With the UK in a recession, many employers will be forced to make financial cuts, including reducing staff costs to ensure the survival of their business.
A redundancy situation occurs when an employer terminates an employee’s contract of employment because they no longer require anyone to do the particular role that they perform. This could be due to a reduction in workload, a change in working practices or nature of work, or if the business is closing down.
Redundancies are always difficult but whatever the reasons behind the redundancy, employers must in all cases follow a fair and transparent procedure. Failure to do so may result in costly employment tribunal claims for unfair dismissal.
In this article, we explain all aspects of the compulsory redundancy process for employers.
What is Compulsory Redundancy?
Compulsory redundancies occur when an employer decides whom to make redundant based on certain criteria, whereas in voluntary redundancy, an employer asks employees if they would like to volunteer for redundancy.
The Difference Between Compulsory Redundancy and Voluntary Redundancy?
A compulsory redundancy involves a defined selection process, and an employer will have to show that they followed that process fairly and that employees have been selected for a fair reason.
While voluntary redundancies can be more straightforward and avoid some of the stress and resentment created between the employer and affected employees during a compulsory redundancy, they will be more costly as it is usual to offer employees more financial remuneration than the basic statutory minimum by way of an incentive to end their employment voluntarily. Compulsory redundancies may, therefore, be the only option for a business in financial difficulties.
Fair Reasons for Redundancy
In employment law, redundancy is a potentially fair reason for dismissal under the Employment Rights Act 1996.
However, an employer will need to show that the redundancy is genuine, i.e. that there is no longer a need for the affected employee’s job to continue to exist. Examples of genuine redundancy are:
- when a business, or part of it, ceases to exist completely
- when an employer ceases carrying on the business at a specific location
- if the business relocates
- where the requirement for employees to do work of a particular kind has been reduced or ended, for example, where new technology has been introduced
- where an employee’s job is no longer in existence because other employees are doing the work
- the business has undergone a restructuring
- the business has transferred to another employer
What May Be Considered Unfair?
Redundancy cannot be used as an excuse to get rid of employees for other reasons, such as poor performance, absence or misconduct. Employers sometimes feel that it is cheaper and easier to make someone redundant rather than following a lengthy performance process that could take months. This, however, is not permitted under the law. The following signs may illustrate that the redundancy is not genuine:
- the employer has recently taken on other people doing similar work
- an employee has been criticised about their performance and then subsequently faces redundancy
- the employee has been singled out or treated differently from other people at work
If an employer makes an employee redundant even partly because of certain prohibited reasons set out in the ERA, the dismissal will be considered an automatically unfair dismissal. This is a dismissal that is so clearly unfair that the affected employee can bring an unfair dismissal claim without having to show that they have the required two years of continuous service usually needed to bring an unfair dismissal claim. Examples of prohibited reasons include:
- reasons relating to pregnancy, maternity, parental or family leave
- where an employee has tried to assert a statutory right such as maternity leave, minimum wage or annual leave
- reasons relating to health and safety activities
- reasons relating to trade union membership and/or activity
- where an employee has made a protected disclosure (otherwise known as blowing the whistle) in respect of wrongdoing at work
How to Conduct a Compulsory Redundancy Process
Even if there is a genuine reason for the redundancy, employers must follow a fair legal process. While there is no strict definition of this within the law, the tribunal will expect an employer to follow a reasonable procedure. The redundancy procedure should be clearly set out somewhere, usually in the contract of employment or an employee handbook.
At the outset, an employer should consider whether there are any steps that they can take to avoid making anyone compulsorily redundant, such as requesting volunteers for job shares or reducing hours or pay.
Fair Selection Criteria
Where there are no feasible alternatives to compulsory redundancy, an employer will then have to identify employees suitable for redundancy.
In choosing potential candidates for the selection pool, an employer should consider those in a similar role as well as those who are doing the actual jobs that are no longer needed. The pool should also not be limited in any way that could be considered discriminatory, for example, by including only part-time workers, when most of those workers are women. Similarly, a ‘last in, first out’ method needs to be approached with caution as it could indirectly discriminate against younger staff who may be most recently employed.
An objective and transparent redundancy selection matrix is often considered a fair and effective way of selecting employees for redundancy. It should include selection criteria such as performance, skills, qualifications, attendance, knowledge and disciplinary record.
Once the initial redundancy consultations with affected employees have taken place, employees should be scored, usually on a scale of 0-5, by a minimum of two managers who are familiar with their skills, work and qualifications.
Redundancy Consultation
Once a pool of candidates for redundancy has been identified and the selection criteria determined, an employer must by law undertake a consultation process with them. Employees at risk of redundancy must be notified in writing as soon as possible.
Individual Consultations
Where fewer than twenty employees are being made redundant, individual consultation meetings should occur with affected employees and their representatives, where applicable. During this meeting, the employer should inform the employees why redundancies are happening, explain the redundancy policy and selection criteria, along with the reasons why they have been chosen for redundancy. The affected employee should be given a chance to ask questions and have the opportunity to explore alternatives to redundancy.
