Getting the redundancy process right
Follow the correct process, and you can dismiss employees by reason of a redundancy or restructuring. The key is a “fair reason”.
Fail to follow the correct redundancy process, or fairly apply it, and you risk an unfair dismissal claim. The result is a time-consuming dispute, possibly an Employment Tribunal case, and potentially a compensation award.
We see many employers getting the redundancy process wrong. To help you we have explained below some of the basics.
Basics of a redundancy process that works
Mainly we support employers manage:
- Redundancy selection pools;
- Employees who are:
- Absent on sick leave,
- Approaching retirement age;
- On maternity leave,
- About to return from maternity leave.
- Employees’ representations during the consultation process.
Redundancy process documentation
Our redundancy process support service delivers the correct documentation. For example, we:
- Review existing contracts and policies;
- Ascertain appropriate notice pay;
- Determine if employees should be placed on gardening leave to protect against a breach of restrictive covenants, e.g. to prevent employees:
- Poaching clients,
- Joining a competitor;
- Review documents presented to redundant or restructured employees.
Redundancy: fair reason
A “fair reason” for an employee dismissal by reason of redundancy, is because one reason is wholly or mainly attributable to the business:
- Ceasing trading;
- Relocating; or
- Requiring fewer employees for a particular task.
Not every redundancy that an employer calls a redundancy is actually a redundancy. The employee may claim their employer targeted them for other reasons. Employees challenge employers attempts to disguise dismissals as a redundancies.
Redundancy Process: best practices
The redundancy process requires a little planning and well drafted documentation. Nevertheless employers can execute the process quickly and effectively.
An employer planning a redundancy must follow defined steps to identify and then consult with affected employee(s). A failure to follow these steps could be grounds for an unfair dismissal claim.
Employers are obliged to consult with employees individually.
Employers who will make over 20 employees redundant in a 90 day period are obliged to consult collectively with employees. A failure to do collective consultation can lead to penal damages awards of up to 12 weeks’ pay per employee.
Redundancy selection criteria
Employers must identify the pool of possible employees at risk. They must then score the at-risk employees to select the actual candidate(s). Redundant employees often challenge this scoring as unfair, especially if the employer did not consult.
Employers often identify a “pool of one”. This avoid having to score employees. Employees can challenge this, because employers did not correctly execute the required redundancy process.
The redundancy pool
There are no fixed rules about how to define a redundancy pool. If employers show their choice of pool was reasonable in the circumstances, an employment tribunal is unlikely to challenge the decision.
For example, it is not always unfair to choose a redundancy pool that is the same size as the number of redundancies. However, only choose this option if there are strong reasons for doing so. You should remain wary of overstating the commercial risks of a wider pool.
The choice of pool initially sounds simple. Just define the:
- Particular kind of work that is disappearing;
- Employees who do this work;
Redundancy pool: interchangeable skills
A wider pool may be required, especially if the work is “low-skilled” and the skills are interchangeable. Hence, the business should consider the extent to which employees do similar work, and their jobs are interchangeable. Look at the reality of employees’ day-to-day activities, as well as the employment documentation.
Identifying the pool is more complicated if your employees:
- Are multi-skilled;
- Do different types of work; or
- Can be required to do different types of work.
Employees are more likely to object to being labelled as redundant, especially if they share interchangeable skills with other employees. Placing an employee in the pool because their current job is disappearing may be unreasonable, if:
- Another employee doing different work is ignored, yet the employee could do this other job;
- The employee has previously done other work;
- Another employee with interchangeable skills has less service.
Bumping to save employees
You can “bump” employees out of their jobs whose roles are not redundant, and into the selection pool. Employees who roles are redundant can fill these other roles. Your business is entitled re-organise, and to widen the selection criteria for redundancy beyond directly affected employees.
However, your business is not obliged to consider bumping. However, you may fall foul of unfair dismissal law if it would have been reasonable to consider bumping in the circumstances.
Commercial problems with a wide pool
Your business may be reluctant to draw up a wide pool, even if it would be technically correct to do so, because of the impact on employee morale.
Identify a narrow pool, or just consult with employees provisionally selected for redundancy, may make you more vulnerable to an unfair dismissal claim. It is difficult to assess whether the risks to morale and other costs of widening the pool outweigh the risk and cost of claims.
Alternatives to redundancy
An employer is obliged to consider alternatives to dismissal e.g.:
- Suspend or restrict recruitment;
- Terminate contractors, or not renew their contracts;
- Alternative roles: perhaps at a different group company, involving
- Retraining and a statutory trial period;
- Bumping: dismiss a different employee;
- Reduced hours, pay reductions, or other cost savings;
- Consultancy arrangements; and
- Invite voluntary redundancy.
Appeals against the redundancy process
An employee can appeal the redundancy decision. Usually the appeal fails. However, employees are often advised to appeal before claiming unfair dismissal.
Employees who are dismissed by reason of redundancy may be entitled to a statutory redundancy payment. Additionally, they may be an express or implied contractual right to an enhanced payment.
Statutory redundancy payments
An employee with at least two years’ continuous employment at the “relevant date” is entitled to a statutory redundancy payment if they are dismissed by reason of redundancy.
Statutory redundancy pay is calculated according to a formula and is based on age, length of service and pay. Length of service and pay are both capped. The statutory maximum for 2016/2017 is £14,370.
The “relevant date” will depend on how an employee’s employment contract was terminated. If the employee was:
- Dismissed on notice, the relevant date is
- The date the notice expired;
- Summarily dismissed or resigned without notice, the relevant date is:
- The date of the dismissal or resignation;
- Working under a fixed-term contract that expired and was not renewed, the relevant date is
- The date of the expiry.
Contractual redundancy payment
An employee’s employment contract may contain provisions entitling them to an enhanced contractual redundancy payment. It is also common practice for a redundancy policy set out in another document or collective agreement to become expressly incorporated into an employee’s employment contract when it is referred to in the contract.
It is possible for to be implied into an employee’s employment contract where a set of redundancy terms are regularly applied in a particular trade or industry or by a particular employer. This is implied by custom and practice.
When operating an enhanced redundancy payment scheme, an employer must be careful to ensure that the manner in which it applies enhancements will not leave it exposed to the accusation that it has disadvantaged some employees over others in a manner that is discriminatory.
Redundancy process track record
Some of our recent instructions include:
- Advised an employer in relation to employees on fixed term contracts. A redundancy situation arose and the issue was whether the employer could simply not renew the fixed term contracts of those employees with less than two years’ service, or whether they needed to be included in the redundancy exercise so as to not give rise to claims for less favourable treatment from the fixed term employees.
- Managed the redundancy process for a software company which took place in two tranches over the course of a year.
- Advised a client on the drafting of the selection criteria, ensuring that it was fair and minimised any potential causes for challenge by employees.
Employers face a minefield of legislative requirements when conducting a redundancy process. Nevertheless, it is possible to make employees redundant, without risking claims for unfair dismissal, if you follow a correct procedure and apply that procedure fairly.
The process requires care and attention to detail. We tell you how to manage the process, what steps to take and when. If things have gone wrong we can assist you defending any claims.