Redundancies: A guide to getting them right as a small business
- Employment Law
- 24th Aug 2022
Dealing with redundancies can be difficult for any business. Often it feels like a quick decision needs to be made to safeguard the business and the temptation to simply announce redundancies can be overwhelming. However, smart business owners realise that taking the time to properly plan a redundancy process can save a lot of hassle […]
By Gareth MatthewsMLP Law
Dealing with redundancies can be difficult for any business. Often it feels like a quick decision needs to be made to safeguard the business and the temptation to simply announce redundancies can be overwhelming. However, smart business owners realise that taking the time to properly plan a redundancy process can save a lot of hassle and a lot of money in the long run.
To help you make sure you get it right when faced with a redundancy situation, we’ve set out some key things which employers should always bear in mind when thinking about redundancies.
Is there a redundancy situation within my business?
Generally, redundancy situations arise out of a reduced need for employees, normally where:
• a business (or a part of it) is closing or operations are ceasing at a particular location;
• improved processes in the business have reduced the need for employees; or
• the current employment structure is not financially sustainable (i.e. you’re overstaffed).
Concerns about an employee’s performance or conduct should not be treated as a redundancy and should instead be dealt with under a performance management process or as disciplinary proceedings, as appropriate. Employers should avoid the temptation to manufacture a redundancy scenario in order to deal with other issues – the reality of the situation is bound to come out eventually and would reflect badly on a business which is trying to justify its actions in an Employment Tribunal.
If there is a redundancy situation, what are my legal obligations and how do I comply with them?
Businesses who feel they may be facing a redundancy situation are required to adequately warn and consult with employees about the risk of redundancies before making any final decisions about making roles redundant. This typically involves a series of redundancy consultation meetings with the employees who are at risk of redundancy, during which the redundancy proposals and the reasons for them are discussed.
Employers are also required to identify an appropriate pool of employees from which those who will be made redundant are to be selected and objective and measurable selection criteria should be used to identify the employees within the redundancy pool who are to be made redundant.
This is often the stage that employers are tempted to rush. Don’t. The management time and expense to the business that can be saved further down the line simply by taking the time to go through a thorough consultation process is more than worth it.
Who is affected by the possible redundancies?
Before selecting an employee for dismissal on the grounds of redundancy, the business must consider from which pool of employees’ redundancy selection should be made otherwise the dismissal is likely to be unfair.
There are no fixed rules about how a redundancy pool should be defined. As long as the business can show that its choice of pool was reasonable in the circumstances, it will be difficult for an employee (or an employment tribunal) to challenge the decision.
When considering the choice of pool, businesses should start by asking two questions:
• which particular kind of work is disappearing?
• which employees do the particular kind of work that is disappearing?
If there is a clear link between the kind of work that is disappearing and the group of employees doing that work, then the pool will be easy to identify.
What if my employees are multi-skilled or have interchangeable skills?
Identifying the pool becomes more complicated if the business’ employees are multi-skilled and do different types of work, as the employees are likely to argue that other employees with whom they share interchangeable skills should be at risk of redundancy too. It may be unreasonable for the business to ignore these arguments, unless it can justify the clear business reasons for doing so.
This is more likely to be an issue for “low-skilled” work, where it is more likely the skills would be regarded as interchangeable.
Ideally, businesses should make the redundancy pool no wider than necessary in order to limit the impact that a wide redundancy pool could have on the morale of the business’s employees. However, employers will need to balance this against the risk of being found to have used an unreasonably narrow pool.
What is “bumping” and do I have to do it?
A business is entitled to widen the selection criteria for redundancy beyond those employees that are directly affected by the redundancy situation. The business can consider “bumping” out of their jobs employees whose roles are not redundant, to be filled by employees whose roles are redundant. There is no obligation on a business to consider “bumping”, but the business may fall foul of unfair dismissal law if it would have been reasonable to consider it in the circumstances.
If I am reducing numbers but retaining some roles, how do I choose between employees?
