The rules of redundancy

If you are purchasing a business and do not need to employ all of the current staff, are you able to let them go by law? Carolyn Mumby from Employment Law Essentials answers this tricky question.

In a nutshell, as long as you are not going to replace these employees with new employees, or re-hire the redundant employees on less favourable terms, and if these dismissals are necessary to make the business economically viable, you are safe. But there are several important points to take into account.

For instance, making a dismissal following what is called a TUPE transfer (this is where a business has been purchased as a going concern) can be dangerous. If the reason for the dismissal is connected with the transfer it will be regarded as automatically unfair unless it is for an economic, technical or organisational reason.

There is no statutory definition of what is ‘an economic, technical or organisational reason’ (ETO). However, a dismissal by reason of redundancy will, frequently count as being for an ETO reason. As a rule of thumb, ask the following question before you dismiss an employee in a TUPE situation: ‘Putting the purchase of the business to one side completely, would you have a fair reason for dismissal according to the normal rules of redundancy?’

This requires you to assess whether there are genuine reasons for making redundancies, such as a reduction in work. This may be due to reduced client demand or because you have found a more efficient method of working.

If the answer is ‘yes’, as long as you apply the rules of selection, consultation and notice in such a situation then you should be on the right track. In April 2006 there are to be some amendments made to TUPE (as follows) in an attempt to simplify this complex legislation:

  1. The first is dismissal which is connected directly to the sale and is not for an ETO reason – this will remain automatically unfair.
  2. The second is when the sale is not the main reason for dismissal, but the reason is connected with a transfer that qualifies as an ETO reason – this is potentially fair. If the defence of an ETO reason were to succeed it would be treated as a case of dismissal for ‘some other substantial reason’, and subject to the rules of reasonableness.
  3. The third are dismissals for which the sole or principal reason is unconnected with the transfer – these will fall outside of TUPE as they are unrelated.

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