UK: Collective Redundancies – Key Pitfalls And Good Practice

Last Updated: 17 May 2012
Article by Matthew Kelly

The current economic climate has necessitated many employers making collective redundancies. This area of law is fraught with difficulties. The legal and commercial issues facing employers should not be underestimated and this article focuses on the legal obligations faced by employers when contemplating proposed redundancies along with two potential pitfalls along the way that organisations are increasingly facing.

The legal position

Collective redundancy is defined when an employer proposes to dismiss as redundant 20 or more employees at one establishment within a 90 day period, or the employer must collectively consult its employees via trade union or appropriate elected representatives.

Consultation must begin in good time and should be a minimum of 30 or 90 days depending on the numbers involved. Whilst the figures refer to 30 or 90 days before the first dismissal takes effect, these are minimum time lines and the legal requirement is to consult "in good time".

Defining "establishment"

The duty to collectively consult applies where 20 or more dismissals are proposed at one "establishment". There is no statutory definition of what an establishment constitutes. However, the general consensus seems to be that if employees work at different locations the question is whether those sites form a single undertaking to which the affected employees are assigned. This is highly likely to be the case if certain functions such as accounts, payroll and management are centralised for all units. If, however, there is an operation independently of each other then the establishment may be different. Case law seems to suggest that Employment Tribunals take a pragmatic approach to this and very much look at it from a common sense perspective.

With whom must the employer consult?

The employer must consult with appropriate representatives of employees. If affected employees are within a category of employees in respect of whom recognition has been granted, then the requirement will be to consult with trade union representatives. For other affected employees the employer must choose to consult with either representatives not specifically elected for the purpose of redundancy consultation or representatives directly elected by affected employees for the purpose of redundancy consultation.

Consultation must include "ways of

  1. avoiding the dismissals, which includes consulting over the business reasons;
  2. reducing the number of employees whom it is proposed to be dismissed; and
  3. mitigating the consequences of the dismissals".

Consultation must be with a view to reaching agreement, which essentially refers to a dialogue approaching negotiation although it does not necessarily mean that both parties must reach agreement.

The legislation states expressly that the following information must be provided as a minimum to the appropriate representatives (often referred to as a Section 188 Notice):

  • reasons for the proposed dismissals;
  • numbers and descriptions of employees whom it is proposed to dismiss as redundant;
  • total number of employees of any description employed by the employer at the establishment in question;
  • proposed selection method and proposed procedure;
  • proposed method for calculating redundancy payments; and
  • information in relation to agency workers.

Two issues that often arise in relation to collective redundancies are batches of redundancies and the calculation of a statutory redundancy payment.

Batches of redundancies

There may be a scenario envisaged by employers where they undertake redundancies in batches. This often poses difficulties in terms of the requirement to collectively consult. If, for example, an employer proposed 15 redundancies on 1 January 2012, the duty to collectively consult would not be triggered.

However, if the employer then went on to propose a further 20 redundancies within 90 days of 1 January 2012 then the duty to collectively consult would be triggered in relation to all of the redundancies proposed. This could cause a problem if the employer had already begun to implement the first batch of redundancies.

Case law seems to suggest that the law does not "demand the impossible". Therefore, if the two batches are genuinely separate proposals then there should be no need to collectively consult in relation to the first. However, employers should be cautious about relying on this case as an Employment Tribunal may consider that the first batch was deliberately set below 20 so as to avoid collective consultation requirements.

A similar issue arises when an employer proposes 30 redundancies and then within a 90 day period proposes a further 10. Given that the original 30 proposed redundancies would be the subject of collective consultation, there is specific provision in the legislation that provides that those 30 redundancies already the subject of consultation are expressly excluded from the further 10 proposed redundancies. In other words, there would be no need to collectively consult in relation to the 10 proposed redundancies.

Redundancy payments

In the event that an employee is made redundant and provided that they have two years' service then he or she will be entitled to a statutory redundancy payment, based on the employee's age, length of service and weekly pay capped at £400. Generally, this poses no difficulties in terms of calculating the amount. However, if an employee earns less than the statutory maximum of £400 per week then there is a complex way of determining how the redundancy payment is calculated.

An issue that can often arise relates to the calculation of the "relevant date" for the purpose of the statutory redundancy payment calculation and whether an employee has in fact an additional year's service. The provisions appear very similar to the situation where an employee's continuous service is "added on" by the statutory minimum period of notice to which an employee is entitled when determining whether someone has the requisite period of service to be eligible to present a complaint of unfair dismissal.

Again, the legislation is detailed in nature and the complications appear to lie if someone does not work their notice, as if someone works their notice then these provisions would not apply.

For example, if an employee works a three month notice period the employment relationship ends at the end of the three months and these provisions would not apply. However, if an employee is paid in lieu of notice, the employment relationship ends there and then. However, for the purpose of calculating a statutory redundancy payment case law seems to suggest that the statutory minimum period of notice to which an employee is entitled would need to be "added on" to the end date of employment. This means in practice that an individual may obtain more redundancy payment than what he or she first thought.

Clearly, this area is subject to detailed legislation and case law. In the event of any doubt as to how collective redundancies should be followed, we would suggest you obtain legal advice at the earliest opportunity.

Thomas Eggar LLP is a limited liability partnership registered in England and Wales under registered number OC326278 whose registered office is at The Corn Exchange, Baffin's Lane, Chichester, West Sussex, PO19 1GE (VAT number 991259583). The word 'partner' refers to a member of the LLP, or an employee or consultant with equivalent standing and qualifications. A list of the members of the LLP is displayed at the above address, together with a list of those non-members who are designated as partners. Regulated by the Solicitors Regulation Authority. Lexcel and Investors in People accredited.

Thomas Eggar LLP is not authorised by the Financial Services Authority. However, we are included on the register maintained by the Financial Services Authority so that we can carry on insurance mediation activity which is broadly the advising on, selling and administering of insurance contracts. This part of our business, including arrangements for complaints and redress if something goes wrong, is regulated by the Solicitors Regulation Authority. The register can be accessed via the Financial Services Authority website. We can also provide certain further limited investment services to clients if those services are incidental to the professional services we have been engaged to provide as solicitors.

Thesis Asset Management plc, our associated financial services company, provides a comprehensive range of investment services and advice. Thesis is owned by members of Thomas Eggar LLP but is independent of and separate to it. No lawyer connected with Thomas Eggar LLP provides services through Thesis as a practicing lawyer regulated by the Solicitors Regulation Authority. Thesis is authorised and regulated by the Financial Services Authority. Thesis has its own framework of investor protection and professional indemnity cover but Thesis clients do not enjoy the statutory protection of solicitors' clients.

The contents of this article are intended as guidelines for clients and other readers. It is not a substitute for considered advice on specific issues. Consequently, we cannot accept any responsibility for this information or for any errors or omissions.

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