Redundancies looming?
As we all well know, the UK economy is on the brink of a recession. Large-scale redundancy exercises have recently taken place at various tech giants such as Twitter, Spotify and Microsoft. Royal Mail are also expected to cut around 10,000 full time roles axed by August 2024. Restructures and cost cutting exercises are all too familiar at the moment. In this article we explore the meaning of redundancy and what a redundancy process should entail as well as key considerations when making compulsory redundancies.
What is redundancy?
The statutory definition of “redundancy” encompasses three types of situations:
- business closure;
- workplace closure; and
- reduction of workforce.
Redundancy is a potentially fair reason for dismissal. However, even if a dismissal is genuinely on grounds of redundancy, whether it is fair to dismiss for that reason normally depends on the application of the general test of fairness in section 98(4) of Employment Rights Act 1996, namely whether the employer acted reasonably in dismissing the employee in all the circumstances.
Consultation
Once a possible redundancy situation has been identified and a role/roles provisionally selected/placed at risk, a consultation exercise should be carried out. The type of consultation process depends on the number of positions in the redundancy selection pool.
- Collective consultation – this is a statutory process governed by the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA). It applies where 20 or more employees are at risk of being made redundant over a period of 90 days or less. In those circumstances, employers have a duty to:
- Inform and consult with employee representatives; and
- Notify the Secretary of State, which means completing and submitting the Form HR1 to the Department for Business, Energy and Industrial Strategy (BEIS).
- Individual consultation – the alternative to collective consultation based on the principles of fairness. The employee consults with those selected individually. There is no statutory process.
Selection
In order to avoid a redundancy dismissal being unfair, an employer must:
- Identify an appropriate pool for selection – begin by identifying the pool i.e. the group of employees from which it will select those who are to be made redundant.
- Consult with individuals in the pool – whilst there is no prescribed timescale this should be adequate and reasonable. Consultation usually involves:
- An opportunity for the employee to comment on the basis for selection, both in terms of the pool and the selection criteria;
- An opportunity for the employee to challenge their redundancy selection assessment and to explain any factors that might have led to their selection and of which their employer might not have been aware;
- An opportunity for the employee to put forward any suggestions for ways to avoid their redundancy;
- Consideration of any alternative employment that may exist; and
- An opportunity for the employee to address any other matters or concerns that they may have.
- Apply objective selection criteria to those in the pool – as far as possible this criteria should be both objective and capable of independent verification. Potentially fair selection criteria include:
- Performance and ability.
- Length of service.
- Attendance record.
- Disciplinary record.
- Consider suitable alternative employment where appropriate – at the outset of a fair redundancy procedure (and throughout the consultation process), an employer should consider whether it can avoid making compulsory redundancies or reduce the number of compulsory redundancies (a statutory obligation during collective consultation). Steps may include:
- Suspending or restricting recruitment.
- Reduction or removal of overtime.
- Ceasing or reducing the use of agency workers.
- Temporarily laying off employees or reducing their hours.
Termination and redundancy payments
Once a redundancy is confirmed and a termination date set, employers must make sure that redundant employees received their statutory and contractual entitlements. These include:
- If applicable, a statutory redundancy payment – only those with a minimum of 2 years continuous service are eligible. This is capped at a maximum of 20 years service. Employees should be provided with the details of how this has been calculated based on age, length of service and weekly salary.
- Any enhanced redundancy payment – employees may have an express or implied right to an increased payment. Often these are calculated according to set formula based on length of service and are usually inclusive of any statutory redundancy entitlement.
- Notice period – employees are entitled to either minimum statutory notice or their contractual notice period, whichever is greater. Notice can be worked, or where expressly provided for, either spent on garden leave or paid in lieu.
- Holiday – employees are entitled to a payment in respect of accrued but untaken holiday as at the date of termination. If the employee is placed on garden leave, usually contractual provisions will provide that any period of holiday is deemed to be taken during a period of garden leave.
- Appeal – once a redundancy is confirmed, employees should be given the opportunity to appeal that decision in line with a certain time frame i.e. 5 working days.
Key considerations
The following matters should be considered by all employers throughout the redundancy process:
- Employees must not be discriminated against. This means ensuring that each employee is treated fairly and equally. This is particularly relevant for the purposes of establishing selection criteria for those in the redundancy pool. Employers should also consider whether any reasonable adjustments should be implemented for certain employees during the redundancy process i.e. those with a disability.
- Employers should ensure that all relevant employees are considered for the redundancy pool and consulted with as part of the redundancy process, to include those absent due to sickness or family leave. Employees who are unable to attend meetings in person should be allowed to do so remotely via video call.
- Employers should have specific regard to those employees on maternity leave as they have a statutory right to be prioritised above other employees who are also at risk of redundancy when it comes to offering a suitable alternative vacancy (where one is available). This is an example of lawful positive discrimination.
- Employers should ensure that they give fair and reasonable consideration to any suggestions made by employees to avoid or reduce the number of redundancies.
If you require any advice or assistance in relation to redundancy or dismissals in general, please contact our Head of Employment, Louise Rogers at louise@prosperitylaw.com.
