Reduction in headcount not necessary for redundancy

Packman t/a Packman Lucas Associates v Fauchon EAT/0017/12

redundancy | dismissal | diminution in work

The Employment Appeal Tribunal (EAT) has affirmed the employment tribunal’s decision that an employee, who was dismissed because of the employer’s downturn in work and consequent reduction in the hours to be worked, was dismissed by reason of redundancy, even though there was no reduction in the employees required. 

Implications for employers

  • Where there is a downturn in the employer’s business, but no change in the number of employees, if there is a dismissal because of the downturn and consequent reduction in hours previously worked, the dismissal will be by reason of redundancy. 
  • Employers cannot avoid making a redundancy payment by arguing that, while there has been a reduction in work, there has been no reduction in the workforce required. 

Mrs Fauchon was employed by Mr Packman to provide book-keeping services. As a result of a downturn in business and the introduction of a new accounting software package, there was less of a requirement for Mrs Fauchon to work the hours she had previously been working. Consequently, the employer tried to persuade Mrs Fauchon to reduce her hours significantly. Mrs Fauchon refused and was dismissed. 

Mrs Fauchon brought various claims against the employer. One of the claims was that she had been dismissed by reason of redundancy and was therefore entitled to a redundancy payment. The tribunal said that the downturn in business meant that there was a diminished need for book-keeping services and, as Mrs Fauchon did not agree to a significant reduction in her hours of work, the reason for her dismissal was redundancy. The tribunal confirmed that Mrs Fauchon was entitled to a redundancy payment of £11,210. 

However, in reaching its decision, the tribunal chose not to follow the applicable authority of Aylward and others v Glamorgan Holiday Home Ltd (trading as Glamorgan Holiday Hotel) [2003] All ER (D) 249 (Apr) EAT, which indicates that there must be a reduction in the number of employees before a dismissal can be regarded as a redundancy. It made this choice on the basis of criticism of Aylward in Harvey on Industrial Relations and Employment Law. 

The employer appealed, arguing that the tribunal’s decision was contrary to Aylward and that Aylward should have been binding on the tribunal. 

The EAT dismissed the employer’s appeal. The tribunal’s decision was in line with the High Court’s decision in Hanson v Wood [1967] 3 KIR 231 while Aylward was inconsistent with previous Court of Appeal observations. In addition, the EAT in Aylward had erroneously relied on a misunderstanding of observations in Safeway Stores plc v Burrell [1997] IRLR 200 EAT

The EAT referred to s.139(1)(b)(i) of the Employment Rights Act 1996. Section 139(1)(b)(i) provides that “an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to the fact that the requirements of that business for employees to carry out work of a particular kind…have ceased or diminished or are expected to cease or diminish.” The EAT said that the whole of the wording of s.139(1)(b)(i) must be taken into account. The EAT noted that considering all of the words in this section, the tribunal had reached the correct decision. If the amount of work available for the same number of employees is reduced, a dismissal of an employee caused wholly or mainly for that reason is a redundancy. 

While the EAT noted that Harvey’s criticism of Aylward is well founded, the EAT stressed that the tribunal was bound to follow applicable authority, in this case Aylward, and should have done so while setting out its reasons for disagreement with that decision. 

The EAT also observed that the lay members of the EAT were happy with the above interpretation of the statute as this is consistent with the industrial approach of adopting a full-time equivalent approach to the question of hours and number of employees. For example, the full-time equivalent workforce may be cut from two to one, even though the number of employees actually working remains the same. 

Additional resources

Case transcript of Packman t/a Packman Lucas Associates v Fauchon (on the BAILII website)

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