To be meaningful and to give the affected employee a chance to consider the situation properly, the consultation period should last at least seven days but a longer period is advisable. It ought to involve at least one meeting with the employee, but it may be helpful to have further meetings to allow the employee to present their ideas about avoiding redundancies, such as re-training or moving to another department.
Once the selection criteria have been applied and the employees have been chosen for redundancy, it will be necessary to arrange another meeting to inform employees in the selection pool whether they have been selected for redundancy or not. During this meeting, employees should be given a chance to challenge the decision and the employer should keep an open mind about what they have to say.
Collective Consultations
Where twenty or more employees are at risk of redundancy within a period of 90 days or less, employers are required by law to enter into collective consultation which has stricter timescales that must be adhered to under Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992. (legislation.gov.uk)
The details of this type of consultation are outside the scope of this guide.
Suitable Alternative Employment
As part of the obligation to try and avoid redundancy, an employer should consider whether any suitable alternative positions within the business could be offered to employees at risk of being made redundant. Failure to meet this requirement could leave the employer open to a claim for unfair dismissal.
Any suitable alternative positions should be offered to affected employees before the contract of employment ends. In such circumstances, employees should not have to apply for the role unless there is more than one employee interested in the same role, in which case a fair process, such as holding interviews, must be followed.
Notice of Redundancy
Following the final decision, employees selected for redundancy should be issued with formal redundancy notices. The employer should meet with them to explain the decision and give them a minimum set notice period before the contract of employment can be brought to an end. If relevant, employees should also be given details of payments they are entitled to (see below under Redundancy pay). It is also good practice to offer employees the right to appeal against their redundancy. All these points should also be confirmed in writing after the meeting.
Notice periods that apply will either be the notice period specified in their contract of employment or the statutory minimum whichever is longer. The statutory minimum is;
- at least one week’s notice if the person has been employed for between one month and two years
- one week’s notice for each year worked for the company between two and twelve years
- twelve weeks’ notice if the person has been employed for twelve years or more.
It is also important to note that an employee who has been continuously employed with the employer for two years by the date their notice period ends is entitled to a reasonable amount of time off work to either search for new employment or arrange training to help them find another job.
Redundancy Payment
A redundant employee may be eligible for a statutory redundancy payment. To qualify, they would have to be classed as an employee working under a contract of employment who worked for the employer for more than two years. Employees may lose their entitlement to statutory redundancy pay in certain circumstances, such as if they turned down an offer of a suitable alternative job.
The statutory redundancy pay rates are calculated according to an employee’s age and length of employment. However, an employer may be required to pay an employee more than the statutory redundancy pay if this is provided for in their contract of employment.
If you are facing the prospect of employee redundancies and would like some further advice or are considering updating your redundancy policy, contact our experienced employment team or email us.
FAQ
Can employees on maternity leave be made redundant?
An employer can make redundant employees who are on maternity leave but there must be a genuine reason for the redundancy and not because they are on maternity leave. Special conditions apply, however, which in effect give such employees priority over others who are also at risk of being redundant. A woman on maternity leave should be offered any suitable alternative role as a priority over other employees and will not have to attend interviews or selection procedures. There are similar provisions for those on shared parental and adoption leave.
The Pregnancy and Maternity Discrimination Bill, a Private Members’ Bill backed by the government, will enable this redundancy protection to be expanded so it applies to pregnant women and new parents going back to work from a relevant form of leave.
What other things should I consider when making staff redundant?
It is easy to focus on whether the redundancy process is legally compliant to measure whether it has succeeded. While this is necessary, employers should also be mindful that the prospect of redundancy and unemployment can induce anxiety, depression and other mental health illnesses in affected employees. Thought should therefore be given as to how to support employees during this difficult time, and options such as recruitment workshops, mentoring and where financially viable, enhanced redundancy packages should also be considered.
Employers should be aware that redundancies can also be an emotional process for employees who remain working for their company and could lead to low morale and commitment, especially if a consequence of the redundancies is an increased workload for remaining staff. Employers will therefore also have to adopt strategies to support those staff and rebuild employee morale.
What happens when a redundancy goes wrong?
As mentioned, a failure to follow a fair redundancy process with adequate consultation or selecting employees for an unfair reason may expose an employer to an unfair dismissal claim. An employee will require two years of continuous employment to make such a claim.
Similarly, redundancy cannot be used as a veil for a dismissal which would otherwise amount to discrimination or victimisation under the Equality Act (EqA). If a redundancy dismissal is directly or indirectly because of a protected characteristic under the EqA, it will amount to unlawful discrimination. Protected characteristics include age, disability, gender, gender reassignment, pregnancy or maternity, marriage or civil partnership, race, religion or belief and sexual orientation. There is no qualifying length of service needed for claims under the EqA.
