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Employment Law for Employers Q&A: Getting redundancy right

10/03/2021

For employers, handling redundancies can be difficult and is, more often than not, an undesirable reality of business ownership or senior management. These factors can make approaching redundancies a daunting task and, depending on the size of the business, a complex one too.

However, there are a variety of reasons that employers should take the time to get redundancy right, not only to avoid employment claims, but also for reputational reasons, both in the wider world and within the workplace amongst their retained workforce.

Here, we cover the most common questions asked by employers considering redundancies:

Q. What is redundancy and who is entitled to a statutory redundancy payment?

A. For employees with at least two years’ service, redundancy is a potentially fair reason for dismissal and triggers entitlement to a statutory redundancy payment. It is therefore important to identify when a redundancy situation exists.

The meaning of redundancy is set out in legislation and dismissal of an employee will be considered as being by reason of redundancy where it is ‘wholly or mainly attributable’ to one of the following:

  • Closure of the business as a whole.
  • Closure of the particular workplace where the employee was employed.
  • Reduced requirement for work to be carried out of the type the employee was employed to do.

Q. How can an employer avoid an unfair dismissal claim?

A. An employee with at least two years’ service has the right not to be unfairly dismissed. In redundancy terms this means (1) that the reason for dismissal must be ‘wholly or mainly attributable’ to redundancy; and (2) that the employer must act reasonably in dismissing the employee for redundancy taking account of all the circumstances, including the redundancy process adopted.

Even assuming a dismissal is genuinely on grounds of redundancy, to avoid an unfair dismissal claim an employer must also do the following:

  • Identify an appropriate pool from which selection for redundancy will be made.
  • Before making any final decisions relating to redundancies, consult with individuals in the pool about its proposal for redundancy, why it affects their role, any alternatives to redundancy and the selection criteria to be applied to determine who will be made redundant.
  • Apply objective selection criteria to those in the pool.
  • Consider suitable alternative employment.

Q. Are there any other employment claims an employer is vulnerable to in a redundancy situation?

A. An employer should ensure that selection for redundancy is not discriminatory on one of the grounds protected by equality legislation, including sex, race, disability and age.

An employer should also ensure that selection is not for one of the special category of automatically unfair reasons, such as whistleblowing or pregnancy, which in many cases do not require the employee to have two years’ service and even if a fair procedure is adopted, will result in an automatically unfair dismissal claim based on the selection for redundancy alone.

Q. When do collective consultation obligations apply?

A. In addition to consulting with individual employees to avoid an unfair dismissal claim, when an employer is proposing to make 20 or more redundancies within a 90-day period, it also has obligations to:

(1) inform and consult appropriate employee representatives about specified aspects relating to the proposed redundancies; and

(2) notify the Secretary of State of the proposed redundancies by way of a Form HR1.

In both cases this must be done at least 45 days before the first dismissal takes effect where 100 or more redundancies are proposed, or at least 30 days before the first dismissal takes effect for less than 100 redundancies.

An employment tribunal may award up to 90 days’ gross pay per affected employee for failures relating to the election of employee representatives or to the collective information and consultation obligations more generally.

Failure to notify the Secretary of State of the proposed redundancies is a criminal offence and carries a fine.

Q. What alternatives to redundancy should employers consider?

A. To conduct a fair redundancy procedure, an employer should at the outset, and throughout the consultation period, consider whether there are ways that it could avoid or reduce the need to make compulsory redundancies.

Ways of avoiding redundancies are also one of the matters employers have a statutory duty to consult about if they obliged to conduct collective consultation (see above).

The sort of alternatives that employers should consider at the outset are things like:

  • A freeze on recruitment.
  • Reduction or removal of overtime.
  • Reduction or removal of use of agency staff.
  • Reduction or removal of contractors.

If these initial alternatives are not either applicable or sufficient, then employers should consider the following:

  • Inviting volunteers for redundancy.
  • Inviting potentially redundant employees to apply for or accept suitable alternative employment.
  • Reducing working hours/offering more flexible working across affected roles or departments.
  • Job sharing.
  • Business wide pay-cuts.
  • Pay freezes.
  • Removing bonus payments.
  • Offering sabbaticals – whether paid or unpaid.

There are in theory few limits on the alternatives that can be proposed, albeit that it is sensible to propose those which both achieve commercial and operational objectives as well as being likely to have some appeal to the demographic of the employer’s workforce.

Q. What redundancy payments are employees entitled to and how are statutory redundancy payments calculated?

A. Employees with at least two years’ service who are dismissed by reason of redundancy are generally entitled to a statutory redundancy payment, calculated according to a formula based on age, length of service and pay. Both the length of service and amount of a week’s pay that can be taken into account are subject to upper limits.

In addition to a statutory redundancy payment, an employee may also be entitled to an enhanced contractual redundancy payment, whether because it is expressly set out in their contractual terms or because it has become implied, usually through custom and practice of making similar payments to redundant employees in the past.

This article should not be relied upon as a substitute for professional legal advice. If you are an employer seeking legal advice on a particular matter or employment circumstance, please contact Deborah West on 01202 294 566 or email [email protected].

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