SC decides rules of redundancy

(The article touches on genuine redundancy – employment law – redundancy payment – substantive fairness – procedural fairness – compensation).

In a watershed decision on 3 February 2021, the Supreme Court has finally settled the judicial rules of redundancy in the Maldives.

Until this decision, the rules were largely defined by decisions of other courts. Those decisions helped fill the lacuna left by the absence of redundancy in our employment law.

While the decision of the apex court in this matter was awaited, redundancy has been essentially recognized by statute law, and its rules have been captured in section 21 of the Employment Act as revised on 22 September 2020 via the Sixth Amendment.

Closing Some Guest Rooms

It all began some 9 years ago, when Conrad Maldives Rangali Island closed some of its guest rooms for renovation in May 2011 for a little over five months. The closure was expected to affect the footfall of the resort and the management decided to make some staff redundant taking into account the adverse impact the low guest arrivals would have on its revenue.

The management published a notice of proposed redundancy and subsequently brought the employment of some employees to a premature end. The reason for termination was said to be that the resort was suffering a revenue crunch, certain positions had to be made redundant, and services of those employees (to whom notices were given) would not therefore be required.

Instead of the notice of termination, the resort’s management opted to provide payment in lieu of notice (an act allowed by law). It also paid a redundancy payment (an act not required by law) in an amount equivalent to payment in lieu of the requisite notice.

Multiple Rounds of Litigation

The case has been heard and examined at every judicial address known in the country. It has been to the Employment Tribunal, High Court, Supreme Court, back in High Court, and then back again in the Supreme Court.

It began with the Employment Tribunal when employees affected by the decision of the resort filed a claim: to ask for reinstatement and hold the termination to be wrongful. The Tribunal decided in their favor – asked them to be reinstated, not to consider them to have been terminated, that their employment was to continue without interruption, and that their wages for the period were to be provided in one lump sum payment, and that the redundancy payment given to them was to be adjusted from wages due to them.

The employer filed an appeal in the High Court. The Court held that while the resort’s management did exercise substantive fairness, they were not able to show that they exercised procedural fairness. It was held that reinstatement would not be a practical remedy, and therefore, compensation alone may be awarded.  The court also instructed the matter to be remitted to the tribunal for re-consideration.

The affected employees appealed against the High Court decision – and filed their appeal in the Supreme Court. The apex court held that the fact of redundancy was dealt with at the Employment Tribunal and that the employer was not able to establish the fact of redundancy. It found that, the High Court was wrong to assume that the fact of redundancy was accepted by the Tribunal, and therefore, that the matter warranted reconsideration by the High Court. The case was remitted to the High Court.

The High Court in its reconsideration of the matter, restated the following legal principles:

  • An employee may only be terminated for just cause;
  • The onus is on the employer to establish that just cause; and
  • Even in an event of redundancy, the employer ought to adhere to substantive and procedural fairness.

Since the law is silent (or was at the time) on matters of redundancy, practices in other open and democratic societies were taken into account by the High Court.

Accordingly, it was held that substantive fairness is established when the fact of redundancy could be regarded as a good faith decision taken due to economic hardship faced by an employer. Procedural fairness is established when prior notice is given of the existence of circumstances that could give rise to redundancy.

The Court also noted the processes to be implemented in determining the employees to be made redundant – that prior notice (or payment in lieu of notice) ought to be given according to the relevant law –  and if the employer decides to make a redundancy payment, the guidelines to be adopted by the employer in assessing that payment also ought to be made known to the affected employees.

Finally, the High Court held that the Employment Tribunal reached the correct decision as there was a failure on the part of the employer to follow substantive and procedural fairness in making the affected employees redundant.

The decision was appealed to the Supreme Court, this time by the employer.

SC lays out the tests

In its consideration of the appeal, the Supreme Court restated the tests for assessing substantive and procedural fairness in relation to redundancies:

On Substantive Fairness

The key question to ask would be: whether by reason of economic hardship or structural changes to the organization, work done by the employee is discontinued or reduced, or would that happen in future. And, where there is more than one employee doing like work, the manner in which the affected employee is chosen.

In arriving at that decision, consideration may be given to the period of service, academic qualifications, and experience of the relevant employees.

Also, there must be a relationship between the circumstances warranting a redundancy and the fact of termination of employment.

The employment contract must also be examined to see if the matter is provided for in the contract.

After laying out the key questions to be explored, the Supreme Court reviewed the facts revolving around the current matter, and found the following:

The closure of a set of rooms for more than 5 months was due to a preplanned act of renovation and this was announced in advance. It was within the employer’s knowledge that this act would result in a reduction either in services or guest arrivals.

The employer failed to advise staff that some of their positions may be dissolved or reduced due to this exercise.

It was also unclear if persons performing like work were all dissolved or reduced; why probationary and temporary staff were not chosen; and why the move targeted the permanent staff.

Based on the above, the Court held that the employer had not been able to establish the existence of substantive fairness in that there was just cause to make the employees redundant – or that there existed a case for genuine redundancy.

On Procedural Fairness

In considering the aspects of procedural fairness, the court made note of the following factors:

The employer had not been able to show in any of the stages of litigation (including at the Supreme Court itself) what processes it instituted to identify the employees who were made redundant.

The Court was quick to hold that the employer therefore could not be said to have established procedural fairness in dealing with the affected employees.

On Forms of Relief

After establishing that there was neither substantive fairness nor procedural fairness in this instant matter, the Supreme Court addressed the matter of remedies.

Although reinstatement was accepted as one of the options, the Court outlined a list of circumstances that may hinder such reinstatement: irretrievable break down of confidence and trust between the parties, long lapse of time between the date of termination and order of reinstatement, the size of the business, adverse circumstances faced by the business or fundamental shifts that may have occurred in the business.

Against the backdrop of certain events that had transpired between the affected employees and the employer, and the long lapse of some 9 years between then and now, the Court ruled out reinstatement as a viable remedy in this matter.

In relation to the issue of compensation, the Court identified certain factors that may be considered.

Since substantive and procedural fairness are different from each other, two different standards may be employed in compensation.

Compensation may be different in circumstances where substantive fairness is not established at all, and where it is established but procedural fairness is lacking.

Where substantive fairness is established, and procedural fairness is partly established, compensation may also reflect the amount of time that would have to be spent to establish complete procedural fairness.

The court noted that three forms of payment were provided by the employer: payment in lieu of notice, a redundancy payment equal to payment received in lieu of notice, and payment for unused holidays. It also noted that the redundancy payment was given while there was no legal requirement to do so.

Given all the matters considered above, the Court was of the view that the redundancy payment made at the time was sufficient compensation in the matter and that no further payment may be ordered as additional compensation.

The final decision

In delivering the judgment, a bench of three justices led by Justice Mahaz held that:

The employer had failed to establish the existence of a genuine redundancy, and that it exercised substantive fairness and procedural fairness; reinstatement orders issued by lower courts are quashed; no further compensation may be awarded since the redundancy payment made by the employer was reasonable compensation to remedy breaches in adhering to substantive or procedural fairness.

The conclusion

The events leading to this decision of the Supreme Court may have predated the introduction of redundancy rules in our employment law in September 2020.

However, it is believed that the decision from the top court will invariably direct the judicial approach in reviewing events of redundancy for substantive and procedural fairness in the country; and continue to be an effective commentary on the law on redundancy in the Maldives.


Note: This is an English summary of the decision of the Supreme Court in the matter of Crown Company Private Limited v. Abdulla Aanis et al (2018/SC-A/36,37,38) dated 3 February 2021.


Photo: Courtesy of Mihaaru