cutting hours can give rise to redundancy dismissal

A recent Employment Appeal Tribunal (EAT) decision has cleared up an important doubt about the statutory definition of redundancy. It has explained that it can apply not only where there is a reduction in total headcount, but also where a decline in the amount of work leads to a reduction in hours.

The EAT has recently confirmed that reducing an employee’s hours in response to a downturn in work is just as much a potential redundancy situation as if she had been dismissed outright. Why was there any doubt about this?

The answer lies in what has now turned out to be a rogue EAT decision nearly ten years ago which appeared to suggest that there needs to be a reduction in total headcount for the statutory definition of redundancy to apply. This well-known definition has two limbs. The one relevant here, which applies where there is not a total closure of the business, stipulates that the requirements of the business “for employees to carry out work of a particular kind” must cease or diminish. The EAT has now pointed out that this definition is equally applicable to a situation where the diminished work is divided up between the same number of employees, leading to a reduction in their hours, as it is where the employer responds to the fall in demand by reducing the overall headcount.

Of course for an employee to become entitled to a redundancy payment he or she must have been dismissed. Normally imposing a cut in working hours and pay without agreement will amount to a fundamental breach of contract. This will entitle the employee to resign and claim constructive dismissal if he or she is not expressly dismissed by the employer. On the other hand if an employer is contractually entitled unilaterally to reduce working hours there will be no dismissal. However, even in this situation an employee may acquire the right to a redundancy payment under the lay-off and short-time provisions of the Employments Rights Act, after a qualifying period which is normally four weeks. Those provisions make little sense if a reduction of hours can not give rise to a redundancy situation.

In short, as the lay members of the EAT in this case sensibly pointed out, any confusion can be avoided by adopting a full-time equivalent (FTE) approach. If the FTE complement goes down as a result of a down-turn in work, there is likely to be a redundancy situation.

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