Redundancy: withholding statutory redundancy pay where an employee unreasonably refuses a suitable alternative job offer

The UK economy remains challenging for businesses. The number of companies in critical financial distress has risen by a quarter in the last three months and company insolvencies are at their highest since 2009.

As a result, many businesses are considering restructures to maintain profitability. In July 2023, Acas predicted three in 10 employers were expected to make redundancies in the next year.

With this in mind, the recent case of Mid and South Essex NHS Foundation Trust v Stevenson and ors (2023) provides employers with welcome guidance on the redundancy process. Specifically, in circumstances where an employee has refused a suitable alternative job offer, when that refusal will be “unreasonable” to allow an employer to lawfully withhold a statutory redundancy payment. 

Background law

As part of a fair redundancy process, you must offer an employee who is facing redundancy any suitable alternative roles (if there are any) as a means of avoiding redundancy.

If the employee refuses the alternative role, you can withhold a statutory redundancy payment if: -

1. The role offered is “suitable” in relation to the employee; and
2. The employee’s refusal was “unreasonable”.

To be suitable (point 1), there must be some “broad equivalence” between the new role and the old e.g. salary, benefits, status, location etc. This is not an entirely objective test as “suitable” means suitable for the particular employee, looking at their individual circumstances.

To be a reasonable refusal (point 2), this is a subjective consideration i.e. was the employee, given their particular circumstances, reasonable in refusing the alternative employment?

The two points should be separate questions, but there will be some overlap. For example, the more suitable the role, the easier it may be for you to show that the employee’s refusal is unreasonable (and withhold a statutory redundancy payment on this basis).

This isn’t always the case however and employers must be careful not to merge the two points to automatically assume a suitable role cannot reasonably be refused (as the below case shows).

Facts

The three Claimants were each employed in Head of HR roles. Their roles were to be made redundant as part of a restructure. They were each offered an alternative role of Senior HR Lead.

As Senior HR Leads, the Claimants’ day-to-day operation would not change, albeit in the planned new structure they would report to a Head of HR for the group companies and there would be no direct reports. The Claimants’ perception was that there was a loss of status due to these changes in line management and refused to accept the job offer.

The Respondent disagreed. It said that the Claimants’ day-to-day would remain the same and, if anything, there would be an increase in status due to some additional tasks. It argued the Claimant’s perception of a loss of status was “unreasonable” and withheld redundancy pay on this basis.

The Claimants pursued claims, including for redundancy payments.

Outcome

At the first instance Employment Tribunal (ET) hearing the Claimants lost their argument on redundancy pay - it was held that the job offer was suitable and that they had unreasonably refused it. The ET sided with the Respondent, stating the Claimants had had “closed minds” in relation to the new role. 

The Claimants appealed to the Employment Appeal Tribunal (EAT), who remitted the case back to the ET for more analysis.

On its second consideration, the ET concluded:

• The role of Senior HR Lead was a suitable alternative offer, but, despite its finding of suitability, the Claimants’ refusal of the role was reasonable (the Judge changing his mind on this second point). This entitled the Claimants to redundancy pay.
• The suitability of a role and the reasonableness of the employee’s refusal of it are two separate considerations and shouldn’t be conflated.
• An employee can reasonably refuse an objectively suitable job role based on their personal perceptions of the role (including loss of status), providing that they have sound and justifiable reasons for this. Here, the Claimants could point to proposed changes in the reporting structure to justify their perception of loss of status. It did not matter that their opinions were found to be groundless/unreasonable by the Respondent (from its perspective). It was not groundless from the Claimants’ perspective.
• The key question therefore is “is the particular employee, taking into account their personal circumstances, being reasonable in refusing the offer: did they have sound and justifiable reasons for turning down the offer?”

The Respondent further appealed the decision but was ultimately unsuccessful. 

Learning points for employers

1. If you’re considering withholding a statutory redundancy payment due to an employee’s “unreasonable refusal” of a job offer, it’s important to remember the two-stage approach set out above. Remember: just because the role is “suitable”, it doesn’t automatically follow that an employee can’t (reasonably) refuse it.  You will need to analyse their personal reasons for refusal before taking a decision on withholding pay.
2. In terms of your analysis, remember the reasonableness of the refusal is looked at from the employee’s point of view, not yours (a subjective test). You should therefore meet with the employee to fully understand their reason(s) for refusing the role from their perspective. Their reasons must be sound and justifiable – a general/vague concern won’t be sufficient; they’ll need to tell you why they feel this way. 
3. It’s important to provide sufficient information to the employee about an alternative role to enable them to make an informed decision about it. If a role is overwhelmingly suitable but you fail to provide enough information to the employee about it, then their refusal of the role might be reasonable based on the information (or lack of it) you provided.
4. Loss of status is one reason an employee might raise. You may hear a variety of other reasons, which you’ll need to listen to and consider. Other reasons for refusal that the ET has previously held to be “reasonable” have included (but are not limited to): -
   • uncertainty about job security
   • concern about maintaining leisure time
   • genuine but irrational fears about health influenced by family history
   • concerns about disrupting children’s schooling. 

Whether or not any individual reason is justifiable will depend on the individual facts.

Upcoming redundancy update seminar

Join our free webinar to stay updated on the latest developments in redundancy law and practice. This one-hour session will provide valuable insights and guidance to HR managers, business owners and line managers, helping them to understand and meet legal requirements when implementing redundancies.

Please see the links below for more information and sign-up details: -

Redundancy Update: Emerging Trends and Challenges (North) on Tuesday 28 November 2023 at 9:30am to 10:30am

Redundancy Update: Emerging Trends and Challenges (South) on Thursday 30 November 2023 at 9:30am to 10:30am

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