In order to remain commercially competitive it is important businesses review their staffing needs on a regular basis. Even where a business is successful, it is inevitable, that redeployment of labour and redundancies will sometimes be necessary based on prevailing market conditions. This is particularly true in the uncertain times in which we live as a result of Brexit. It is vital if you are considering reducing staff head count due to the prevailing economic circumstances that such redundancies are handled carefully to avoid unanticipated liabilities for your organisation.
Here at iLaw we have over 20 years’ of experience guiding employers through redundancy processes. Here are our top ten tips for employers faced with having to make what we understand and appreciate are difficult decisions:
1. Avoid having to make redundancies in the first place
Developing an effective strategy for human resource planning can help manage current and long term staff needs and avoid the need to make redundancies.
2. Make sure there are good grounds for making redundancies
Even if an organisation has an effective HR strategy in place, sometimes having to make redundancies is inevitable. It is important when considering making redundancies that you are able to justify the grounds as a matter to law to avoid claims for unfair dismissal.
According to the Employment Rights Act 1996 a redundancy situation arises when:
- the employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was so employed; or
- the employer has ceased, or intends to cease, to carry on the business in the place where the employee was so employed; or
- the requirements of the business for employees to carry out work of a particular kind has ceased or diminished or are expected to cease or diminish; or
- the requirements of the business for the employees to carry out work of a particular kind, in the place where they were so employed, has ceased or diminished or are expected to cease or diminish.
3. Adopt a fair selection criterion
The selection criteria for making an individual employee redundant should be fair, objective and consistent. By ensuring this, this avoids any suggestion the employee has been unfairly selected for redundancy.
As far as possible, objective criteria, precisely defined and capable of being applied in an independent way, should be used. The purpose of having objective criteria is to ensure that employees are not unfairly selected for redundancy. Examples of such a compulsory criteria are:
- Skills or experience;
- Standard of work performance or aptitude for work;
- Attendance or disciplinary record.
4. Make sure in applying the selection criteria it is not tainted by discrimination
The chosen criteria must be consistently applied by all employers irrespective of size. The employer should also ensure that in applying the criteria their decision making is not tainted by discrimination in any way e.g. disability in the context of work attendance and age in the context of experience (the argument being younger employees may have less experience by virtue of their age but that does not mean they do not have the skills and capabilities to do the job in question).
5. Consider voluntary redundancies
One acceptable method in terms of a non-compulsory selection criteria is for employees to volunteer to be considered for redundancy and for the employer to select from the list of volunteers those employees who are to be dismissed.
This has the advantage of avoiding the need for compulsory redundancies, with a less demoralising and disruptive effect on the workforce. It is not uncommon to offer enhanced redundancy payments as an incentive to attract people to leave. In situations where the number of volunteers exceeds requirements, employers should be alert to the potential reaction of some employees not selected and consider in advance how best to deal with this.
The disadvantage of going down the voluntary redundancy route is that sometimes those volunteering for redundancy may be the employees with the superior skills and capabilities (as a result of which they are more confident of obtaining alternative employment) and therefore the ones the employer would prefer to retain.
6. Follow a fair redundancy procedure
Put into place an effective redundancy policy that sets out the redundancy process step by step. This will help employees understand the procedure that will be followed before it takes place. It also provides employers with the structure and framework to be followed. Fair and appropriate procedures need to be followed to avoid unanticipated liabilities for unfair dismissal even where there are good grounds for making a redundancy.
The essence of a fair redundancy procedure established by UK employment case law is:
- Consultation; and
Dealing with each of these three limbs in turn:
The employer should meet with the employee and give them warning that their role has been POTENTALLY identified for redundancy explaining the underlying grounds. It is just that, that the role is potentially redundant. It is important at this stage not to say anything that would suggest the employer has made the decision to make the position redundant terminate the employee’s employment. To do so would risk prejudicing the entire consultation process rendering the dismissal potentially unfair and opening the employer to a claim.
The employer should follow up the meeting with a letter to the employee confirming the following:
- The reasons for having to make redundancies; and
- Stating the employee’s role has been identified as a result as being potentially redundant; and
- Explaining the consultation process that will follow with dates for the next meeting to take place as part of that process.
Consultation should take place as soon as possible following the initial meeting at which warning of potential redundancy is given. The purpose of consultation is for both sides to explore the available options. It presents an opportunity for the employee to pitch ideas as to how the redundancy can be avoided. For the employer it presents an opportunity to listen to such ideas as well as to identify whether there is a suitable alternative role for the affected employee(s), so as to avoid having to give notice of termination of employment at the end of the consultation period.
NB employers who propose to dismiss as redundant 20 or more employees at one establishment over a period of 90 days or less have a statutory duty to consult representatives of any recognised independent trade union, or if no trade union is recognised, other elected employees. This is in addition to the employer’s obligations to consult individually with the employees.
At the end of the consultation period (and not before), if employer and employee have not been able to identify a way of avoiding the redundancy crystallising or suitable alternative employment for the employee then the employer should meet with the employee again to confirm the redundancy is confirmed and give notice of termination of employment. The employer should follow up the meeting with a letter confirming in writing the following:
- Confirmation of the redundancy; and
- The planned date for termination of employment; and
- The employee’s entitlement to a redundancy payment whether under statute (assuming the employee meets the 2 year qualifying criteria for such a payment) or under the employer’s redundancy policy if it includes provision for an enhanced redundancy payment; and
- The employee’s contractual entitlements on termination of employment including (but not limited to) the following elements:
- Notice or payment in lieu of notice if the employer does not want the employee to work their notice period; and
- Accrued but untaken holiday entitlement due up to the date of termination of employment; and
- Any commission earnt or bonus due on termination in accordance with the employer’s scheme rules
This list is not intended to be exhaustive. You should refer to the employee’s contract of employment to check the full extent of the financial entitlements due on termination of employment.
10. Consider offering a settlement agreement
Settlement agreements offer employers a clean and effective means of dealing an employee being made redundant providing protection against the employee seeking to claim they have been unfairly dismissed following termination of employment. Typically the employee is offered an enhanced redundancy payment in return for waiving any legal claims they may have against their employer arising out of their employment and its termination. For more about settlement agreements take a look at our article Settlement agreements: 5 top strategies and tips for employers.
Handled properly, following the tips contained in this article, a redundancy process need not be so daunting for an employer. Are you facing a redundancy situation with your workforce? Why not talk to our dedicated team of employment lawyers here at iLaw? We can help guide you through the exercise so that it runs smoothly and does not leave you open to the exposure of litigation from affected employees.
Please call the author of this article, Julian Cox who heads iLaw’s employment team to discuss on 0207 489 2059 or e mail him at email@example.com.