In today’s uncertain economic environment, it is rare to see a week go by without a major employer announcing redundancies, be they as a result of a restructuring, a contracting business or a merger or acquisition. This is inevitably a worrying time for any employee who fears they may be at risk of redundancy.
As with all similar situations, understanding the process when a large number of employees are at risk can help alleviate the stress involved and help you to get the best outcome possible.
What is Redundancy?
Redundancy is a method by which a company can dismiss employees in one of three situations: business closure, workplace closure, and reduction of workforce. Redundancy is a potentially fair reason for dismissal and therefore may give an employer a defence to an unfair dismissal claim.
Redundancy is likely to be fair if:
- The employer identifies an appropriate pool for selection;
- the individuals in the pool are consulted with;
- an objective selection criterion is applied to those in the pool; and
- the employer considers suitable alternative employment where appropriate.
The selection criteria are crucial to the process. If employees are selected on the grounds of any protected characteristics in the Equalities Act 2010, they will have the right to bring a claim for discrimination. Similarly, employees must not be treated less favourably because they have fixed-term or part-time status, when compared to other colleagues.
There are additional steps required when an employer is making 20 or more employees redundant over a period of 90 days or less. These are that, before the dismissals come into effect:
- The employer must consult appropriate employee representatives.
- The employer must notify the Secretary of State.
For both steps, where 100 or more redundancies are proposed within a 90-day period, the employer must act at least 45 days before the first dismissal, or 30 days before where less than 100 redundancies are proposed.
If redundancies are taking place at multiple locations, the proposed redundancies must be ‘at one establishment’ to trigger the above consultation requirements. What amounts to ‘one establishment’ will be fact sensitive, though geographical location is of strong influence.
The ‘appropriate representatives’ can be representatives of a recognised trade union, representatives directly elected by those employees affected by the proposed redundancy, or an existing representative employee body.
There are serious consequences for an employer who fails to comply with these requirements.
As mentioned above, the selection of employees for redundancy is fundamental to the process. This is a particularly difficult time for employees, but knowing the grounds on which an employer can make these decisions can alleviate some of that stress.
The employer must first identify a pool of employees, from which a certain number will be selected to be retained. There is no requirement that those employees in the pool do the same type of work, or have comparable skills, but rather the employer must genuinely apply its mind to selecting an appropriate pool. If the employer has done this, it is difficult, outside of extreme circumstances, to challenge the composition of the pool.
Once the pool has been identified, the employer must warn and consult with the employees in the pool. In a collective consultation process, this will be done with the employees’ representatives as mentioned above. This warning and consultation must be genuine, and employers must not select the employees to be made redundant without first carrying it out. A tribunal is likely to find that such a dismissal is unfair.
Employees (or their representatives in a collective consultation process) must be given adequate information and time to respond to the redundancy proposal, and the employer must consider those responses in good faith. For example, the employee (or their representative) should be informed of the selection process and criteria. Responses can cover a range of possibilities, including suggestions to avoid the redundancy altogether, to make the employer aware of any factors that may have led to the employee’s selection, to consider alternative positions the employee could take with the employer, and to discuss and other matters or concerns they have.
The selection criteria must be objective and measurable, rather than based on personal opinion or protected characteristics.
There are a variety of selection criteria which may be deemed to be fair, including performance and ability, length of service, attendance records and disciplinary records. Specific criteria can be given more significance, but the employer will need to be able to justify this. It is best for employers not to use subjective criteria, however, certain subjective criteria may be acceptable if they are applied objectively and the employer can justify them. An employee can use the consultation process to understand the criteria and why the employer is using them.
Once the selection process has been carried out and employees have been scored against the criteria, the employer is required to consider whether the employees affected could be given suitable alternative employment. This alternative employment will be specific to each individual circumstance, but employers must notify the employees of any vacancies. Employees on maternity, adoption or shared parental leave have a preferential right to be offered a suitable alternative vacancy.
The employer is also required to consider at the outset whether the compulsory redundancies are necessary. For example, if agency workers are used frequently, their use could be ceased or reduced, or overtime use be restricted. Such alternatives could be raised by employees at the consultation phase. The employer may also invite employees to take voluntary redundancy or early retirement though they are not usually legally obliged to do so.
The employees chosen for redundancy who have at least two years of continuous employment will be entitled to a statutory redundancy payment. This is calculated by a formula based on age, length of service and current pay (subject to certain maximums). If the employer refuses or is unable to pay, the payment may be claimed from the National Insurance Fund.
If an employee believes that any of the required steps have not been followed or have any other concerns about the implementation of the redundancies, they should seek legal advice. It is a situation where mistakes can be made by employers keen to reduce their headcount in a hurry, leading to potential claims for unfair dismissal and, where there’s an improper motive behind the redundancy process, further claims like those for discrimination.