Redundancy – A Guide for Employers

Challenging Economic Times

Particularly in light of the current situation regarding COVID-19, many employers will soon begin to reassess how they run their businesses and whether they can continue to trade in these challenging economic times. Even if an employer can stay afloat, it is likely that many will require to consider whether they still require all of their employees or whether a redundancy exercise should be considered. 

This briefing aims to summarise the redundancy process for employers, whilst providing a helpful summary of the key points that require to be considered.

What is Redundancy?

Dismissal of an employee is by reason of redundancy where it is “wholly or mainly” attributable to (i) ceasing or intending to cease to carry on the business for the purposes of which the employee was employed by it; (ii) ceasing or intending to cease to carry on that business in the place where the employee was so employed; or (iii) having a reduced requirement for employees to carry out work of a particular kind or to do so at the place where the employee was employed to work. 

In short, therefore, redundancy can be a result of either a business closure, a workplace closure, or a reduced requirement for employees.

In challenging times such as these, it may be that an employer requires to close business premises or they may simply need to reduce the size of the workforce, for an unknown period of time, in order to reflect a decrease in demand for the goods or services that they provide.

Individual Consultation

One of the most important things to get right when considering whether to make one or more employees redundant, is to individually consult with all employees who might be affected.

When managing a redundancy process, employers should be guided by considerations of fairness. Employers must also of course consider and follow any contractual redundancy policies which they have in place.

Proper consultation is key to a fair dismissal on the grounds of redundancy. It is not usually possible for an employer to argue that proper consultation would have made no difference to the outcome or indeed that their size and administrative resources ae such that consultation was not practicable. All employers, no matter their size, are expected to engage with employees.

Fair consultation involves starting the process when proposals are still at a formative stage; providing employees with adequate information and time to respond; and properly considering any response to the consultation, from affected employees. In practice, this means that employers should conduct meetings with affected employees. They should explain the situation that the business is facing, the possibility of redundancy and invite affected employees to offer suggestions regarding alternatives to redundancy. Employees should also be given the opportunity to comment on the basis for selection and to challenge their selection for redundancy. Employers may also wish to seek volunteers for redundancy, as part of this process, in conjunction with identifying any alternative employment which may exist within the business.

There is no fixed timeframe for individual consultation and instead much depends on the circumstances of the case. Whilst not mandatory, it is good practice for employers to allow employees to be accompanied at redundancy consultation meetings.

Collective Consultation

Where there is a proposal to dismiss as redundant 20 or more employees at one establishment within a period of 90 days, employers also require to collectively consult with trade unions or elected employee representatives. Employers should bear in mind that this process is in addition to individual consultation and that the two can run in parallel. 

The information which must be provided as part of collective consultation is prescribed by statute therefore employers must do more than simply have a general discussion with unions. It is also worth noting that in contrast to individual consultation, there are prescribed minimum periods for collective consultation. Where there are intended to be over 100 redundancies, the process must start 45 days before the first dismissal takes effect and where there are intended to be between 20 and 99 redundancies, the process must start 30 days before the first dismissal takes effect.

Where an employer breaches their obligations in relation to collective consultation, employees may be awarded a ‘protective award’ of up to 90 days’ salary, in addition to any tribunal award for unfair dismissal. It can be costly for employers who get this wrong therefore we would recommend that legal advice is taken regarding the matters to be discussed and the process to be followed, prior to embarking on collective consultation. 

Selection of Employees for Redundancy – Pools and Selection Criteria

The first step in the selection process is identifying a selection pool for redundancy. There are no fixed rules on how the pool should be identified and whilst employers have a degree of flexibility, objective criteria should be used. Sometimes employees will try to argue that a selection pool should be wider however it is permissible for pools to be narrow and in certain specified circumstances, for a pool of one to be used.

When considering the selection pool, employers should think about the type of work that is ceasing or diminishing and which employees carry out that type of work. It is also important to bear in mind whether employees jobs are interchangeable and to consult with the union on the choice of pool, where there is one. Employers with multiple sites should also consider whether the pool should include employees from more than one site, even where one site is to close completely. Whether this is reasonable is likely to depend on factors such as the proximity of the sites and the type of work carried out by the employees at each site. Finally, employers should bear in mind the possibility of ‘bumping’ and whether this is appropriate in the particular circumstances of the case. (Essentially this involves moving a potentially redundant employee into another role and making the employee currently performing that role redundant.)

In addition to getting the selection pool right, employers should also ensure that they use reasonable selection criteria when selecting the employee(s) who are to be made redundant. As far as possible, the criteria used should be objective and measurable and not based on the preferences or opinions of management. This should make is easier for an employer to justify their decisions. Criteria may include job performance (including appraisal ratings), length of service, disciplinary records and attendance records. It is important, however, not to include any criteria which could be considered to be discriminatory and as such, employers should be particularly mindful of looking at attendance records, where an employee has been absent as a result of disability related illness or pregnancy, for example.

Employers should also ensure that they not only use reasonable selection criteria but that the criteria is applied fairly. Employees should be consulted about their scores and given the opportunity to raise any objections.

Alternatives to Redundancy

When carrying out a redundancy exercise, employers are obliged to make reasonable efforts to consider alternative employment for affected employees. Employees should be provided with sufficient information to allow them to determine whether any alternative employment would be suitable for them and if so, whether they wish to apply for a new role.

Where an employee unreasonably refuses “suitable alternative employment”, they will lose their right to a redundancy payment. It is therefore important for both employers and employees to consider the suitability of any new role which is proposed. The factors which are likely to be relevant to assessing the suitability of a new role are (i) the employee’s skills and experience and how they relate to what is required in the new job; and (ii) how the terms on offer for the new role compare with the employee’s previous role.

Employers should also note that in some circumstances a statutory 4 week trial period will kick in. The purpose of this is to allow the employer and employee to assess whether the new job is right for the employee. If the trial period is a success, the employee’s employment simply continues as normal. If the trial period is unsuccessful, the employee’s employment comes to an end, entitling them to a redundancy payment (assuming they have the requisite length of service).

Redundancy Payments

Finally, where an employee has at least two years’ continuous service, they will be entitled to a statutory redundancy payment (in addition to any enhanced payment to which they might be entitled as a result of a contractual provision or trade union agreement). A statutory redundancy payment is calculated with reference to the employee’s age, length of service and weekly salary (although that is subject to a statutory cap). Employees who are dismissed by reason of redundancy will also be entitled to receive their full period of notice under their contract (or a payment in lieu of notice if the contract allows).

If you are an employer looking for any advice or guidance in relation to dealing with a redundancy situation, please get in touch and one of our solicitors will get back to you for a no-obligation discussion.