Financial difficulties or changing business circumstances may mean that you, a business owner, have to make staff redundant. All employees have the right to be consulted about any redundancy proposal and to be given a certain period of notice to terminate employment.
This blog post sets out the processes and considerations employers should undertake before embarking on redundancies in the workplace. We have further reading on this subject matter located in our Employment Law Service pages located here.
Justifying and Avoiding Redundancy
Staff with two + years’ service also have rights to a redundancy financial compensation. It is also not uncommon for employers to give enhanced statutory redundancy payment by making an extra payment on an ex-gratia basis.
When can you make an employee redundant? An employee is considered to be redundant in law if you as the employer have ceased, or intend to cease, to carry on the relevant business at or reasonably near the place where the employee is employed; or the requirement for work of that kind has ceased or diminished or is expected to do so.
Do I need to Consider Alternatives to Redundancy? When faced with a possible redundancy situation, and where only part of your business is affected, you should consider if there are alternatives to terminating staff employment. As part of any fair redundancy process, employers should consider steps that can be taken to avoid compulsory redundancies. These may include:
- Voluntary redundancy
- Encouraging existing staff to work flexibly on reduced hours
- Freezing recruitment
- Redeploying existing employees to other parts of the business
- Reduction/freeze the use of freelancers
- Introducing a pay freeze / agreed salary reductions.
Redundancy is a “fair” reason for dismissal but non-compliance with a fair redundancy procedure could expose you to a successful action for unfair dismissal in an Employment Tribunal. If possible, try to achieve a Settlement Agreement (formerly known as a Compromise Agreement). For further information on Settlement Agreements click here.
Consultation with Appropriate Representatives: Where more than 20 employees may be made redundant (or may be affected by proposed dismissals or by measures taken in connection with those dismissals) at one workplace within a 90 day period, you must consult with any appropriate representative of a recognised independent trade union (if no union is recognised, elected representatives of the affected employees).
Consultation must begin 30 days before the first proposed redundancy (45 days if more than 100 employees may be made redundant). Specific requirements are laid down for electing employees representatives who are to be consulted where the employer does not recognise a union.
You must provide those representatives with reasons for your plans, numbers and details of employees involved, proposed method of calculating redundancy payments, redundancy selection methods and procedural plans. you will also need to supply information on the total number of agency workers engaged, the type of business in which they are utilised, and the type of work they are contracted to undertake.
If you invite affected employees to elect representatives and they fail to do so within a reasonable period, you must give each affected employee the information that would have been provided to the elected representative.
Discussions must be ‘meaningful’ ie they should be genuine, constructive and with a view to avoiding or mitigating the problem. Nonetheless the final decision is down to the employer alone.
If the union or elected representatives claim that this procedure has not been properly under taken, it can seek to have a protective award made against you, which h could result in up to 13 weeks’ pay for each affected employee. This award is intended to protect the wages of those affected for a defined period.
Consultation with Individual Employees: Individual employees affected should be consulted and provisional selection for redundancy discussed before the decision is finalised. Any available alternative work on offer should be discussed and these jobs should be offered. You must remember to consult with employees on maternity or long term sick leave.
Where appropriate, volunteers for redundancy should also be sought and considered, whether or not they meet the employer’s pre-set redundancy selection criteria.
Consulting during COVID 19
Employers must still consult their employees during the coronavirus pandemic.
Consultations can take place remotely.
Selection for Redundancy
One of the most difficult aspects of a redundancy procedure is electing who goes and who stays as well as avoiding any litigation/claims. If you already have a redundancy selection procedure, it should be followed unless there are special reasons justifying departure for the policy.
The redundancy selection procedure should be fair, clear and non-discriminatory. In particular, the pool of employees from which selection is to be made should be defined and not be based on:
- Trade union membership (or lack of it),
- Pregnancy, part-time status,
- Marital status,
Methods of selecting candidates for redundancy such as LIFO (last in first out) or FIFO (first in first out) and length of service in any selection criteria are likely to be age discriminatory (LIFO may still be a fair selection criterion if it is objectively justifiable).
If you do not have a pre-existing redundancy procedure, reasonable redundancy selection criteria should be objectively adopted and applied. Consider what skills and experience are most relevant for the job and ensure that the criteria reflect the requirements of the job. Such criteria could include an employee’s ability, experience, length of service, conduct and attendance record.
Proper decision making is best evidenced by documenting both the selection criteria and fair application of such criteria in individual cases. Wherever possible, ensure that scores are moderated by more than one person to avoid accusations of bias. Always keep a record of all decision making and application – you may need it as evidence if the redundancy selection is challenged by an employee in an Employment Tribunal!
Employees at risk of redundancy must be provided with their own score and fully consulted before any final decisions are made.
Not following these principles set out above could expose you to a claim of unfair dismissal by staff.
Redundancy and Furlough
If a business finds itself in the position of implementing a redundancy during or after the furlough period, the same principals apply as discussed above.
You must still demonstrate there is a genuine redundancy situation and follow a fair process, but there are additional considerations for employers in this regard.
Be prepared for logistical difficulties and potential delays to the process:
The logistical difficulties: consider consulting with employees remotely (by means of video or conference call, or in writing. It is good practice to give employees the right to be ‘accompanied’ to the redundancy meetings, even if this meeting is carried out remotely.
If an employer is making 20+ employees redundant in a 90-day period then collective consultation is triggered, you must ensure that you consults collectively with Trade Union or staff representatives, and that it meets the 30-day (or 45-day for 100 or more redundancies) deadline for starting consultation.
Aside from the long lead-time for the consultation process, there will be practical difficulties at this current time in undertaking full consultation with representatives. If you do not have a recognised Trade Union or existing staff representatives, an election for staff representatives will have to take place before consultation can begin, further extending the period of time needed for a full consultation process.
In terms of the reason for redundancy, you will have to consider if selecting an employee for redundancy when he or she could remain on furlough leave may make the redundancy dismissal unfair.
Does furlough affect redundancy payments?
As with other employment rights, an employee’s redundancy rights are unaffected by being furloughed.
Statutory Redundancy Pay
Any employee who has been employed by the business for a continuous period of 2+ years is entitled to receive a statutory redundancy payment (or a contractual redundancy payment if detailed in the employees contract – these are not so common nowadays).
Statutory redundancy payments to an employee on furlough leave are calculated on an employee’s pre-furlough salary. Businesses cannot reclaim the cost of statutory or contractual redundancy payments under the furlough scheme.
Notice pay / PILON
Employees who are made redundant whilst on furlough leave are entitled to be given notice of termination in accordance with their contracts of employment.
Notice pay during the notice period is payable at the rate of the employee’s pre-furlough salary. Employers can reclaim the cost of an employee’s notice pay (up to 80% of salary and subject to the £2500 per month cap) for any notice period whilst on furlough. However, you cannot reclaim any payment in lieu of notice under the furlough scheme.
Accrued and unused holiday?
Employees who are made redundant whilst on furlough leave are entitled to be paid in lieu of any accrued but untaken annual leave. This payment is payable at the rate of the employee’s pre-furlough salary. Employers cannot reclaim the cost of any payment made in lieu of annual leave under the furlough scheme.
Get in Touch
The redundancy process can be difficult for both the employer and employee. Whether through compulsory or voluntary redundancy, there are legal requirements to follow for both parties. Ensuring all legal steps are followed and the redundancy is lawfully fair is key. If you have any questions and are either party involuntary or compulsory redundancy, please call us on 020 8695 2330, email us at firstname.lastname@example.org or make an online enquiry.
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