We often come across employers who believe that they have the right to make changes to their business without any regard to the needs, or rights of their staff.
This is half right in that employers are entitled to organise their business as they wish, and make it the size and shape that they think will be most rewarding for their needs in their market sector. What employers cannot do is implement this without some regard to the needs of their workforce if they want a loyal, engaged and stable workforce. More importantly, they cannot ride roughshod over the employment rights of their employees. Uttering the restructuring word gives no more legitimacy than any other label. The problem is that there is no legal definition of restructuring, and it means different things to different people. For many people, restructuring is just a euphemism for redundancy. The term is used because it sounds nicer, as well as being more positively active, and seems a lot less like the organisation is somehow failing. If employers want to call it downsizing or rightsizing, it makes no difference, if what they are actually describing is redundancy.
Many employers will find the need to restructure at some point, whether that means downsizing the workforce, changing the set-up, promoting existing employees or employing new ones. Whatever the procedure, employers’ methods can prove to be very unsuitable, and even illegal. If you want to avoid an unhappy workforce, and potentially legal complaints as a result of restructuring your business, then there are processes to do correctly.
Money is a significant factor in terminations – it will be of great importance to the employee, to the extent that they can claim breach of contract if suitable payments are not made. Employers must consider that under employment law, employees are entitled to any accrued salary and benefits, accrued but untaken holiday and any other accrued contractual entitlements up to the date of termination.
If there is a true redundancy situation, employees with 2 years’ service are also entitled to a statutory redundancy payment. Redundancy payment calculations are based on an employee’s age and length of service and salary (subject to a statutory maximum).
Not explaining the true reasons behind the Dismissal / Redundancy
Restructuring is often used to get rid of poor performers more easily. This is certainly not a recommended move, as it could lead to findings of unfair dismissal or discrimination in Court. Instead, the employer should be able to demonstrate the true, fair reason behind the dismissal, which should fall into one of five categories:
- Some Other Substantial Reason
We shall return to Some Other Substantial Reason (SOSR) shortly.
Redundancy is a potentially ‘fair’ means of dismissal, so long as the procedures followed and the circumstances are correct. A redundancy situation happens when there is no more, or not enough (e.g. you close or relocate the business, or you require fewer workers). You need to take the following steps to ensure a fair redundancy:
- Employees need to be informed of proposed redundancies by employers, undertaking consultation with the ‘affected employees’ (or their representatives) with a view to ‘reaching agreement,’ which includes considering alternative ideas to redundancy, and explaining the rationale for redundancy.
- You must select those who are at risk of redundancy in a fair and objectively justifiable way.
- There ought to be consideration of offering employees any alternative work that’s available and suitable, and you must tell them of any vacancies in the organisation. If a suitable job is available, they shouldn’t be entitled to a redundancy payment.
- You must pay a Statutory Redundancy Payment (if they have two years or more continuous service) if there’s no suitable work available at that time.
If an employer has alternative work available that’s suitable but doesn’t offer this to the redundancy employee, the redundancy dismissal of the employee may be an unfair dismissal.
Statutory Trial periods
If the employer offers a new job that’s a reasonable alternative to the old job, but where there are some differences to the old position and its terms and conditions, they’re entitled to a four-week statutory trial period in the new job. Employers can, however, offer long periods of e.g. 3 to 6 months instead, if they do so carefully.
If, during or at the end of the trial period, either you or your employee terminates the new contract, or gives notice to terminate it – because it’s not considered a suitable alternative – the employee will be classed as being dismissed by redundancy, and still qualify for a redundancy payment.
Reorganisations and SOSR
The law has always recognised that employers are entitled to dismiss employees who refuse to go along with business reorganisations. Back in 1977, Lord Denning said that nothing should be done to impair the ability of employers to reorganise their workforce and their terms and conditions of work, so as to improve efficiency. If employees, therefore, refuse to agree to changes arising from reorganisation, they may be dismissed. Whether this is fair is a difficult issue which we will address.
There is no such stand-alone legal right to dismiss employees due to reorganisation unless it is really a redundancy. It is possible to dismiss in a reorganisation if this amounts to the fifth statutory reason, i.e. ‘some other substantial reason’ (SOSR).
SOSR may apply when a business is restructuring (but not making redundancies). At such a time, the employer may seek to make changes to an employee’s terms and conditions. Whether such changes to terms and conditions are part of such a business restructure (or not), a dismissal as a result, or refusal to accept such changes, may result in a fair dismissal for SOSR.
The starting point here is that a contract of employment can only be varied so far as the terms allow, or by the agreement of the parties. An employer which seeks to unilaterally change a contract of employment may be exposing itself to claims of constructive dismissal. However, the employee must show some flexibility to adapt to new methods and techniques.
