Redundancy

Definition of redundancy

Section 1(2) of the Redundancy Payments Act 1990 (“RPA”) states that an employee is dismissed by reason of redundancy if the dismissal is attributed wholly or mainly to:

• “the fact that [the] employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed by [the employer]…or has ceased, or intends to cease, to carry on that business in the place where the employee was so employed” (cessation of business ground) or
• “the fact that the requirements of that business for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where [the] employee was so employed have ceased or diminished or are expected to cease or diminish” (contraction of activities ground).

Fair procedure

“Redundancy” is one of the potentially fair reasons for dismissal. However, not only must there be a genuine redundancy situation (in accordance with the above definition) but the procedure by which redundancies are carried out must be fair. This includes, amongst other things, issuing warnings to employees, employee consultation, plus the use of objective selection criteria (and their objective application) in identifying those to be made redundant. The Isle of Man does not have the concept of collective consultation but individual 1:1 consultation is required and should be conducted constructively with a view to avoiding redundancy, where possible.

Consultation

There is no statutory duty in the Isle of Man to undertake collective consultation (although a collective agreement may make provision in this regard) nor are there any statutory dismissal procedures. A fair procedure, though, demands amongst other things that employees are given “at risk” warnings if they are within the provisional pool selected for redundancy and that individual consultation is carried out. As part of this, employees should have the opportunity to comment on their provisional selection for redundancy, to have explained to them the criteria used to determine which employees are to be made redundant, and to explore with the employer any alternatives to redundancy.

Selection criteria

Employers have a relatively free hand in choosing redundancy selection criteria and a tribunal or court would generally be expected to accept the employer’s choice provided the criteria are objective, non-discriminatory and fairly applied. Some of the more usual criteria for selection include: skills and experience for the remaining jobs/key skills that the business has identified as being necessary to retain for its longer-term strategy, performance (this is most objective and therefore defensible where it can be measured by targets or appraisal ratings etc), absence and/or disciplinary record. More subjective criteria such as “attitude” and “flexibility” should be avoided on the basis that they are more readily challenged.

In applying the selection criteria it is necessary to account for the effect of any disability or other protected characteristic. This means, for example, that when scoring based on attendance record, employers must not include absences related to either disability or pregnancy/maternity reasons[1]. Another illustration of this point is that “flexibility” may be attacked on the basis that it is indirectly discriminatory because (as remains the case on the statistics) female employees are likely to shoulder the majority of childcare and carer responsibilities and therefore be less able to demonstrate this criterion.

Pooling

Even if fair and objective redundancy selection criteria are adopted, there is still the risk that redundancies will be unfair if they are applied to the wrong pool of employees. In the absence of any customary arrangement, or agreed procedure for selecting the redundancy pool, the employer will have a degree of flexibility in determining this, the key consideration being that the choice of the appropriate pool should be reasonable in all the circumstances. This is a question of fact which will ultimately fall to a tribunal or court to determine. Where unions or staff associations are recognised, it will probably be regarded as “reasonable” for the employer to consult with them on the determination of the pool. Even if there is no formal recognition of a union, it is probably still advisable to consult with union officials, particularly where, previously, this process has been undertaken.

Within the redundancy selection pool should be employees carrying out the same or similar roles. Sometimes, if the role concerned is unique it may be fair to have only one employee selected for potential redundancy. However, this scenario should be approached carefully and consultation needs to take place at a formative stage when the employee(s) concerned have the ability to influence the process otherwise it may well be unfair[2]. An arbitrary decision by the employer to have too narrow a selection pool or a selection pool that is not reasonable may also give rise to a breach of the implied term of trust and confidence.

Redundancy pay

Employees need to be employed for a minimum of 2 years to claim statutory redundancy pay. The maximum award is 1 week’s pay (currently capped at £540[3]) per year that the individual has been continuously employed. All years of service count up to a maximum of 26 years for the purposes of the calculation, not just those during which the employee was over 18. Any claim for redundancy pay would usually need to be brought within 12 months of the termination of the employee’s employment. It should also be borne in mind that employees may have a separate contractual right to an enhanced redundancy payment or enhanced redundancy terms.

There is no specific duty in the Isle of Man to notify prospective redundancies to a local government body. However, where the employer is a regulated entity, there are likely to be requirements to notify material changes in the licenceholder’s operations (including material reduction in headcount and the sale or transfer of any part of the licenceholder’s business).

Who is not entitled to a redundancy payment?

If there is, in practice, no “dismissal” due to the employee being re-engaged either by the same employer or a new employer (e.g. on the transfer of a business), then, subject to certain conditions[4], they will not be entitled to a redundancy payment. Similarly, if an employee in a redundancy situation is offered – but does not accept – an alternative role which amounts to suitable employment and that refusal is, in the circumstances, unreasonable then they will not be entitled to a redundancy payment.

Other categories of employee who are not entitled to a redundancy payment are those with less than 2 years’ continuous employment (unless the employer operates a redundancy pay scheme which covers those with less than 2 years’ service), as well as those who work outside the Isle of Man.

Special cases

Under the Isle of Man Maternity Leave Regulations 2007 (as amended) and, specifically, Regulation 11, provision is made in relation to redundancy during maternity leave. Where, during an employee’s period of ordinary or additional maternity leave, redundancy makes it impracticable for her employer to continue to employ her under her existing contract, she is entitled to be offered alternative employment with her employer, the employer’s successor or an associated employer[5], provided a suitable vacancy exists.

To comply with the Regulations, the offer of alternative employment must be made before the end of the employee’s existing contract and take effect immediately upon the previous contract ending. It must involve work of a kind that is suitable in relation to the employee and be appropriate for her to do in the circumstances. In addition, the terms and conditions as to the capacity, place of work and otherwise must not be substantially less favourable than under the employee’s existing contract.

Carrying out an effective and fair redundancy exercise involves consideration of various elements/parts of the process in light of the redundancy “cohort” and the business rationale. It needs to be planned to ensure sufficient time and resource is allowed or available, as applicable. Quite often there are specific timing factors (e.g. to align with a transaction); clear communications (also pre-empting employees’ concerns and questions) can be important to achieve as smooth a process as is possible.

Did you know…we can help you plan for a redundancy (by providing a tailored checklist and draft communications), advise on risk mitigation and assist with the transfer of a business including carrying out any required employment due diligence.

Insolvent employer

See our note on Insolvency of Employer

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References:-

[1] See Jandu case summary

[2] Mogane v Bradford Teaching Hospitals NHS Foundation Trust [2022] EAT 139

[3] https://www.gov.im/media/630419/employment-maximumamountofaweekspay-order2016.pdf

[4] Section 4 Redundancy Payments Act 1990

[5] The terms “successor” and “associated employer” are defined in the Employment Act 2006.

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Useful Resources:-

See our note on Transfer of a Business