Employment Law E-Bulletin

Cases

Dismissal Fair Despite Failure to Offer Alternative Role

In the interesting case of Loosely v Social Action for Health, the EAT has decided that the obligation to offer an employee at risk of dismissal an alternative role is a procedural obligation which falls under Section 98 (A) (2) of the Employment Rights Act 1996. This means that, if an employee fails to take this step but can show that the employee would have been dismissed even if it had done so, then the failure to consider the employee for the alternative role might not result in unfair dismissal.

The facts of the case were that Mr Loosley was a mental health worker employed by Social Action for Health (SAH) but working under a contract that SAH had with Tower Hamlets local authorities for the provision of mental health workers. Tower Hamlets withdrew funding for the contract that Mr Loosley and another employee were working on but did have other work that SAH could provide one member of staff to do. The employee working with Mr Loosley was chosen instead of him because Tower Hamlets clearly indicated that they did not want Mr Loosley because they had been unhappy with his performance and Mr Loosley was therefore selected for redundancy even though he had more experience and a greater length of service than the other employee. Mr Loosley claimed unfair dismissal even though SAH had offered him a position with an associated organisation.

The Tribunal found that the dismissal was not unfair and the EAT has now agreed. The EAT noted that under Section 98 (A)(2) an employer’s failure to follow a dismissal procedure (other than the statutory procedure) shall not make the decision unfair if the employer can show that the employee would have been dismissed in any event. The EAT agreed with numerous recent decisions which say that “procedure” in this context should be given a wide interpretation and that procedure could encompass a failure to consider an employee for an alternative vacancy in a redundancy situation. As SAH was able to show that Mr Loosley would never have been appointed to the Tower Hamlets role because Tower Hamlets had made it clear they would not have him, then the dismissal was not unfair.

This is a good development for employers because it shows that alternative employment does not have to be considered in all cases. Whilst employers should approach this principle with care, because it was clear that the position of Tower Hamlets was the main consideration in the decision, it is still a worrying development for employees who are currently seeing the scope of the Section 98 (A)(2) defence growing ever wider.

Read the EAT judgment

Potential Result of Explaining the Impact of Litigation

A less helpful decision for employers is that of the House of Lords in the long running equal pay litigation case of St Helens Metropolitan Borough Council v JE Derbyshire & Others.

The background to this case is that Ms Derbyshire, along with 470 other women, had issued an equal pay claim against the Council. Although most of the women reached a settlement with the Council, Ms Derbyshire and 39 others refused to do so. Negotiations continued until approximately 2 months before the cases were due to be heard when the Council sent 2 letters to the 39 remaining claimants.  The letters aimed to explain to the women the financial problems that the Council would face should they continue with their claims. These problems included, according to the letters, the danger that children might be deprived of school dinners and that redundancies at the Council might have to be considered because of the reduced funds that the Council would have at its disposal if it was forced to make large payments to the women to settle their claims.

When this matter was originally considered at the Employment Tribunal, the Tribunal found that the letters amounted to victimisation but the Court of Appeal later reversed that finding. The House of Lords has now decided that the Court of Appeal applied the wrong test when making its decision. The House of Lords said that the correct approach was to focus on whether or not the ladies had suffered a detriment as a result of receiving these letters when compared to employees who had not received the letters. As the original tribunal had found the letters to be intimidating and threatening it was entitled to decide that a detriment had been suffered . The House of Lords acknowledged that employers are entitled to take legitimate steps to try to settle claims but said that these letters had gone too far and that as such a detriment had been suffered.

The lessons that employers should take from this case are that, whilst it may be acceptable to point out that a claim could have serious consequences for a business and to explain that you may not have the ability to pay the amount that the employee has asked for, going so far as to spell out that redundancies or closure of the company could be the ultimate result, even if this is true, is likely to be seen as crossing the line and could be found to be victimisation if you leave it until after a claim has been issued to make these points.

Read the House of Lords' judgment

Using the Economic Technical or Organisational Reason Defence

The recent decision of the Court of Session in the Scottish case of Hynd v Armstrong & Others has shed further light on the circumstances in which an economic, technical or organisational (“ETO”) reason can be used to justify a dismissal that would otherwise be automatically unfair because it is related to a transfer of an undertaking protected by the Transfer of Undertakings (Protection of Employees) Regulations.

In this case, Mr Hynd was a corporate lawyer working at the law firm Morison Bishop. Morison Bishop had two offices: one in Glasgow (where Mr Hynd worked) and one in Edinburgh but the firm decided to dissolve with the intention of forming two separate firms, Morisons which would be based in Edinburgh and Bishops which would be based in Glasgow. It was agreed that  Bishops would focus on Property Law and Litigation which meant that there would be a reduced requirement for corporate lawyer such as Mr Hynd. Mr Hynd was therefore made redundant on the day that Morison Bishop dissolved which, incidentally, was the day before the two new firms began trading.

The Tribunal which originally heard the case did not accept that this was a simple redundancy situation but did agree that Mr Hynd was not unfairly dismissed because the fact that Mr Hynd was not required for the future conduct of the Glasgow firm meant that there was an ETO reason to justify his dismissal.

However, the Court of Session (Scotland) has now disagreed. The Court held that the European Legislative was designed to protect employees and their rights, not to expand the circumstances in which employers could dismiss their employees on the grounds of redundancy in a TUPE situation. The Court held that, having reviewed the Regulations and European case law, the only correct interpretation of the ETO defence was that it was only applicable in circumstance where the employer dismisses for an ETO reason relating to the future conduct of its own business and entailing changes in its own workforce. It could not use the ETO defence to dismiss for changes which may take place in the business to which the employee was transferring.

The implications of this decision are clear. Whilst a transferee with a valid ETO reason will be able to dismiss an employee who will be redundant AFTER a transfer, it is unlikely that the transferor will be able to dismiss the employee fairly before the transfer has taken place. Caution should always be exercised in a TUPE situation but employers should take this case as a warning to resist the pressure to dismiss employees on the transferee’s behalf unless they are to be adequately compensated and indemnified by the transferor. 

View the full case report        

For further information on employment law issues, contact Burnetts' employment law solicitors on 01228 552222.

Back to Employment Law E-Bulletin June 2007

Back to main article about smoking ban

June 2007