When work levels start to drop, employers can sometimes find that although they still need someone to fill a particular role, they no longer need that person to work the same number of hours. When this happens, employers have often tended to deal with the reduction as a variation of contract and seek the employee’s agreement, meaning that if the employee refused to agree to reduce their hours, they would be dismissed for ‘some other substantial reason’. However, the case of Packman t/a Packman Lucas Association v Fauchon showed that this scenario may in fact create a redundancy situation.
Ms Fauchon was employed by Packman as a bookkeeper. In 2010 Packman’s business had declined and a new software package had been introduced, meaning that there was a reduction in the need for bookkeeping work. The company therefore asked Ms Fauchon to agree to a reduction in her working hours. She refused to agree, and was dismissed. She argued that she was in fact redundant and was entitled to a redundancy payment.
The Employment Tribunal were referred to the 2003 case of Aylward and others v Glamorgan Holiday Home Ltd, which found that there cannot be a redundancy situation where there is no proposal to reduce headcount. Unusually, and somewhat controversially, despite the fact that the Aylward case is Employment Appeal Tribunal (EAT) level and therefore binding upon an Employment Tribunal, they declined to follow it and found that in Ms Fauchon’s case, the lack of a reduction in headcount did not prevent her being entitled to redundancy pay.
Packman appealed to the EAT against the Tribunal’s decision. The EAT looked carefully at the definition of redundancy, which states that redundancy is where “the requirements of [the employer’s] business for employees to carry out work of a particular kind… have ceased or diminished or are expected to case or diminish.” In Ms Fauchon’s case, Packman’s need for bookkeeping work had clearly diminished, hence why they were asking her to reduce her hours.
The EAT then examined the Aylward case and concluded that it was wrongly decided. It gave the example of a situation where two full-time employees are asked to reduce their working hours by 50%, and the workforce is treated as having been cut by one, even though the number of employees remains the same.
The EAT therefore upheld the Tribunal’s decision that Ms Fauchon was entitled to a redundancy payment.
This decision has potentially wide-ranging implications in the workplace and also raises a number of questions. In this case the proposed reduction in Ms Fauchon’s hours was ‘significant’ – but would the same principle apply if the employee is being asked to reduce their working time by only a small amount?
The Fauchon judgment will mean that situations which have previously not been thought of as redundancy will now have to be carefully considered, which will be a particular issue in the current economic climate where many employers have been asking their employees to agree to reduced hours in order to save costs. This will be the case particularly where 20 or more employees are involved and therefore collective consultation rules will apply.
The Fauchon case makes it considerably easier for workplace reorganisations to be considered as redundancy situations, and therefore gives increased protection to employees. Redundancy situations have their own requirements for reasonableness, procedure and consultation, which are not necessarily addressed when employers treat the changes as a variation of contract, and therefore the decision may give rise to more unfair dismissal claims.
From a legal point of view, Tribunals will be left in an uncertain position as we now have two conflicting EAT authorities, so Tribunals will have to make difficult decisions about which to follow. Hopefully the Fauchon case will go to the Court of Appeal to give a more definitive answer – we will of course keep you updated on any developments.
If you need to consider reducing your employees’ hours, it is crucial to take specific legal advice. We can help – please give us a call on 01243 836840 or email us on [email protected].