Does a reduction in hours mean redundancy?

There has been much debate in the past whether a reduction in hours can amount to a redundancy situation or not and it seems that the recent Employment Appeal Tribunal (EAT) decision in Packman v Fauchon has finally confirmed that a reduction in hours can amount to a redundancy situation, rather than a change to terms and conditions and a dismissal for some other substantial reason if these changes are not accepted by the employee. 

The facts: The Claimant was employed to provide largely book-keeping services by her employer. There was a downturn in business which put the employer under economic pressure. The employer also introduced an accountancy software package which reduced the number of hours in respect of book-keeping work. Subsequently, the employer had a need for fewer hours from the Claimant and so asked her to agree to reducing her hours significantly per week. She refused and the employer gave her notice of dismissal, as they no longer needed her to work all her contractual hours. 

Tribunal Decision: The Tribunal found that the Claimant had been dismissed for reasons of redundancy. The downturn in business meant there was a diminished need for book-keeping and as the Claimant did not agree with the reduction of her hours the Tribunal stated that the reason for her dismissal was redundancy. Rather bizarrely the Tribunal's decision flouted the precedent set by previous tribunal decisions and instead relied on the opinions of a textbook commentator. 

The Claimant appealed. 

EAT Decision: The EAT worked through previous case law on redundancy and summarised the position regarding the following situations: 

• If the employer's business needs are for fewer employees to do the same amount of work then a dismissal caused wholly or mainly for that reason is for redundancy reasons. 
• If the amount of work available for the same number of employees is reduced then a dismissal caused wholly or mainly for that reason is also a redundancy. 
• If there is just as much work for as many employees then, as there is no reduction in the requirement of the business for employees to carry out work of a particular kind, there is no redundancy situation. 

The quote from the textbook that was relied on by the Tribunal, and that convinced the EAT is that;

'Suppose an employer employs two employees but demand for his product falls by 50%. It cannot be right to say that there is a redundancy situation if he sacks one employee but there is no redundancy situation if he puts them both on half time.

The truth is there is a redundancy situation in either event but a claim to a redundancy payment does not arise until there is a dismissal by way of the redundancy situation.

The EAT stated that 'It was plainly anticipated by the draughtsman (of S135 of the ERA 96) that the expression "redundancy" would be applicable in situations where there was no difference to the number in the workforce but merely to the hours that they were working'. 

Comment: Moving forward if you are intending on cutting the working hours of employees due to a reduction in the amount of work that is required to be carried out, it is important that you bear in mind that if the employee resigns, or if the employee refuses to accept the changes and is dismissed, this could result in you having to make a redundancy payment to the employee. With this in mind you should consider your options when proposing a reduction of hours, particularly for multiple employees. If you reduce the hours of ten employees due to a reduction in work there is a possibility that all ten employees will resign and each be entitled to a redundancy payment. Careful planning should be made to calculate the potential costs in such a situation. It might be cheaper to go through a full redundancy process and downsize the number of employees in that team rather than reducing their hours.