To decide which employees should be selected for redundancy, employers should use objective and measurable selection criteria to score the at risk employees and should apply these criteria fairly. The criteria should not simply be based on someone’s subjective opinion. Potentially fair selection criteria include disciplinary records, absence records and performance (where this is measurable). Employees’ scores should also be discussed with them as part of the consultation process.
Where performance is used as a criterion, the employer should refer to written records, such as performance appraisals, rather than relying on a manager’s personal opinion. It will be difficult for the employee to challenge the employer’s reliance on appraisals, particularly where they have agreed with comments made in the appraisal. In some jobs, such as those involving sales or productivity targets, performance is inherently easy to measure.
Where attendance is used as a criterion, consideration should be given to whether any particular periods of absence should be discounted, such as absence for pregnancy-related illness, maternity or other family-friendly leave should be discounted, as should any disability related absence.
It goes without saying that employers should not use selection criteria that discriminate directly on grounds of sex (including pregnancy), fixed-term or part-time status, race, disability, sexual orientation, religion or belief will generally result in a finding that a dismissal is unfair (in addition to a finding of unlawful discrimination). Criteria that have an indirectly discriminatory effect are also likely to render dismissals unfair if the employer is unable to demonstrate an objective justification for the adoption of such criteria.
How much consideration do I need to give to avoid making redundancies?
Employers are under an obligation to consider how redundancies can be avoided or, if this is not possible, how the number of redundancies can be minimised. Possible options include suspending or restricting recruitment, reducing or removing overtime opportunities or temporarily laying off employees. More permanent solutions might be reductions in pay or hours.
Employers should also identify whether any suitable alternative roles are available within the business which could be offered to the affected employees as an alternative. It is good practice to make the employees aware of all vacancies, even if they do not immediately appear to be relevant to the employee’s current role. This means that the employees are given all of the options and can then decide not to apply for vacant roles if they don’t wish to.
Do I have to find new jobs for the affected employees?
A business is not obliged to create alternative employment for redundant employees where none already exists. However, the business should make a thorough search for alternative employment and document that search. This will enable the business to show the steps it has taken if it has to produce evidence in defence of an unfair dismissal claim. Businesses should continue to search for possible alternative employment until the date the employee’s dismissal takes effect.
What payments are redundant employees entitled to?
Employees with sufficient continuous service who are made redundant are entitled to receive a Statutory Redundancy Payment, which is calculated by reference the employee’s age, weekly wage and length of service. This payment is tax free.
All employees are entitled to receive notice of the termination of their employment, which will be the period set out in their contracts of employment or a minimum of 1 week per complete year of employment, whichever is greater. Employees are also entitled to receive a payment in lieu of any accrued but untaken holidays. Both of these payments are subject to PAYE deductions in the normal way.
What are the consequences if I get things wrong?
Employees with sufficient continuous service have the right not to be unfairly dismissed. Any employees who are made redundant in scenarios which do not constitute redundancy situations or following an unfair redundancy process will be able to bring a claim of unfair dismissal against their employer. As mentioned above, a redundancy process may be considered unfair if there is inadequate consultation, if the redundancy pool is inappropriate, if the selection criteria used are not fair and measurable or if there is insufficient consideration of alternatives to redundancy.
A successful claim for unfair dismissal can result in the employee being awarded up to a year’s gross salary as compensation for loss of earnings.
This guide is intended as an aide to employers who are considering the requirements they may need to meet in a redundancy situation. However, each redundancy situation is different so if you have any questions or queries about the points set out above or about redundancies generally, please get in touch with our employment team by telephone on 0161 926 9969 or by email firstname.lastname@example.org. Don’t forget to follow us on Twitter @HRGuruUK for regular Employment Law updates and news or contact us to sign up to our monthly newsletter.
About the expert
Stephen is the Owner of MLP Law and leads our Commercial, IP and Dispute Resolution teams which provide advice on all aspects of the law relating to mergers, acquisitions, financing, re-structuring, complex commercial contracts, standard trading terms, share options, shareholder and partnership agreements, commercial dispute resolution, joint venture and partnering arrangements, IT and Technology law, Intellectual Property, EU and competition law, Brexit and GDPR.
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