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Employment Law

Legal guidance - compliance - software

01 MAY 2012

Objectivity need not apply

Julian Allsop

Recent case law has sought to differentiate between the principles applicable to the selection of employees who are to be made redundant from within an existing group of employees and those applicable to instances in which redundancy arises in consequence of re-organisation and there are new posts to fill.  Is this distinction justifiable?

 

Practitioners will appreciate that a decision to dismiss for redundancy will involve two separate lements, firstly the original decision to remove the employee from his job (either because the job is being dispensed with or because the number of employee doing that job are being reduced and he is selected) and secondly a separate decision to dismiss which involves a decision that no suitable alternative employment is available.  As the final act is dismissal, the process as a whole has to be fair. 

It is frequently the case that a redundancy exercise is prompted by a planned and significant reorganisation of the employer's business.  In such circumstances, the conceptual distinction between the two decisions has the potential to be blurred, to the detriment of the affected employees. 

An example of this occurred in the recent judgment of the Employment Appeal Tribunal in Samsung Electronics (UK) Ltd v Monte-D'Cruz (1 March 2012), UKEAT/0039/11/DM.  Mr. Monte-D'Cruz was one of three Heads of Departments in the Respondent`s Print Division.  In the autumn of 2009, Samsung re-organised the Division and decided to merge the Head of Department roles into one new role, Head of Sales-Print.  Mr. Monte-D'Cruz was notified of the potential redundancy of his role. As part of the redundancy process he applied for the new job and was unsuccessful. The second stage of the re-organisation was commenced by Samsung at this point. 

Mr. Monte-D'Cruz applied for the lesser Business Region Team Leader role, which seemed to him to be nearly identical to his previous job. He was unsuccessful in that application as well, and an external candidate was appointed.  As he had applied for no other role, his dismissal by reason of redundancy was confirmed with effect from the end of January 2010.

 The Employment Tribunal found that the dismissal was unfair.  In particular, whilst it found that in a case such as this where there was more than one candidate for an alternative role, it was not appropriate to apply precisely the same criteria as in judging selection for the original redundancy. Nevertheless there had to be a degree of objectivity as to the criteria and in their application otherwise the process would be unreasonable.  It considered that applications for alternative employment must be considered properly and the exercise carried out in good faith.

This self-direction was based on the case of Ralph Martindale &Co v Harris [2007] All ER (D) 347 (Dec) which had been discounted in Morgan v Welsh Rugby Union [2011] IRLR 376 as not having laid down any principle of law (it should be noted that at the time that the Employment Tribunal reached its decision, Morgan had not been decided). 

The EAT found that this self-direction was wrong in principle.  Underhill P confirmed, following the earlier decision of a differently constituted EAT in Morgan that as part of the redundancy process, if the dismissed employees are invited to apply for the jobs that are available in the business following the reorganisation, there is nothing objectionable in principle to the candidates being assessed on the basis of ‘subjective' criteria, i.e. criteria which are not in themselves capable of objective measurement.  The more objective requirements of the guidance in Williams v Compair Maxam Ltd [1982] ICR 156 only apply to the selection of employees who are to be made redundant from within an existing group. 

 Underhill P in Samsung endorsed Morgan and reaffirmed that there was no obligation on an employer to adopt objective criteria in considering an application for alternative employment.  There were no flaws in the process which were in any sense ‘egregious', tainted by bad faith or such that Mr Monte-D'Cruz could complain that his dismissal was unfair.  In the end, the EAT's position is that s.98(4) ERA 1996 provides adequate protection at all points in the dismissal process, and that as such, there is no need for a further gloss of objectivity in relation to applications for alternative employment.

 The tension illustrated by this case is between the selection of Mr. Monte-D'Cruz for redundancy, which would have been the subject of assessment against objective criteria if there had been a selection process, other than the self- selection caused by the abolition of his position within Samsung's business, and the subsequent applications for alternative employment, which were not, even though one of the roles was very similar to the role that Mr. Monte-D'Cruz had previously occupied.  From a high level perspective, it could be said with some force that it was the structure of the redundancy and reorganisation that led to his dismissal, rather than any objective failings on his part.  This structure was one that was imposed by Samsung, and by doing so, the company has been able to minimise the Employment Tribunal's already limited ability to interfere with the exercise of its managerial prerogative via s.98(4) ERA 1996.

 Many may regard this as an unsatisfactory position for the law to take.  Firstly, it allows employers to define the parameters in which s.98(4) ERA 1996 is to be applied to the redundancy, by simply dismissing all employees for redundancy and then inviting them to apply for jobs in a restructured business, some if not all of which will bear a considerable degree of similarity to roles that were occupied in the previous structure.

 In order to avoid the requirements of s.98(4) ERA 1996 in a Williams v Compair Maxam Ltd situation, the new roles have to be different from the old roles, and it would seem from Monte-D'Cruz that the difference does not have to be significant, although unfortunately there is no clear guidance as to how different the new role has to be.  The potential for abuse is therefore plain: as a result of Morgan and Monte-D'Cruz, the Employment Tribunal can only interfere when the selection for the alternative roles is conducted in an egregious manner or tainted by bad faith or otherwise (‘otherwise' not being the subject of separate judicial elaboration).

Secondly, what exactly is the standard by which a restructuring redundancy is regulated, if the guidance in Williams v Compair Maxam Ltd is put to one side?  It would appear from Morgan and the usage of the terms ‘egregious' and ‘good faith' in the discussion in Monte-D'Cruz that it is only in very limited circumstances of bad faith and / or perversity that an Employment Tribunal will be permitted to interfere under s.98(4).  This is arguably inconsistent with the principles of justice and equity that underpin s.98(4) in the context of contemporary industrial relations practices. 

Thirdly, Monte-D'Cruz has approved the rationale of Morgan as being of general application, but the case of Morgan involved the appointment to a new role that was at a higher level than the redundant role.  It was suggested by the EAT in Morgan that in such circumstances, the appointment to the new role may be more akin to an interview process and that therefore the more subjective approach germane to an interview would be appropriate.  On the face of it, there would appear to be some force in that view from an employer's perspective. After all, it is an employer's prerogative to appoint the candidate who the employer perceives to be the best person for the job, especially when the appointment is to a new role at a high level.  However, applying the Morgan approach in an exercise involving a wider workforce is arguably inappropriate in that it ignores the rights and legitimate expectations of that existing workforce of eligibility and suitability for appointment to an equivalent role in a restructured business.  In those circumstances, there would appear to be little justification for permitting the employer a higher degree of discretion than it would be afforded if there had not been a reorganisation of the business and it had adhered to the guidance in Williams v Compair Maxam Ltd.

Whilst the law may be settled as a result of Monte-D'Cruz and Morgan, significant questions remain.  What does seem to be clear is that the theme from the EAT, namely that s.98(4) ERA 1996 provides adequate regulation, will be of little comfort to employees facing redundancy in the context of a planned and well executed reorganisation.  In such circumstances, because bad faith in the exercise of managerial prerogative is notoriously difficult to establish, it may be that the more profitable course for an employee would be to challenge the redundancy situation itself: where the new roles are barely distinguishable from the old, the employer may well have difficulty in showing that the need for work of a particular kind has diminished. 

 JULIAN ALLSOP

Guildhall Chambers

23 Broad Street

Bristol 

 

 

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