New spin on redundancy

United Kingdom

The EAT’s decision in Martland v Co-operative Insurance Society is important in two respects. First, in giving an up-to-date decision on when a reorganisation of the way employees do the jobs does not amount to a redundancy. Second, in taking a very broad view of the conditions necessary for enhanced redundancy terms to be contractually enforceable. The decision on the first is definitely a "win" for employers generally, but the decision on the second makes it much more difficult for employers to claim that enhanced redundancy terms are not a contractual commitment to employees once they have been published.

The case concerned a group of financial advisors ("FA’s") selling insurance to customers. Much of their time was spent face-to-face with customers, as their duties included home visits and collecting premiums. The Co-op thought this was inefficient and out-dated, and wanted the FA’s to spend much more time on selling, and do more of it from the office, and less on administrative tasks. The Co-op tried but failed to negotiate an agreement on the changes, so it served notice to end the current contracts and offered to employ the FAs on a new contract with the changed duties. This of course is legally a "dismissal", even where the employees accept the new contracts. The FA’s claimed this amounted to redundancy. The original Employment Tribunal decided the key question was whether the changes meant the FA’s were being required to carry out work of a particular kind which was different from the work they had performed under their old contracts. If they were, then their dismissals would be by reason of redundancy.

On that question, the tribunal found that the new terms and conditions related to the same sales force carrying out the same "work of a particular kind" and that it was simply performed in a different way, and that this did not amount to a redundancy. The EAT reviewed the previous case law, and decided that both the ET’s approach and their decision on the facts were correct.

The FA’s also claimed they were entitled to enhanced redundancy payments provided under a collective agreement. Their contracts of employment stated that any terms agreed in the course of collective negotiations would be incorporated in to their contract. The collective agreement stated that "in the event of redundancy taking effect, a severance payment will be made", - and then set out the calculation. But, the collective agreement also stated that this process was not intended to form part of individual contracts of employment. The Co-op argued forcefully this meant they could not be contractual.

Given the FA’s were found not to be redundant, it was not necessary to consider whether the employees were entitled to the enhanced redundancy payments. However, the EAT went on to conclude that the enhanced payment term was ‘precise, unambiguous and intended to regulate the relationship between the employer and the individual employees rather than the employer and the trade union’ and, on this basis, was apt for incorporation in the contract of employment and, notwithstanding the words which apparently negatived any intent on the Co-op’s part to be contractually bound, was indeed incorporated in the old contracts and therefore would have been contractually enforceable if the FA’s had been redundant. The EAT said it was important in such situations to ‘look at the nature of what has been agreed and ask whether that can properly take effect as a term in the individual contract of employment.’

This decision favours the employer in classic re-organisation situations, where the employee is dismissed and re-engaged under new terms and conditions while essentially performing the same work, in holding this was not redundancy. But the EAT’s view on when enhanced redundancy payment terms may be incorporated in to the contract of employment should be a stark reminder to employers to review their enhanced redundancy payment terms and consider whether, and in what circumstances, such provisions will be legally enforceable.