Dealing with a Redundancy Situation

When people say they have been made redundant they often simply mean that they have lost their job. The term “redundancy” means something specific in law though, and when carrying out redundancies employers have to follow a fair process. Stating that a dismissal is for redundancy when it isn’t, and/or failing to follow the correct process can result in successful claims of unfair dismissal and even discrimination. If an employer is dismissing 20 or more employees at one establishment there is an even more specific process to follow and failure to follow that can result in compensation of up to 90 days’ pay for each employee. So, in short, failing to deal with redundancy properly can prove very costly.

When is there a redundancy situation?

In essence there can be a redundancy if the employer:

• Has closed down or intends to close down a business
• Has closed down or intends to close down a place of work
• Needs fewer (or no) people to carry out a particular type of work or expects to need fewer (or no) people to carry out that type of work in the future.

What process does the employer need to follow if they are considering redundancies?

The following steps may be required:

• Identify roles you may no longer need and/or where you wish to reduce the number of employees
• If you are looking at reducing the number of employees who carry out work of a particular type those employees will be placed together in a “pool for selection”. Ensure any such pool includes people who do the same or similar work, not just people with the same job title
• Consider whether to offer the employees in the pool the chance to apply for voluntary redundancy, although it may be sensible to state that you don’t have to accept applications to ensure you don’t get inundated or lose your best people
• Make the employees in the pool aware that you are considering redundancies
• Identify criteria that you can mark the employees in the pool against, in order to determine which one(s) are provisionally selected for redundancy. The criteria should be objective where possible i.e. you should be able to provide evidence for the marks rather than basing them on personal opinions. Using objective criteria will reduce the prospects of an employee successfully claiming unfair dismissal. It’s also important to be careful if using criteria which may be discriminatory, for example, criteria relating to sickness absence may result in lower scores for people with disabilities which could lead to claims
• Potentially discuss and agree the criteria with the employees
• Mark the employees against the criteria
• Hold consultation meetings with the employee/employees who have received the lowest marks to discuss whether redundancy can be avoided
• Offer the employee suitable alternative employment if any is available in the business or a connected employer. It may also be appropriate to inform the employee(s) of any other roles that they may be able to do at a more junior level, though care should be taken over this
• Confirm any decision to dismiss in writing

Failing to do some of these may assist an employee in bringing a successful unfair dismissal or discrimination claim. It’s also important to confirm in writing how redundancy pay was calculated. Failure to do so is a criminal offence.

Whilst it isn’t mandatory, it is also best practice to allow employees who have been provisionally selected for redundancy to be accompanied to the consultation meetings and to allow an employee who is dismissed to appeal against that dismissal.

If an employee takes up an offer of suitable alternative employment there will be a trial period (usually of four weeks) during which they can decide if the role is suitable. If they decide it is not they may still be entitled to redundancy pay, but the employer can argue that they are not if the employer still believes the role was a suitable alternative. Likewise, if an employee unreasonably refuses an offer of suitable alternative employment the employer can refuse to pay statutory redundancy pay. If there is a dispute between the employer and employee about whether redundancy pay should be paid the employee can bring a tribunal claim and the tribunal will determine whether the role was a suitable alternative or if the payment is due.

What extra requirements are there when considering making over 20 employees redundant?

If an employer is planning on making 20 or more redundancies at one establishment in a 90 day period, they need to carry out something known as collective consultation. This involves discussing their proposal (to make redundancies) with either union representatives (if the employer recognises a trade union) or with elected employee representatives. If there is no union presence and employee representatives have not previously been elected, the employer will even need to arrange elections.

When the consultation begins the employer must provide the union/employee representatives with certain information including:

• The reasons for the proposed dismissals
• The numbers and descriptions of employees it is proposing to dismiss as redundant
• The total number of employees of that description at the establishment in question
• The proposed method of selecting employees who may be dismissed
• The proposed method of carrying out the dismissals, with due regard to any agreed procedure, including the period over which the dismissals are to take effect
• The proposed method of calculating the amount of any redundancy payments to be made (over and above the statutory redundancy payment) to employees who may be dismissed.
• "Suitable information" about its use of agency workers.

It should then consult with the union/employee representatives with a view to agreeing ways of:

• Avoiding the dismissals
• Reducing the number of dismissals
• Mitigating the consequences of dismissals

If the employer is proposing to make between 20 and 99 people redundant consultation must begin at least 30 days before the first dismissal takes effect. If it is proposing to make a hundred or more people redundant the consultation should begin at least 45 days before the first dismissal takes effect.

Failure to carry out collective consultation can result in each employee who was not correctly consulted receiving up to 90 days’ (actual) pay as compensation. It can also help employees to bring successful unfair dismissal claims.

If the duty to collectively consult arises it’s also important that the company informs the Secretary of State of their proposal to make redundancies. This should be done by completing an HR1 form and sending it to the Secretary of State at least 30 days before the first dismissal takes effect (if the proposal is to make 20-99 redundancies) or at least 45 days before the first dismissal where the proposal is to make 100 or more redundancies.

How much is redundancy pay and are there any other payments?

Redundancy pay is calculated according to a formula whereby the employee gets a week’s gross pay (capped at an amount set each April, currently £538 per week) for each complete year they have worked for the employer. If an employee has worked for the employer for longer than 20 years, only the latest twenty years are taken into account.

Multipliers are also applied depending on the employee’s age, so for each complete year worked over the age of 41 a multiplier of 1.5 is used (so the employee receives a week and a half’s pay per year), whilst for each complete year between the ages of 22 and 41 the multiplier is 1, and for any years below the age of 22 the multiplier is a half.

If an employee is made redundant they will also be entitled to:

• Work their notice or be paid for their notice period without being required to work it
• Be paid their salary up to the date their employment is terminated
• Be paid in lieu of any accrued but untaken holiday leave.

If an employer feels an employee is likely to bring a claim against them, they may also offer the employee an additional amount but require them to sign something known as a settlement agreement whereby they agree not to bring any claims in return for accepting that payment. Employers sometimes offer an additional amount simply as a goodwill gesture, but still require the signature of a settlement agreement to reduce their risks.

How we can help

Whilst the above is a useful guide on conducting a redundancy process each redundancy situation is different and bespoke advice can help you avoid any pitfalls. We can help you put together appropriate criteria and marking systems and provide letters to use when inviting the employees to consultation meetings.

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