Nobody goes into business to make employees redundant. However, it is a task that many businesses will need to undertake at some point. Redundancy is a potentially fair reason to dismiss an employee, however it is vital to get this process right, as failure to do so could result in an expensive unfair dismissal claim at an employment tribunal.
The need for redundancies may arise due to reorganisation, through acquisition, or a downturn in revenue requiring a reduction in costs. Redundancy is defined as: when work of a particular kind has ceased or diminished, or is reasonably expected to cease or diminish.
So, here’s a step by step guide to the redundancy process, and how to negotiate it safely.
Redundancy procedure – good practice
It is good practice to have a redundancy procedure in place, even before a redundancy situation arises. If there is a procedure it may be appropriate to include it in the employee handbook, as this way employees will be aware of the process. A redundancy procedure should include the following steps:
- Planning – only start the process having thought it through carefully and/or having taken some expert HR advice;
- Identify – those posts that make up the pool of selection;
- Invite – volunteers for redundancy;
- Consultation – must be individual and collective;
- Apply – a fair selection criteria;
- Notify – the individual(s) to be made redundant using a fair process; dealing with any appeals if necessary;
- Calculate – statutory redundancy and notice payments carefully and in accordance with contracts and/or prevailing legislation.
Note that these requirements will depend on whether the redundancies are small scale or large scale. Small scale redundancies are those which propose fewer than 20 posts at one establishment to be made redundant in a period of 90 days or less. Large scale redundancies involve making 20 or more employees redundant within 90 days.
Small scale i.e. fewer than 20 redundancies
In situations where fewer than 20 redundancies are proposed, a consultation exercise must be carried out with the affected employees – group consultation first, followed by individual meetings with those identified to be made redundant.
There is no specific requirement length for consultation in these smaller scale redundancies, however there is a requirement that the consultation is ‘meaningful’.
The topics of discussion during the consultation process will be the same as with a larger scale redundancy, and a failure to carry out a proper consultation exercise can mean that the employees involved could claim unfair dismissal.
This can be the case even though the end result of the exercise is inevitable i.e. if the workplace is closing down completely.
Large scale i.e. more than 20 redundancies
If an employer proposes to make 20 or more employees redundant, then they are under a statutory obligation to conduct a collective consultation.
The collective consultation period must begin at least 30 days before the first dismissal takes effect if 20 to 99 employees are at risk; or at least 45 days in advance if 100 or more employees are to be affected.
During the consultation period, employers must allow all employees in the pool of selection, and recognised trade unions (if applicable) to take part in order to conduct a meaningful consultation. It must focus on ways to avoid or reduce the dismissals (such as placing staff of lay off or short time working) and on mitigating any effects.
The consultation can only legally end: (a) if the minimum period required has been completed and (b) if there has been meaningful consultation where the employer has considered and responded to the views and suggestions raised.
Following the consultation period
Once the pool of selection has been identified, the next step is to use a selection criteria to identify which positions should be made redundant.
This is most effectively done by carrying out a scoring exercise to see which employees are the most valuable to the organisation.
The selection criteria for this scoring exercise must be objective and applied fairly to reduce the risk of possible discrimination claims. Employees must be able to see their scores.
Any employees that are selected for redundancy are entitled to receive adequate notice and redundancy pay. Notice periods will usually be the same as if you are terminating the contract of employment, unless there is an alternative agreement.
Redundancies in a business takeover
Redundancies are common in takeovers, the chance to strip out duplicated costs is the biggest motivating factor. However, there are potential pitfalls that employers can fall into, and steps they should take to avoid them.
Under TUPE – all employment contracts transfer to the new employer, and they are responsible for all the terms and conditions they entail. In these circumstances’ redundancies must be made based on an ‘ETO’ test. This is to establish that there are sound ‘economic, technical or organisational reasons’ to make changes to the workforce.
Above all else make sure that all redundancies are fair and legal. Employees with over two years’ service made redundant solely as a result of a takeover would be regarded as unfair dismissal.
Calculating statutory redundancy payments
Along with notice pay, all employees with at least 2 years’ continuous employment must receive a statutory redundancy payment. The amount of this payment depends on the employee’s age, length of service and their weekly pay. If there is no enhanced contractual entitlement, the redundancy payment can be calculated by following this link: .GOV Redundancy Calculator
Employers should be aware that if an employee does not receive redundancy pay or if they disagree with the amount, they can bring a claim at an employment tribunal within 6 months of the underpayment.
Additionally, employers must notify the Department for Business, Innovation and Skills (BIS) of the situation if they are undertaking a large number of redundancies. This must be done at least 30 days in advance where the number of proposed redundancies is between 20 and 99, and at least 45 days in advance if 100 or more redundancies.
Calculating notice payments
Once any redundancy consultations have been conducted and a final decision has been reached, employers will need to give affected employees sufficient notice and agree a leaving date.
Employers must adhere to at least the minimum statutory notice period i.e. one week for every complete years’ service up to a maximum of 12 weeks, or their contractual entitlement (whichever is the greatest) – or more preferred. You can allow employees to leave sooner than the statutory period, but only if you pay them in lieu of their notice period.
Always remember that ‘benefits in kind’ are part of the employee’s remuneration and so employers must include overtime, bonus, pension and benefits in kind e.g. company car, health care etc in their final payment calculations.
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