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4 July 2012

Reduction in headcount not necessary for a redundancy

Our employment team's report on the recent case of Packman v Fauchon, which was heard by the Employment Appeal Tribunal (‘EAT’).

The claimant was employed as a book-keeper for the respondent.  Following a downturn in business, and as a result of the introduction of new accounting software, the respondent sought to significantly reduce the claimant’s working hours.  The claimant refused to accept the reduction.  She was subsequently dismissed and she brought an unfair dismissal claim.

The employment tribunal determined that the reason for her dismissal was redundancy, and therefore she was entitled to a redundancy payment. The employer appealed this decision to the EAT.

In dismissing the employer’s appeal, the EAT held that the downturn in business meant that there was a diminished need for book-keeping work.  Since the claimant did not agree to a reduction in her hours there was a redundancy situation and she was entitled to a redundancy payment.

The EAT was critical of the tribunal for not following the earlier, unreported EAT case of Aylward v Glamorgan Holiday Home Ltd (EAT/0167/02) that had suggested that there must always be a reduction in headcount in order for a redundancy situation to arise.  However, it agreed with the tribunal’s ultimate conclusion that despite the fact there was no need for a reduction in numbers of employees, the claimant had been dismissed by reason of redundancy.

Comment

The judgment in this case is interesting because it appears to clarify the difficult question of whether a reduction in hours can result in a redundancy situation, when the headcount of employees otherwise remains the same.  What is not clear from the EAT’s decision is quite how ‘significant’ a reduction in hours would be necessary in order for a redundancy situation to arise.  This is likely to be the subject of future appeal decisions.

Following this case, employers should be aware that in seeking to reduce hours in order to save costs, affected employees may try to argue that they are entitled to a redundancy payment.  This highlights the importance of following a fair procedure and consulting fully with employees before seeking to agree changes to hours of work.

A copy of the EAT judgment is available here