Tips for employers managing redundancies

Official statistics from the Office of National Statistics show that the “increase in UK redundancy rates during the coronavirus (COVID-19) pandemic is faster than during the 2008 to 2009 economic downturn”.

With some companies now forced to consider redundancies, we look at the accepted reasons, correct procedures, and the implications of getting the redundancy procedure wrong.

Avoiding redundancies

It is sensible to consider this first, in order to avoid the disruption and cost involved in making redundancies. Alternatives to redundancy include limiting overtime, stopping the use of agency workers, putting employees on short-time working, agreeing a reduction in hours of work, implementing a recruitment freeze, and offering sabbaticals. If you are able to avoid redundancies, you will retain the skills and experience of staff that you may need in the future, without having to spend time and money on recruitment.

Genuine reason The circumstances which meet the statutory definition of redundancy set out in section 139(1) of the Employment Right Act 1996. To summarise, the statutory definition of redundancy identifies three sets of circumstances:

• Business closure (closure of the business altogether).
• Workplace closure (closure of one of several sites, or relocation to a new site).
• Diminished requirements of the business for employees to do work of a particular kind.

In practice, an Employment Tribunal rarely question the reason for making redundancies and tend to focus much more on whether the procedure followed was correct.

Procedure 

It is important to get the redundancy procedure right to avoid claims for unfair dismissal, and there are a number of steps you need to follow. If you are making one redundancy and there is only one person doing the job, it is relatively straightforward. If, however, there are several people doing the same job, you will need to define the pool from which the redundancies will be made, which will include all those within the relevant job category or department. Your pool must be fair. At this point you should tell everyone in the pool that they are at risk of redundancy, explain the procedure you will follow and consider asking for volunteers for redundancy.

• Selection criteria 

You need to choose your selection criteria, which must be objective and applied fairly. You can include factors such as skills, experience, performance, attendance record and disciplinary record. Scoring should be done by at least two managers, in order to avoid any bias, and you should ensure that you have evidence to back up your scores. Those with the lowest scores will be made redundant.

• Consultation

You need to carry out individual consultation, which must be a two-way process where the employee has a chance to comment and to explore any alternative roles. It should last for at least a couple of weeks.
If you are planning to make 20 or more redundancies at one place of work in 90 days or less, there are additional obligations that involve consulting with trade union representatives or representatives elected by the employees. You also need to notify the government.

If an employer fails to comply with the collective consultation procedures, affected employees may bring a complaint before an Employment Tribunal. If an Employment Tribunal finds the complaint well founded, it will make a declaration to that effect and may make a protective award. The award requires the employer to pay the employee remuneration for a protected period of whatever length the tribunal considers to be just and equitable, having regard to the seriousness of the employer’s failure to consult, subject to a maximum of 90 days actual gross pay (limit on a week’s pay does not apply).

• Appeal

Employees should have the right to appeal against their selection for redundancy and they also have the right to paid time off work during their notice period to look for another job or arrange training.

Payments required

An employee with more than two years’ service who is being made redundant will be entitled to a statutory redundancy payment, based on their age, length of service and pay. The payment is broadly one week’s pay for each year of employment, with a cap of £544 on a week’s pay. Up to 20 years’ service can be considered and the maximum payable is £16,320. Some employers enhance this payment, for example by ignoring the cap on a week’s pay.

Employees will either work their notice period or leave immediately and receive a payment in lieu of notice, which is the pay they would have received during their notice period. They will also be entitled to pay for any holiday they have accrued and not taken.

Some employers offer outplacement services to assist employees in finding another job.

If you are making additional payments, which are not required by law or the employee’s contract, you should consider asking the employee to enter into a settlement agreement. This is a legally binding document that will prevent them from bringing any employment law claims against you in return for a lump sum. They need to take legal advice on the terms of the agreement.

Claims

An employee with the necessary length of service can bring a claim for unfair dismissal in the Employment Tribunal if they believe the redundancy was not genuine or you did not follow the correct procedure. The maximum compensation is £89,493 or 52 weeks’ pay if less. An employee may have a claim for automatic unfair dismissal if they believe they were selected for redundancy on a number of grounds, such as pregnancy or maternity and membership of a trade union.

How can we help?

If you do find yourself defending an employment tribunal claim, we can offer you advice and representation. We can also offer advice at the outset and / or during a redundancy process in order to minimise the risk of a claim being issued.

If an employee thinks that they were selected for a discriminatory reason – for example, on the grounds of sex, age, or disability – they will be able to bring a discrimination claim.

An employee will also have a claim if you fail to pay the correct amount of statutory redundancy pay, notice pay or holiday pay.

More information

If you need advice on what to do if you are considering making redundancies or restructuring your business contact our Employment Team on 01708 229444.

This article was written by Alex Pearce, Senior Associate in the Employment Law Team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of May 2021.