Voluntary redundancy

06 November 2017

Employers will often consider offering an incentive to employees to volunteer for redundancy in order to reduce the need for compulsory redundancies. Doing so carries the risk, however, that the wrong people might volunteer.

To protect the business it is therefore important for the employer to retain a discretion as to whether or not to accept an application for voluntary redundancy. Nevertheless the creation of a voluntary redundancy scheme may create contractual rights that take the employer by surprise. In Lynham & Rooney v Birmingham City Council the Council undertook a major restructuring programme and announced that there would be an opportunity for ‘eligible’ employees to apply for voluntary redundancy on favourable terms.

Two employees – Mrs Lynham and Mr Rooney – sought to apply for voluntary redundancy but were told that they were not eligible to apply. The employer’s view was that the section in which they were employed was to be closed down completely and so it was inevitable that they would be selected for compulsory redundancy. On that basis, the employer said there was no point in giving them an opportunity to volunteer first.

They claimed that the refusal to allow them to claim voluntary redundancy meant that their dismissals were unfair – and also in breach of contract. The tribunal rejected both claims and the employees appealed purely on the contractual issue. They argued that the employer had clearly announced that employees affected by the restructuring exercise would be entitled to apply for voluntary redundancy. The Council sought to distinguish between employees who were ‘affected’ by the restructuring and those who were ‘eligible’ for voluntary redundancy. It was the latter group that were directly contacted by the employer to give them details of how they could apply and the Council argued that since there was no obligation to offer any sort of voluntary redundancy scheme, it was a up to them to decide who should be eligible for the scheme that they introduced.

The EAT disagreed. In communicating the availability of the scheme the Council had used the terms ‘affected’ and ‘eligible’ interchangeably. The impression given was that anyone who was affected by the restructuring would be entitled to apply for voluntary redundancy. This amounted to a contractual statement and so the Council was in breach of contract when it refused to allow the two employees to volunteer.

That did not mean, of course, that the employees had the right to have their applications for voluntary redundancy accepted. But the EAT suggested that the employer would not be able to show a valid basis for refusing based merely on the fact that the employees would inevitably have been selected for compulsory redundancy. Accepting the employees as volunteers in such circumstances would still have achieved the aim of reducing the number of compulsory redundancies. It was ultimately for the tribunal to decide whether the employer could reasonably have refused their applications and judge what loss – if any – they had suffered as a result of the employer’s refusal to allow them to apply.

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