Redundancy Law Turned on its Head

Up until now, an employer has had a right to structure its business in any way it wishes, and the Authority or Court has not been entitled to enquire further into the business reasons behind a restructuring proposal.

This long established view has been turned on its head by a recent decision from the Employment Court. In Totara Hills Farm v Davidson Chief Judge Colgan has confirmed that the Authority or Court can assess the business decision behind a redundancy to determine whether the decision, and how the decision was reached, were what a fair and reasonable employer could have done in all the relevant circumstances.

The result of this case for employers is that employers can no longer say that a decision to restructure is substantively justified simply because it is a genuine decision, as opposed to a sham to hide a dismissal for other reasons. The Authority or Court is now able to scrutinise the merits of the decision.

In Totara Hills the Court found the employer’s decision to make Mr Davidson redundant was not a sham; however the Court then went further and examined the business case behind the redundancy decision.

How does this case impact for employers? The Authority or Court will look more closely into an employer’s reasons for a restructuring decision. For this reason, when drafting a restructuring proposal and considering whether to implement a restructure employers will need to: provide valid reasons for the restructuring proposal, and clearly communicate this to affected employees; provide detailed information to support the reasons for the restructuring proposal; be able to explain further the reasons for the restructure, if required, and carefully consider any alternatives suggested by potentially affected employees; have clear and justifiable reasons for not adopting any alternatives suggested by potentially affected employees; consider whether the decision they are proposing to make is one which a reasonable employer could reach in the circumstances. Employers will be required to provide documented evidence to support the proposal, alternatives considered and cost saving measures.

This case is a warning to employers that they will increasingly be called into account for decisions they made where those decisions affect the on-going employment of their staff.

If you have any employment or HR queries that you would like assistance with, please contact us.

This article is intended as a point of reference and should not be relied on as a substitute for professional advice. Specialist advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this article.

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