Redundancies Following a TUPE Transfer

29 August 2011

When one business has acquired another similar business under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), the need for redundancies often arises. In First Scottish Searching Services Ltd. v McDine and Middleton, the judgment of the Employment Appeal Tribunal (EAT) illustrates what approach the Employment Tribunal (ET) should adopt when deciding what constitutes a fair redundancy selection process when the selection pool includes employees of the transferor and the transferee.

First Scottish Searching Services Ltd. (FSSS) had acquired another property title search business, SPH, in 2009. The contracts of employment of employees of SPH were automatically transferred to FSSS in the TUPE transfer. FSSS had warned that redundancies would be likely and, in the event, used the same scoring matrix as it had adopted during an earlier round of redundancies in 2008. Former employees of SPH were assessed by managers who had transferred with them, whilst the scoring for existing FSSS employees was carried out by managers familiar with their work. The scores of the latter group were also compared with those achieved in the 2008 redundancy exercise. As it turned out, all of the employees identified as being at risk of redundancy had transferred from SPH.

Two of the dismissed employees contended that the redundancy exercise was biased and brought claims for unfair dismissal.

The ET criticised the redundancy selection system used by FSSS because it did not incorporate ‘some system for moderating the two sets of scores’. In its view, because there was a ‘clear and overt risk of unfairness’, the entire redundancy process was unfair. FSSS appealed against this decision.

The EAT upheld the appeal. The ET had failed to give any explanation of what it meant by ‘moderating’ the scores nor, indeed, how moderation came to be a feature of the case at all. There were no findings of fact as to what might actually have been done to achieve whatever it was the ET had in mind nor as to what would have been the likely outcome if ‘some system of moderation’ had been employed.

Under Section 98 of the Employment Rights Act 1996 (ERA), whether or not a redundancy dismissal is fair or unfair depends on whether the employer acted reasonably or unreasonably in deciding to dismiss the employee. In many cases, there will be a band of reasonable responses, with room for legitimate differences of opinion amongst reasonable employers as to what is a fair way to act. Case law establishes that it will rarely be appropriate for an ET to perform a detailed scrutiny of the scoring system or the application of the system in a particular case.

The ET had fallen into the trap of engaging in a ‘microscopic’ and ‘over minute’ reassessment of the redundancy selection process and had substituted its own opinion for that of a reasonable employer. It had sought perfection when this is not what is required by the ERA. There was no finding of fact as to any inconsistency of approach between the two sets of managers and no evidence of deliberate bias. Furthermore, the ET had failed to consider the impact on the redundancy decision of the claimants’ scores for length of service – a wholly objective criterion that no amount of moderation could have affected – which was clearly substantial.

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