The Employment Appeal Tribunal's recent judgment in the case of Howell's School v Gerrard highlights the importance of handling redundancy carefully. It also serves as a reminder that charities facing financial difficulties might be able to reduce the salaties of employees.
Howell's School is an independent school in Wales run by Howell's 2000 Limited, a registered charity. The school operated an equestrian centre employing five staff, including Miss Gerrard, the yard manager, and Ms Hamlyn, the chief riding instructor.
In 2009 the school experienced financial difficulties, which required cost savings. It identified its equest-rian centre as a place to start reducing salary costs, and Gerrard was informed that she was being made redundant. No consultation process was carried out and no consideration was given to the possibility of Hamlyn, whose role was almost identical to Gerrard's, being made redundant. Gerrard brought a claim for unfair dismissal.
The legal decisions
It was undisputed that the school needed to reduce the centre's operating costs, but the tribunal found Gerrard's dismissal to have been unfair because the school had failed to follow a fair procedure. It also found that, had there been proper consultation, there was only a 20 per cent chance that Gerrard, as opposed to Hamlyn, would have been made redundant. Hamlyn wanted to reduce her working hours and actually resigned a few weeks later.
When calculating compensation, the tribunal applied a 20 per cent reduction to the loss of earnings element, based on her pre-dismissal net weekly earnings, to reflect the possibility that Gerrard might have been dismissed even if a fair procedure had been followed. In total, she was awarded £7,958.09, which included £1,384.60 because the school did not provide written particulars of her employment.
The school appealed against the award on the grounds that the tribunal failed to take into account that, had Gerrard's employment continued, her salary might have been reduced as a result of the school's cost-saving efforts. At the time of her dismissal salaries were being reduced and, by the time of the hearing 18 months later, only one person was regularly employed in the equestrian centre.
The Employment Appeal Tribunal upheld the appeal, reducing the total compensation awarded to £3,021.21.
Lessons for charities
Charities must ensure that dismissals are procedurally and substantively fair, or risk a finding of unfair dismissal. Charities facing financial difficulties might, as an alternative to (or in conjunction with) redundancies, be able to reduce employees'
salaries. However, the charity must carry out a proper consultation and obtain its employees' consent to change because, if it attempts to impose a pay reduction unilaterally, employees might resign and bring a claim of constructive unfair dismissal.
Charities should provide staff with written particulars of employment and the penalty for not doing so is either two or four weeks' pay, subject to the statutory cap of £430.
Victoria Willson is a partner at Levenes Employment, third sector specialists