Buying out dismissal
Labour & European Law Review Weekly Issue 244 17 November 2011
Under the Employment Rights Act 1996 (ERA), Tribunals have to decide on the reason for the dismissal and then whether the employer acted reasonably (or not) in treating it as a sufficient reason for dismissal, when deciding if it was fair or not. In Slade v TNT (UK) Ltd, the Employment Appeal Tribunal (EAT) said that it was fair for the company to offer re-engagement on different terms to those it had made during negotiations preceding dismissal.
The company employed 10,000 people in the UK and Ireland at 58 different locations, including Atherstone and Kingsbury where about 660 people worked.
About 470 of them were entitled to receive a bonus, which the company decided to discontinue in 2009 to cut costs. During negotiations with the trade union, it offered a “buyout” payment, which was rejected.
The company gave formal notice of termination to all 470 employees with an offer of re-engagement on the same terms except for the bonus. It then settled most of the prospective unfair dismissal claims by offering a bigger “buyout” payment than before.
The four claimants were test cases for 183 employees who pursued complaints of unfair dismissal, one of the grounds being that they had not been paid the “buy-out” on re-engagement. The non-loading bay operatives also complained that the employer had not consolidated part of the bonus into their basic pay which they had done for the loading bay operatives.
The Tribunal found that the reason for the dismissals was a business restructuring to reduce costs and increase efficiency. Those aims, it said were “legitimate and necessary” and constituted “some other substantial reason” under section 98(1) ERA.
In order to decide whether the dismissals were fair, it had to focus on the “reasonableness” of the company’s conduct, which it said involved “an exercise balancing the advantages to the business of proceeding in the way that the respondents did compared with the effects on the claimants.”
The Tribunal said that it was a “wholly reasonable response” by TNT to terminate the employees’ contract and offer re-engagement and the dismissals were therefore fair.
They also held that the claimants were not entitled to the “buyout” payment because, unlike the other employees who had settled, they had not agreed to compromise their potential unfair dismissal claims “in return for an offered sum of money”.
The EAT agreed with the Tribunal’s judgement that the dismissals were for “some other substantial reason”.
It also dismissed the argument that the dismissals were unfair because the company had not repeated the “buy out” offer to the claimants after their contracts were terminated.
Instead it said there was “no obligation” on them as a reasonable employer to offer re-engagement on terms which included the “buy out” payment. It was entitled to hold back the offer of a lump sum since it wasn’t going to achieve any of the benefits of the payment (removing the risk of litigation), which was the whole point of offering it in the first place.
The only part of the appeal which succeeded was the issue about the bonus not being consolidated into the basic pay of the non-loading bay operatives. The EAT remitted that issue to the Tribunal so that it could provide further reasons as to why that was not unfair.
The EAT helpfully stressed the wholly fact-sensitive nature of SOSR unfair dismissal cases. Unfortunately, the claimants lost on the particular facts of this case. Factors which we suggest are relevant to future cases of this types are
- the adequacy of the collective consultation process;
- whether negotiations took place with any recognised trades unions;
- whether the employees were threatened with dismissal on even worse terms if they did not “voluntarily” sign up (i.e. a stick rather than a carrot approach);
- whether the actions of the employer affected one particular group of staff, such that the pain was not shared out equally.