Are you contemplating making redundancies?

Redundancies can be at time hard for an employer to navigate. It can also be disruptive. Employers generally seek to reduce costs and restructure their operations in order to remain competitive and will do so over the next year, especially given the current economic crisis.

We look at some of the main points below.

Avoiding redundancies

As a business it is advisable to consider steps to prevent redundancies thereby avoiding the stress, disruption, the monetary and time cost involved in making redundancies.

Steps to avoid/prevent redundancies can 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

Redundancies can however be inevitable to keep the business viable.

Definition of Redundancy

The statutory definition of redundancy can be found in section 139 of the Employment Rights Act 1996 which states: “For the purposes of this Act an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to:

(a) the fact that his employer has ceased or intends to cease

• to carry on the business for the purposes of which the employee was employed by him, or
• carry on that business in the place where the employee was so employed, or

(b) the fact that the requirements of that business:

• for employees to carry out work of a particular kind, 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”.

The focus is not on whether there is less work, but whether the employer can demonstrate a need for fewer employees to carry out the work. Employment Tribunals rarely question the reason for making redundancies and tend to focus much more on whether a correct procedure was followed.

Redundancy Procedure

As an employer it’s imperative to get the redundancy procedure right not only to reduce the risks of an unfair dismissal claim but to reduce the amount of management time required in dealing with issues which may otherwise be avoided.

If you are making one redundancy and there is only one person doing the job, it is relatively straightforward. Matters become more complicated when there are several people doing the same job. If this is the case, careful consideration is required in defining the pool from which the redundancies will be made, which will include all those within the relevant job category or department.

Early advice regarding defining the pool can stop issues which may arise later down the line. The 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

1. Selection criteria

In order to select those individuals who are to be made redundant from the pool, you need to choose a selection criteria which must be objective and applied fairly. Factors such as

• Skills
• Experience
• Performance
• Attendance record
• Disciplinary record

can be included. It is advisable that scoring should be done by at least two managers in order to reduce any bias. Those that are scoring individuals should ensure that they have evidence to back up the scores.

2. Consultation

Having identified those that will be made redundant you will then need to carry out individual or collective consultation. This must be a two-way process where the employee has a chance to comment and to explore any alternative roles. Consultation should be genuine and meaningful and is likely to last a couple of weeks.

Employer should however take note that additional obligations when an employer is planning to make 20 or more redundancies at one place of work in 90 days or less. This involves consulting with trade union representatives or representatives elected by the employees if.  It is worth taken early-stage advice as failure to comply can lead to expensive penalties.

Further by law, you also need to notify the Redundancy Payments Service (RPS) about the planned redundancies. This must be done before the issue any individual notice of dismissal, and at least 30 days before the first dismissal, if there are between 20 and 99 redundancies and 45 days before the first dismissal if there are 100 or more redundancies.

3. Appeal

An employer should allow employees the right to appeal against their selection for redundancy. If an employee appeals the decision, you should consider the appeal without unreasonable delay. The outcome of the appeal should be in writing to the employee.

ACAS states that:

“An appeals process can help to:

• give you early warning the redundancy selection process might have been unfair and the chance to correct it
• deal with and resolve an employee’s complaint, avoiding an employment tribunal claim
• show a tribunal that you have followed a fair process”.

Payments required

An employee who is being made redundant with more than two years’ service 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 £571 on a week’s pay. Up to 20 years’ service can be taken into account.

The current maximum statutory redundancy payment is £17,130.

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. Regard should be had to the employee’s contract of employment.

If you are making additional payments, which are not required by law or the employee’s contract, you should consider the employee entering into a settlement agreement. A settlement agreement is a legally binding document that will prevent an employee from bringing any employment claims against you in return for a lump sum payment, this may take the form of an enhanced redundancy payment.

Claims

An employee with more than 2 years’ service can bring a claim for unfair dismissal in the employment tribunal if they believe their redundancy was either substantively or procedurally unfair. The current maximum compensatory award is £93,878 or 52 weeks’ gross pay (whichever is the lowest).

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, membership of a trade union or from making a protected disclosure (whistleblowing).

If an employee thinks that they were selected for redundancy for example on the grounds of their sex they may be able to bring a discrimination claim. In a discrimination claim compensation is unlimited and no qualifying period of service is required i.e. the employee does not need two years’ service.

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

Tribunal representation

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

We can offer you advice and representation if you find yourself defending an employment tribunal claim.