The importance of procedural safeguards on redundancy - what employers in Jersey can learn from the Voisin case30 Jun 2008
The purpose of this briefing is to consider the concept of redundancy in light of the unfair dismissal legislation and then to consider the facts of Voisin. Thereafter, the briefing analyses the Royal Court judgment and clarifies the relevant considerations for every employer when faced with the never easy task of making redundancies so as to ensure that the dismissal process is conducted fairly.
The recent Royal Court judgment of Francis Gerald Voisin (trading as Voisins Department Store) v. Thomas Brown  JRC 047 ("Voisin") has clarified a number of important issues in connection with dismissal by way of redundancy and whether a dismissal in these circumstances will be "fair" or "unfair".
The Royal Court judgment will be of specific comfort to the numerous small businesses in Jersey where, on the facts, it may not be appropriate for the employer, having considered the four ordinary principles of fairness (see section "Procedure on dismissal" below), actually to implement each of them. The Jersey Employment Tribunal (the "Tribunal") had previously indicated that these were mandatory. In terms of the role of the Tribunal, the Royal Court made it clear that the Tribunal is not to substitute its own opinion for that of the employer, but rather, to judge the matter in light of the range of reasonable responses test given the specific facts of the case (see section "What is the range of reasonable responses test?" below).
The judgment is also important from a procedural standpoint as this was the first occasion on which the Royal Court had to consider an appeal from the Tribunal on unfair dismissal. The judgment has clarified the limited options available to the Royal Court should it uphold an appeal from the Tribunal on a matter of law.
Background: what is unfair dismissal?
It has been well publicised that the Employment (Jersey) Law 2003 (the "Law") introduced the concept of unfair dismissal for the first time as a matter of Jersey law. Indeed, since the coming into force of the Law, there have been a number of cases heard by the Tribunal on unfair dismissal, most of which have been decided in favour of the employee. These have been eagerly reported in the local press.
To recap, the Law introduced the concept of "fairness" into the whole dismissal process. For an employer to dismiss an employee fairly, the employer must both:
- have a valid reason for dismissing an employee; and
- act reasonably in treating that reason as a sufficient reason for dismissing the employee.
In determining whether a dismissal is fair or unfair, the burden of proof is on the employer to show that he has complied with the two stage test. It should be noted that the second of these conditions will not be relevant where an event amounting to automatic unfair dismissal has occurred.
In terms of stage one of the test, the Law specifies five specific types of reason which can justify dismissal. These are: (i) conduct; (ii) capability and qualifications; (iii) redundancy; (iv) continued employment would breach a statutory requirement; and (v) some other substantial reason. (Some other substantial reason is normally interpreted by the UK Employment Tribunals as "a sound good business reason" not falling within one of the other four criteria.) In terms of stage two of the test, the employer will need to demonstrate that he has acted reasonably in all the circumstances in the decision making process leading to the dismissal for that particular reason.
This briefing is primarily concerned with "redundancy" as being the valid reason for dismissal in terms of stage one of the test and further, in terms of stage two of the test, the relevant issues the employer will need to consider in making sure that he has acted reasonably, in all the circumstances, in the decision making process so as to ensure he conducts the dismissal process "fairly".
What is redundancy?
Redundancy is a form of dismissal. Recognising a genuine redundancy scenario is not always straightforward. In order for the employer to dismiss "fairly", the redundancy must be genuine. In each case, it is the need for the work which a particular employee does pursuant to his or her contract of employment which must have been reduced. A dismissal will generally be regarded as a genuine redundancy if:
- the employer's business, or part of the business, has ceased to operate; and/or
- the employer's business has moved to a different place; and/or
- the employer’s business need for work of a particular type to be done has ceased or diminished.
Examples of when an employee may be genuinely redundant include:
- the work the employee does is no longer needed; for example, the employer's business is failing or the employer is moving into a new line of business which no longer needs the employee's skills, or a new process is introduced which makes the employee's skills unnecessary;
- the employee's job no longer exists because the work is being done by other employees;
- the workplace has closed because the employer has ceased trading but is not insolvent;
- the business is transferred to a new employer;
- the employer's business becomes insolvent; or
- the employer was the sole proprietor of the business and dies.
What is a "sham" redundancy?
