UK: Redundancies & Avoiding Costly Mistakes?

Last Updated: 25 March 2009
Article by Barbara Stewart

In times of recession employers are often forced to take the tough decision to reduce their workforce. Regardless of how many redundancies are proposed, it is imperative that employers follow the correct procedures and that there is a genuine redundancy situation.

Employment law is notorious for pitfalls and during times of recession in the past, employment tribunals have been clogged up with claims for unfair dismissal relating to redundancies.

Compensation for unfair dismissal may be up to £66,200 per person - more in some cases where the dismissal is tainted by some form of discrimination or victimisation. This does not include the cost of redundancy payments. These cases often stem from employers falling into the following traps:

Making staff 'redundant' when there is no redundancy situation

When recession hits, employers may use this as an excuse to cut the wheat from the chaff in their workforce and falsely claim that their position is redundant.

A genuine redundancy situation is when:

An employer has ceased, or intends to cease to carry on:

  • the business for the purposes of which the employee was employed; or
  • that business in the place where the employee was so employed, or

the fact that the business no longer has a need, or has a diminished need 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.

It may be that a business undertakes a reorganisation due to the financial challenges it faces and as a result, employees' roles and duties are changed which may give rise to redundancies. In these circumstances, there must still be a reduced need for employees doing work of a particular type.

Failing to properly consult with affected employees before making the redundancies

Employers must inform and consult in advance with relevant staff regarding the proposals and rationale for making redundancies. The consultation must be approached with the aim of avoiding redundancies wherever possible and employees are entitled to offer their suggestions.

There may be plenty of options, for example, a shorter working week, pay cuts, redeployment to another branch/office and job sharing amongst others. One should not make assumptions about how staff will react to a redundancy consultation. Whilst employers need not necessarily agree with the suggestions, employers must give these proper consideration and report back to the employees.

Where 20 or more redundancies are proposed in one establishment ("collective redundancies"), there are particular statutory rules which must be followed regarding election of employee representatives and/or consulting with recognised trade unions. In these cases, there is a minimum consultation period of 30 days. Where 100 or more redundancies are proposed, the consultation must last at least 90 days. 'Protective Awards' of up to 90 days' pay per employee can be awarded if employers fail to follow the consultation requirements in collective redundancies. This is in addition to any compensation for unfair dismissal.

Unfair selection

If you need to make a few people redundant from a group of employees doing similar jobs, you must justify your choices objectively. Objective criteria such as disciplinary record, attendance record, recent appraisal results are easier to justify should they ever be challenged in an Employment Tribunal. However, apparently objective selection criteria can still be tricky. For example, taking into account staff attendance records may seem fair; but if an employee's absence is due to a disability or perhaps related to their pregnancy, it may be discriminatory to take those absences into account when calculating their scores. "Last in, first out" may (but not always) have the effect of discriminating against younger workers on the grounds of their age, as the older a worker is; the longer their service tends to be.

Subjective criteria can often be difficult to justify and employers must ensure that any selection criteria and scores attributed to employees can be objectively justified as fair and reasonable.

Employers must not forget to give employees advance notice of their scores and an opportunity to challenge these scores before a final decision is made regarding who will be selected.

Failing to Offer Alternative Employment

Employers must have, at least, carried out a search for possible alternative employment within the company including possibly at all branches/locations and within any group companies. An offer of suitable alternative employment must be made to those potentially being made redundant.

Whether it is suitable alternative employment, however, is a matter of fact and degree in each case and all relevant factors must be taken into account such as pay, hours, location, conditions, qualifications and experience. It may be that there are alternative roles which may not be 'suitable', however, consideration should be given to offering such posts in any event as the selected employees may be receptive to a change of job. It is not for an employer to decide whether an employee will not relocate. Employers often forget that the obligation to look for and offer alternative employment exists right up to the date of termination.

6 steps to getting it right

The process and procedures relating to redundancies are complex, but the 6 main points to remember are:

1. Inform all affected employees about the business' proposals for redundancies;

2. Consult with affected employees with a view to avoiding the redundancies;

3. Identify categories of staff and formulate fair selection criteria;

4. Score the employees against the selection criteria;

5. Confirm to staff whether they have been selected for redundancy;

and

6. Appeal process (for redundancy process where the statutory dismissal procedure has been commenced before 5th April 2009 and in more complex cases post - 5th April 2009).

The costs of getting it wrong

The cost of losing a tribunal case can be massive, and not just in terms of compensation or management time as Employment Tribunal hearings are open to the public and the press. Compensation will cover not only the employee's loss of earnings and benefits up to the date of the Tribunal, but may also include future losses. Compensating unfairly dismissed employees for the value of lost pension rights alone can result in high awards. The technical legal rules mean that it is easy to make expensive mistakes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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