business sign - no longer in business

The South West has been rocked recently by some high profile business closures.  On 15 March, Appledore Shipyard (operated by Babcock International) closed its doors for the last time, affecting nearly 200 employees.  Taken with British Ceramic Tiles and Wolf Minerals closing down operations in the region too, and the ongoing uncertainty around Flybe’s future, the impact on local communities and economies could be very significant.

The closure of Appledore Shipyard was originally announced back in December 2018 and was prompted by the expiry of Babcock’s lease and a lack of sufficient work to sustain the yard.  Although an offer of a further contract with a value of £60m had been made from the Government amid extended talks between defence officials and Babcock, the decision ultimately taken was that that would be insufficient to maintain its long-term future.  The decision was ultimately a commercial one for Babcock to take but given the implications for their employees, it’s worth a reminder of what considerations might be relevant on the HR side.

A business may decide to make redundancies for a variety of reasons but whatever those reasons, they need to fit within one of the circumstances identified in the statutory tests for redundancy.  One of those circumstances is workplace closure and this can cover both single site closures and relocation.

What is a place of work?

It may sound obvious but remember that an employee’s place of work will be determined by the reality of the situation, not by the terms of an employee’s contract.  An employee’s contract may identify one location as their place of work but in practice, they may work somewhere entirely different.  Generally speaking, an employee’s place of work will be clear but the situation can be less obvious for mobile workers.  Case law suggests that the right approach is to look at both any wording that there may be in the contract and whether there is any connection with a particular office or base.

What if there’s a mobility clause?

 The statutory definition of a workplace closure focuses on work being carried out at a particular place.  As noted above, “workplace” for redundancy purposes is where the individual actually works, not where they can be required to work.  An employee cannot argue, simply because there is a mobility clause in their contract, that they are not redundant if their workplace closes.

If an employee has a properly drafted and reasonable mobility clause and if there is work available at another location, an employer may choose to invoke the mobility clause instead of making the employee redundant.  It’s important to remember, though, that an employer is required to pick one option and stick to it – it isn’t possible to switch between the two.

If this is relevant to you, please see our previous article on the exercise of mobility clauses:

Exercising a mobility clause

Even if your contracts include a mobility clause, it needs to be reasonable in its scope and exercised reasonably (taking into account both business reasons and employees’ personal circumstances) – it does not give employers a free rein to change a place of work without limitation.  Provided there are no concerns about the drafting or exercise of the clause and provided an employee complies with the proposed change of workplace, there will be no need to dismiss the employee and no right to a redundancy payment.  Nevertheless, you may want to consider whether you could offer financial assistance to assist with any moving expenses and/or an additional financial incentive to encourage staff to move.  Although this is an additional cost for your business at what might already be a difficult time, if handled carefully, it may well still be cheaper than the redundancy costs which would otherwise be involved and it avoids the risk of potentially expensive litigation.

Problems can arise where an employee refuses to comply with a lawful mobility clause.  If the exercise of the mobility clause is reasonable, a failure to comply is likely to amount to a failure to follow a reasonable management instruction and a breach of contract.  In such circumstances, an employer may therefore be able to take disciplinary action against the employee, potentially leading to their dismissal.  No redundancy payment would be payable because the reason for dismissal is the breach of contract, not redundancy.

Making redundancies

In the absence of a mobility clause or if there are concerns about being able to exercise a mobility clause, an employer may be faced with the difficult position of having to make redundancies.  No employer makes a decision to proceed with redundancies lightly but if you do have to go down this road, here are some quick considerations to have in mind at the outset:

  • if you are proposing to dismiss 20 or more employees by reason of redundancy within 90 days at the same establishment, you will need to notify the Secretary of State and collective consultation duties will apply;
  • make sure that you have looked carefully at the relevant contracts of employment and any letters of variation for all employees effected by the closure;
  • consider if you want to invite volunteers for redundancy and if so, whether you would offer any enhanced redundancy terms; and
  • make sure you have appropriate access to professional advice both at the outset and through the process, as it is important to make sure that consultation takes place in line with your duties and with minimal risk to the business.