Unscrupulous employers will often claim that there has been a reduction in the work needing to be done when, on closer inspection of the facts, this is not the real reason for dismissing an employee. For this reason, the Tribunal will or should always consider carefully the circumstances of the purported redundancy. By way of example, the following may indicate that the real reason for the dismissal is not redundancy:
- if, despite the redundancy, the employer has taken on other people in the same role; this is a strong indication that there has not been a reduction in the amount of work being done;
- if a "particular" employee is being made redundant, or is one of a few in a large company; this might indicate that the type of work the particular employee does is still needed;
- if an employee is pregnant, female, from an ethic minority, disabled, gay or has particular religious beliefs; this might indicate that the employee has been singled out for dismissal for a reason other than a general need to reduce the workforce; or
- if a particular employee had a bad relationship with his or her employer; this might indicate that the particular employee is being dismissed other than for a general reason to reduce the workforce.
In the event that the Tribunal finds that, on the facts, redundancy was not the real reason for dismissal, it is more than likely that the dismissal will be deemed to have been "unfair".
The facts of Voisin
Mr Voisin was the sole proprietor of Voisins Department Store. Mr Brown was employed as general manager. Concerned that the business was not achieving projected sales targets, Mr Voisin concluded that he could in large measure assume the function of general manager himself following retirement from his position as a States Deputy. Mr Voisin considered whether Mr Brown should be offered the role of store operations manager but, as that would essentially involve demotion and a 55% cut in salary, he did not think that Mr Brown would accept it. Furthermore, the existing store operations manager had always had good appraisals so that there was no obvious reason to dismiss her. There was an imminent proposal at the time whereby Mr Brown was to invest personally in part of the business and Mr Voisin did not consider that he could let Mr Brown commit to this investment without knowing that he was going to lose his job.
Accordingly, Mr Voisin informed Mr Brown that he needed to save substantial costs and that he was, "going to have to let him go". At a subsequent meeting, Mr Voisin explained to Mr Brown that the reason for the dismissal was redundancy and described Mr Brown as being "in a pool of one", given that his role was unique within the business. Mr Brown issued proceedings for unfair dismissal. The Tribunal held that he had been unfairly dismissed, finding that, in cases of redundancy, an employer has a duty to comply with the four ordinary principles of fairness, namely, to consult with the employee, to warn the employee of redundancy, to establish fair selection criteria and to explore with the employee alternatives to redundancy. The Tribunal found that Mr Voisin had not discharged any of these four duties and Mr Brown had therefore been unfairly dismissed. In terms of the test for unfair dismissal (see section "Background: What is unfair dismissal?" above), Mr Voisin had failed to comply with stage two of the test in so far as he had not acted reasonably in treating redundancy as a sufficient reason for dismissing the employee. In other words, Mr Voisin had failed to implement the redundancy process "fairly".
In light of the above, the Tribunal awarded damages to Mr Brown. Pursuant to Article 94 of the Law, Mr Voisin appealed to the Royal Court against the decision of the Tribunal on the ground that the Tribunal had erred in law in finding that Mr Brown had been unfairly dismissed.
Was this a "genuine redundancy" scenario?
The first issue of interest in connection with stage one of the test for unfair dismissal (see section "Background: What is unfair dismissal?" above) is whether this was in fact a genuine redundancy as Mr Brown was declared redundant because his work was now being undertaken by Mr Voisin. However, the Tribunal found that Mr Brown had been made redundant because Mr Voisin was not an employee of the business. Mr Voisin owned the business and was therefore not "employed" by Voisins Department Store. No appeal was brought against that part of the Tribunal's decision. In essence, Mr Brown's job no longer existed because his work load was now to be undertaken by Mr Voisin or, to put it another way, Mr Brown’s position as general manager was redundant on the basis that Voisins Department Store's need for Mr Brown to carry out his work had ceased.
Procedure on dismissal: the four ordinary principles of fairness
On the basis that the Law, and specifically the test for unfair dismissal, is based upon the English law model, the Royal Court considered a number of English law decisions which were expressly stated in the judgment to be of considerable guidance as a matter of Jersey law on the issue of dismissal by way of redundancy.
