What employers need to know about redundancy

What is a redundancy?

Redundancy is one of the potentially fair reasons for dismissal.

A redundancy occurs when:

  • The business for which the employee is employed is ceasing
  • The business in the place where the employee is employed is ceasing
  • There is a reduction of a particular kind of work an employee carries out

Redundancy can also take place where a site or office is closing, where a particular department or function are no longer required or where a business restructure identifies a need for a reduced headcount. This can be because the duties can be absorbed elsewhere, or have changed significantly to improve efficiency.

For a redundancy to be considered fair by an Employment Tribunal there must be a genuine business reason.  It is therefore important to consider the business case for redundancy before proceeding and to evidence this with clear supporting documentation.

The business case should also be clearly communicated to the employees affected by the proposal and also sometimes more widely across the business.

Why is the procedure important?

Following a fair procedure prevents a redundancy being considered unfair. This includes identifying and applying fair selection criteria and consulting with employees, along with offering a right of appeal against any decision to end employment on grounds of redundancy.

What you should consider before making a redundancy

Before proceeding with any redundancy exercise consider the following:

  • Redundancy pay
  • Notice periods
  • Selection criteria/process
  • Consultation
  • Availability of alternative roles/need for trial periods in new roles

Redundancy pay

Statutory redundancy pay is calculated based on a formula, taking into account the age of the employee, the length of service and weekly earnings.

Employees must have at least two years’ service to be eligible for a statutory redundancy payment.

Some employers offer an enhanced redundancy payment if there is a contractual policy that requires them to do this, or a discretionary payment to lessen the financial impact on their employees.

Notice periods

Ensure you review their employment contracts to identify what notice periods will apply to employees made redundant. It may be possible for you to pay the redundant employees in lieu of their notice period but this depends on the terms of their employment contract.

Selection pools and how to decide on their criteria

A selection pool is a group of employees from which the potentially redundant employees are selected from. Careful consideration must be given to how you determine the selection pool.

It is possible to have a selection pool which comprises only one employee where the employee is performing a unique role.
Criteria is then applied to score the employees in the pool. These should be capable of being objectively measured and supported by evidence.

The lowest scoring employee(s) will be selected for potential redundancy.

In deciding the selection criteria think about the skills the business will need in the future and any specific requirements of the remaining roles.

Selection criteria may include:

  • attendance record
  • disciplinary record
  • skills or experience
  • appraisal ratings
  • relevant qualifications

Make sure the grading is performed fairly and be careful to avoid discrimination in applying selection criteria based on, for example, maternity leave or a disability.

Consultation with employees

Once a potential redundancy situation is identified consult with the affected employees regarding the situation, the selection process and criteria. This is important to establish that any redundancy is a fair dismissal.  It is important that employees are provided with certain information in writing as part of the consultation process.

If more than 20 employees are at risk of redundancy this triggers an obligation to collectively consult with employees. This is usually done through employee representatives and there are specific statutory requirements for this process so it’s essential to obtain further legal advice.

Where there are less than 20 employees at risk of redundancy you must individually consult with them and provide written information about the redundancy and their selection. During these individual consultation meetings they should be offered a right to be accompanied either by a colleague or a trade union representative.

Consultation should include:

  • The reason for the proposed redundancy
  • The selection criteria used with an opportunity for the employee to comment on his/her assessment scores
  • Ways to avoid the potential redundancy
  • Consideration of alternative employment
  • What redundancy payment is due

Confirming a redundancy

Best practice is to hold a meeting with employees to confirm their redundancy and to confirm it in writing.  A right of appeal against the decision should also be offered and confirmed in writing.

Communication with employees

 All communication with employees during any proposed redundancy must be carefully prepared to ensure it is clear the outcome of the process is not pre-judged.

What rights do employees have?

 If an employee thinks they have been made redundant where there wasn’t a genuine redundancy or their employer did not follow a fair procedure then they may have a claim for unfair dismissal.

To bring a claim for unfair dismissal an employee must usually have two years’ service or more. If successful, they can be awarded compensation of up to a year’s salary.

If they believe they have been discriminated against during the redundancy process then they can bring a claim for discrimination.  Discrimination claims do not require any minimum service. Compensation for this is uncapped and depends on the severity of the discrimination and the impact it has had on the individual concerned.

A settlement agreement can be used to settle any potential claims and/or prevent the employee from pursing further claims. To be legally binding it must include specific statutory information so expert legal advice is recommended.

How can Bowcock & Pursaill help?

 Our employment team can provide legal support and advice to help you manage your redundancy process and ensure it is legally compliant.

For more information about managing the redundancy process or other employment advice please contact Tim Wolley or Clare Thomas by calling 01782 200000 or via email at ct@bowcockpursaill.co.uk or tw@bowcockpursaill.co.uk

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