In order for an employer to dismiss an employee for refusal to accept changes to their contract and to claim SOSR, the employer must show that the changes were necessary for a “sound, good business reason”. Fair business reasons for the changes do not have to be vital for the survival of the business — even if they are much less favourable to the employee.
A Tribunal cannot substitute its own view for that of the employer, so as to find unfairness because the employer made the ‘wrong’ decision, but the employer must be able to show that there was a strong business reason, so that the reason is ‘substantial’, and not minor or trivial. Effectively, it is a low threshold for deciding whether an employer has ‘some other substantial reason’ for dismissal.
A Court of Appeal judgment in 1979 stated that fairness of dismissal for SOSR did not depend on consultation and negotiation, and, therefore, did not render it unfair, but the law has moved on to the extent that good consultation is now seen as the key requirement. Regardless of the correct legal position, it is advisable from an employee relations perspective, and to support the reasonableness of the employers’ behaviour, to consult and negotiate where appropriate. More recent case law has stated that Tribunals should look at the benefits to the employers, and at the advantages and disadvantages to the employee of contractual changes, when considering if the dismissal was reasonable. This is a difficult balancing exercise.
Some of the variations to terms and conditions that have been deemed to be acceptable in the past, (where domestic arrangements prevented two women from changing their hours of work), would need to be considered in the light of more recent equality legislation and case law. The case law has developed to the extent that imposing or agreeing changes which indirectly discriminate on the grounds of sex or disability are likely to be unlawful, unless there is a very good business reason that has been appropriately applied.
There is a view in some circles that employers cannot change terms and conditions of employment without employees’ agreement. This can be done, but it is not for the risk-averse. It is very difficult to predict whether this will be held to be fair where there is a clear conflict between the employer’s legitimate business interests and the employee’s contractual rights. Problems often arise when the employer want to arrange the operation of the business in a way that means changes to the employer’s job, or the way he/she carries it out, such as changing hours/shifts wages job description or location. The contract is, in theory, static so cannot be unilaterally changed. If the employer forces a contractual change, then the employees can claim breach of contract and/or unfair constructive dismissal.
There are three options open to an employer:
- Use the flexibility built into the contract, or rely on the normal range of reasonable actions which an employer has in a changing world. This will work best if the change is minor, and, therefore, refusal to work within the new requirement would be a disciplinary offence.
- A more significant change may constitute a redundancy situation, entitling the employee to full consultation and a redundancy payment. This is often a pragmatic solution, and one that an Employment Judge would see as a good way out, especially if there is a reduction in the work that the employee used to do.
- However, sometimes an employer restructures its workforce but the amount of work, and the number of employees required to do the work, are not diminished overall. An employee may be dismissed because they do not fit into the new structure, and an employer may cite this as a SOSR dismissal – in which case, no redundancy payment is owed. In reality, this happens rarely. It is a ‘no fault’ dismissal, and the employer often pays a redundancy payment, both as a discretionary gesture and because, on a practical level, it is less likely to get sued, having compensated the employee to some extent for the loss of their job.
Because a restructure is akin to a redundancy situation, you would expect to see something like a redundancy procedure applied in order for a SOSR dismissal to be fair, with individual consultations and offers of suitable alternative work where feasible. It is open to the employer to argue in Tribunal that this was a redundancy but that, if it isn’t; in the alternative, it was a potentially fair SOSR dismissal due to the need to reorganise.
A Common Approach to ‘Restructuring’
Regardless of the reason whether it be redundancy or re-organisation, there are key aspects to focus on when restructuring your organisation.
Clear Purpose – You should be certain that restructuring is the only option available to you. It can be hard on a business and its staff to undergo drastic changes, so ensure that you are positive that restructuring is for the best.
Clear Communication – Restructuring can be confusing. So, it is important that you make sure you staff, suppliers and anyone else who stands to be affected by the changes, is kept informed of what is going on. This is especially important in the event that staff are going to be made redundant. Failure to communicate properly during this time can lead to staff taking you to an Employment Tribunal, with a significantly higher chance of winning a claim against you.
Consider your Options – Any restructuring should require a degree of planning and legal documentation. You should also approach it from the perspective of avoidance, which may include reducing overtime, freezing recruitment, implementing layoffs etc. If you want to effectively realign your workforce and meet business objectives, nothing will help you more than having a well-thought-out transition plan; as long as you apply it flexibly, bearing in mind the consultation process.
You are welcome to raise any concerns with our Consultants, who would be pleased to advise you on any element of the issues arising from this newsletter.