By way of summary, the English cases confirm the four ordinary principles of fairness which should always be "considered" in situations of redundancy, namely:
- the duty to consult with the employee: in particular, employees should be given the opportunity to explain why they consider they ought not to be selected for redundancy; if they are not given this opportunity, the employer may never learn of other skills or experience the employee has which would make him or her suitable for any remaining role; notice of termination should not be given until the consultation process is exhausted;
- the duty to warn the employee of redundancy: a crucial component of the redundancy procedure is that the employees affected must be given early warning of the risk of a redundancy dismissal;
- the duty to establish fair criteria for selection of employees for redundancy: the criteria used should be objective and be applied in a fair way; and
- the duty to explore alternatives to redundancy with the employee: generally as soon as the provisional selection for redundancy is made, a search for suitable alternative employment should begin and should continue until termination.
However, the English authorities make it clear that the decision as to whether a dismissal is "unfair" does not depend on whether all the boxes can be ticked in respect of the four ordinary principles of fairness. For example, on the facts, there may be a very good reason why the employer did not establish fair selection criteria or explore with the employee alternatives to redundancy.
The Royal Court found that the Tribunal in Voisin had wrongly elevated the four ordinary principles of fairness into "mandatory requirements of law" so that any failure to comply with any of them necessarily renders a dismissal unfair. The English law authorities confirm that the four ordinary principles of fairness must be considered in light of the correct "range of reasonable responses test". The Tribunal had failed to consider the specific circumstances of the case and had applied the wrong test. An employer’s duties to consult, warn, consider redundancy selection criteria, and to consider with the employee alternative employment options may differ substantially depending upon the case in question.
What is the range of reasonable responses test?
The Royal Court considered that the key principle which emerges from the English law decisions is that it is not for the Tribunal to substitute its own opinion for that of the employer. Rather, its role is to determine whether the employer has acted in a manner in which a reasonable employer might have acted, although the Tribunal, left to itself, might have acted differently. The English law authorities refer to a "range of reasonable responses" in the particular context, within which range one employer might reasonably take one view, and another might quite reasonably take another. The function of the Tribunal, as an industrial jury, is to determine whether, in the particular circumstances of each case, the decision to dismiss the employee fell with the range of reasonable responses which a reasonable employer might have adopted. If the dismissal falls within the range, the dismissal is "fair" whereas, if the dismissal falls outside the range, it is "unfair".
Compliance with the four ordinary principles of fairness will certainly assist in demonstrating that the employer has acted within the range of reasonable responses which a reasonable employer might have adopted in specific circumstances. However, on the facts of a particular case, absolute compliance with the four ordinary principles of fairness might not be applicable or appropriate and, in some instances, as was demonstrated in Voisin, could be entirely futile.
The Royal Court's analysis of the Tribunal’s decision
In Voisin, Mr Voisin did not consult with Mr Brown about the possibility of redundancy or indeed warn him of the possibility of redundancy. The Royal Court noted that the facts of Voisin were unusual and found that the Tribunal had failed to consider whether, in the particular and unusual circumstances of the case, Mr Voisin's failure to warn or consult with Mr Brown was something another reasonable employer might reasonably have done. On the facts, the decision of Mr Voisin was a commercial decision made in good faith and, given the particular circumstances of the case and the unique position which Mr Brown held, any purported consultation about whether the redundancy would or would not occur would have been entirely cosmetic, futile and, moreover, a deceit. A warning of the inevitable would have been similarly futile. Accordingly, it was quite conceivable that Mr Voisin's decision fell within the band of reasonable responses which a reasonable employer in those particular circumstances might have adopted. The Tribunal failed to consider the specific circumstances of the case and applied the wrong test.
In terms of applying fair selection criteria, the Tribunal again applied the wrong test, and failed to consider the specific circumstances of the case. Mr Brown was in a "pool of one" and, therefore, there was no question of establishing a selection procedure because it simply was not applicable. Mr Brown was in a "pool of one" because he was the only employee at such a senior level and it was his activities which Mr Voisin was going to take on personally. The Tribunal's judgment was unclear on this issue. What was clear was that the Tribunal had failed to consider the range of reasonable responses test. Specifically, the Tribunal failed to consider the key issue, being whether Mr Voisin's opinion that there was a "pool of one", was one that other employers might reasonably have taken.
