This is the first in a series of articles examining current legal trends in the tech and video game industries.
The gaming industry’s value has surpassed the combined value of the music and film industries, as reported by the BBC. It has continued to grow year on year, and with such exponential growth, comes growing pains and unforeseen legal issues.
The technology (tech) sector has made incredible progress in developing artificial intelligence (AI) and have reached record breaking profits and market capitalisation. As with any new technological developments, there are unforeseen consequences and legal issues that arise. For example, despite the positive market conditions, there have been reports of mass redundancies across the tech sector.
Redundancy:
Under s.139 of the Employment Rights Act 1996, an employee is dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to:
- the fact that the employer has ceased or intends to cease:
- to carry on the business for the purposes for which the employee was employed (i.e. through a voluntary liquidation); or
- to carry on that business in the place where the employee was so employed (i.e. the relocation of the business or a particular part of a business); or
- the fact that the requirements of the business:
- for employees to carry out work of a particular kind have ceased or diminished or are expected to cease or diminish (i.e. due to a proposed restructure or improved efficiencies, technological advancements such as AI etc); or
- for employees to carry out work of a particular kind in the place where the employee was employed by the employer have ceased or diminished, or are expected to cease or diminish.
There is also a lesser-known lawful reason for redundancy called ‘bumping’. Bumping occurs when one employee’s job becomes redundant but, because the employer wishes to retain that particular employee’s services, it “bumps” another employee out of their job and gives it to the employee whose job became redundant.
In all of the above circumstances, there are procedures that must be followed. If done incorrectly, and subject to being able to meet the qualification period in respect of their length of service, employees will be eligible to bring claims against an employer for unfair dismissal.
Irrespective of their length of service, where the principal reason for selecting an employee for redundancy falls within one of the reasons set out in s. 105 of the Employment Rights Act 1996, the dismissal will be automatically unfair and employers should seek specific legal advice to minimise the risk of employees arguing any of these grounds. For example s 105(7) of the Employment Rights Act 1996 provides that you cannot lawfully make someone redundant, if the reason or, if more than one, the principal reason, for making said employee redundant is because they alleged that their employer had infringed a statutory right or brought proceedings against their employer for asserting a statutory right.
Given the considerable growth in the gaming industry, you may be wondering why redundancy is such a hot topic; however, gaming developers and publishers, particularly in the UK and America, are being ruthless in their hiring practices. The industry standard practice is to hire programmers, artists and developers for a specific project/game, which usually lasts 2-4 years (for a triple A game), then make the majority of the workforce redundant until the next project is in the pipeline, as reported in the Guardian. This is because fewer developers are needed after the game is released to keep the servers running, fix any bug issues, and add any other smaller scale DLC content, or other micro-transactions. Staff are, therefore, regularly overworked to meet publishing deadlines and then made redundant once the game has been released (commonly known as “crunch”).
Due to the lead time of major releases, it is probable that most of the workforce would have been employed for two or more years. On that basis, they will have reached what is known as the “qualifying period”. Being continually employed for at least two years qualifies an employee to bring an unfair dismissal claim in respect of the redundancy of their role if they can successfully argue that the redundancy of their role was unfair. Common examples of unfairness include the employer:
- Not identifying an appropriate pool from which selection is made;
- A failure to meaningfully consult with ‘at risk’ individuals within the pool;
- Failing to apply an objective selection criteria to the candidates within the pool;
- Failing to consider alternative employment where appropriate, subject to a statutory trial period;
- The recruitment of a replacement candidate to undertake broadly similar duties suggesting the redundancy of the role was ‘a sham’.
Most employers will be aware of their obligations when making a role redundant, but when 20 or more employees are at risk of being selected for redundancy (which has been common so far this year in the tech sector) this is known as a collective redundancy. Collective redundancy brings with it extra obligations to which the Employer must adhere, and this is particularly where an employer may need to liaise with an HR & employment specialist to advise on the correct procedure, so as not to draw added exposure and liability (and therefore costs) to the company.
The continuing increase in demand for video game products has consequently led to a rise in demand for staff, and employers have been forced to raise their salaries to remain competitive. The current “crunch” model has therefore meant that mass redundancy payments are less viable as a long-term strategy moving forward for independent and major studio producers alike, but savvy employers should be constantly reviewing and updating their employment contracts, HR policies and procedures to mitigate risk.
In the broader tech sector, a survey conducted by ResumeBuilder.com found that AI was directly responsible for 40% of recent redundancies. BT has announced it intends to cut 55,000 jobs, 10,000 of which is due to the jobs being performed by AI. These trends may give rise to a threat of unionisation amongst the workforce (which would then bring on burdensome regulations), which is what has occurred in the video game industry, and has recently accelerated this year. It may therefore be prudent for employers to consider their long-term hiring strategies moving forward, to prevent hindrances to commercial viability and ultimately, shareholder value.
A well drafted fixed term contract, identifying project milestones, can offer a more commercial solution for gaming and tech companies, but this requires the various stages of any projects to be well managed, as an employee who has been engaged under a fixed term contract for 4 years or more automatically becomes a permanent employee unless the employer can show there is a very good business reason not to do so.
If you are an employer considering placing a role or several roles at risk of redundancy, or an employee who has been notified that their role is at risk of redundancy or you have been offered enhanced severance terms via a settlement agreement you might wish to seek legal advice.
Griffin Law is a dispute resolution firm comprising innovative, proactive, tenacious and commercially-minded lawyers. We pride ourselves on our close client relationships, which are uniquely enhanced by our transparent fee guarantee and a commitment to share the risks of litigation. For more details of our services please email justice@griffin.law or call 01732 52 59 23.
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