Redundancy: to pool or not to pool?
Author: Antonia Blackwell
Applies to: England, Wales and Scotland
When embarking on a redundancy process, one of the first things for an employer to consider is the pool from which to select employees for redundancy. The legal importance of choosing the correct pool should not be underestimated.
What the law says
The choice of pool is important when it comes to assessing the fairness of any redundancy dismissals. Applying otherwise fair selection criteria to the wrong group of employees is likely to result in an employment tribunal finding the dismissal is unfair.
Where there is an agreed or established procedure which specifies that a certain pool should be used then an employer will be expected to follow this or have a good business reason why they are not following the normal process. In addition, where an employer recognises a trade union it will be expected to discuss the scope of the pool with the union and, in a collective consultation process, the scope of the pool must be discussed with appropriate representatives.
Otherwise there are no fixed rules and an employer has a good deal of flexibility in deciding on the pool from which they will select employees for dismissal. All that an employer needs to demonstrate is that it applied its mind to the problem and acted from genuine motives.
How do you chose the correct pool?
In many circumstances, the choice of pool will be obvious. For example, where there is a reduction in work carried out by a discrete department all employees assigned to that department will be in the selection pool.
Where the pool is not so clear cut, an employer will need to consider the type of work which is reducing or disappearing and which employees carry out that work.
For example, in a case involving a solicitor's firm which employed associate solicitors and assistant solicitors, the firm decided to make redundancies among the associates since it was the more complex work that was drying up. The associates proposed taking a pay cut so that they would be no more expensive than the assistants and thus cuts could be made across both groups. However, the firm said the selection of the associates was on the basis of the nature of the available work. The employment tribunal dismissed the associates' subsequent unfair dismissal claims as the firm had sound business reasons for making selection in this way. The employment tribunal considered the firm's assertions that the associates would at some point get frustrated with the low level of work available and if there were no assistants being trained up there would be no employees ready to be promoted to associate if the market picked up. Further the loss of skills and experience in dismissing the associates was not of concern since there was capacity amongst the firm's directors who did have those skills and experience.
What happens if you choose the incorrect pool?
While the choice of pool is generally at the employer's discretion, it will need to ensure that it has considered all employees carrying out the particular type of work, even where this may not be their primary focus or part of their written job description.
In the case of Fulcrum Pharma Europe Limited v Bonassera, the company employed an HR manager and a more junior HR executive. The manager had previously carried out the HR executive role. The company placed the HR manager role at risk with the aim of having only a basic HR function. The company decided there was a pool of one because the HR manager post was to go and there was only one person in that post. The manager was accordingly dismissed on grounds of redundancy. Both the employment tribunal and the Employment Appeal Tribunal (EAT) held that the manager had been unfairly dismissed because a reasonable employer would have decided to include both roles in the pool.
A similar approach was taken in the case of Capita Hartshead Ltd v Byard where the EAT upheld a tribunal's decision that a redundancy dismissal was unfair where the employer used a selection pool of just one employee (a pension scheme actuary). The claimant was one of four actuaries, each of whom managed a number of pension funds. The employer had lost a number of the claimant's clients, hence its decision to limit the pool to the claimant alone. The employer argued that there was a risk of losing clients if they were transferred between actuaries. The tribunal, however, held that the employer's decision to limit the size of the pool to one was not reasonable in the circumstances and other actuaries should have been included in the pool. In particular, the tribunal found that the other actuaries did similar work and there was only a slight risk of losing clients if their scheme actuary was changed.
Key points for employers
- Identify the reason for the proposed redundancy situation - if it is due to a reduction in work, identify what work is ceasing or diminishing.
- Be careful about defining the pool too narrowly, particularly limiting a pool to just one person.
- Consider whether other groups of employees are doing similar work to the group from which selections are made or if any employees' jobs are interchangeable - if so, decide whether these employees should also be included in the pool. It may be necessary to ask employees to document their day to day activities to properly consider what happens in practice.
- If you recognise a trade union, discuss the choice of pool with the union to see if you can obtain their written agreement to the approach taken.
- Make sure you keep an open mind, act reasonably in deciding on the choice of pool and can justify your decision if necessary.
- By considering a wide pool of employees, employers can reduce legal risk and with the application of objective selection criteria, ensure they retain the right people for the job going forward.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.