On the issue of the employer’s duty to consider alternative employment options with the employee, again the Tribunal failed to consider the specific circumstances of the case and to apply the range of reasonable responses test. Mr Voisin's position was that he acted as many a reasonable employer would have done. The Royal Court considered the matter and concluded that it would be unreasonable to "bump" the existing store operations manager from her post in order that Mr Brown might take her place in a less important role with a 55% salary reduction. The Tribunal had not considered this issue at all and simply considered that the requirement to offer alternative employment was mandatory and that failure to abide was unfair. Again, the Tribunal failed to consider the reasons given by Mr Voisin for his decision and did not consider whether it was an approach which might have been taken by other reasonable employers in the unusual and particular circumstances of the case.
The duty to "consider" the four ordinary principles of fairness
The judgment of the Deputy Bailiff in Voisin clarifies, as a matter of Jersey law, the relevant factors employers must at least consider, when faced with the possibility of making a redundancy.
Employers have a duty in all circumstances to consider the four ordinary principles of fairness and, if appropriate, given the specific circumstances of the case, to go on and implement these four principles. In many instances, it will be entirely appropriate and reasonable for employers to consult, warn, establish fair selection criteria and explore alternatives to redundancy, particularly when the business in question has a large workforce. However, what will be of considerable comfort to smaller companies and sole proprietors, of which there are many in Jersey, is that the four ordinary principles of fairness are not absolute or mandatory requirements which must be adhered to in every case. On the facts of a particular case they simply may not be applicable.
The Royal Court's lack of options on appeal
Article 94 of the Law is clear insofar as it only allows an appeal of the Tribunal's original decision on questions of law. In Voisin, the Royal Court held that, where an appeal is brought only on a question of law, it is not open to the Royal Court to substitute its own view of the facts for that of the Tribunal, even if satisfied that the Tribunal was wrong in law. In these circumstances, the Royal Court must remit the case back to the Tribunal unless it finds that no Tribunal, properly directing itself, could have come to the conclusion that the employee was not unfairly dismissed. This follows the English law position where case law has confirmed that, on appeal, the appeal body will have no power to interfere with the Tribunal's decision unless it can be shown that such decision was "perverse".
Although the Royal Court found perversity in relation to the duty to consider redeployment, the Royal Court did not find perversity in relation to the other three ordinary principles of fairness. In other words, the Royal Court was not satisfied that the decision of the Tribunal was one which no reasonable employment tribunal could have reached. In the circumstances, the Royal Court held, with some regret (given the further expense and worry this would involve), that it must remit the matter back before a newly constituted Tribunal.
The Royal Court noted that the States might have provided for an appeal along the lines of that which exists in planning matters, i.e. that a decision was "unreasonable". This confers a considerable margin of discretion upon the original decision making body, but also allows the Royal Court to intervene and make its own decision where it is satisfied that something has clearly gone wrong so that the original decision is "unreasonable". This is a lower threshold than the need to find a decision to be "perverse". Amendment of Article 94 of the Law along these lines would give the Royal Court greater powers to intervene.
Practical steps for employers on redundancy
Faced with the prospect of making a redundancy, employers should consider taking legal advice before embarking on the redundancy procedure. As is clear from the above, unfair dismissal, and specifically redundancy, are not simple concepts. Based on the experience in the UK, the management time and costs required to defend a claim for unfair dismissal are generally grossly underestimated. Aside from costs and the possibility of having to pay damages, employers should also be aware of the reputational issue at stake should proceedings be heard before the Tribunal. Proceedings before the Tribunal are generally open to the public and, judging by the cases heard to date, generate considerable local press interest. In a small island like Jersey, a reputation as a "bad employer" will be a difficult label to shift.
In terms of documentary evidence, employers should prepare contemporaneous documents in which they explain the rationale for their decision making process. Such documents would ordinarily take the form of board minutes, attendance notes of meetings (for example, confirming what happened at the consultation process etc.) and any other human resources documents and records to illustrate that the employer has acted reasonably throughout the decision making process. These documents are likely to be of real evidential value should the matter come before the Tribunal in illustrating that the employer’s decisions and actions fell within the range of reasonable responses which a reasonable employer might have adopted in the specific circumstances of the case.