20 July 2015
Making redundancies – how to get it right
One in seven UK workers was made redundant during the recession, according to the Office for National Statistics. Despite the recovery, the UK unemployment total has risen for the first time in two years. Job cuts are still being made and it is likely that there are more to follow, as firms reduce costs and restructure their operations in order to remain competitive.
Employment lawyer, Chris Brazier, at Buckinghamshire law firm B P Collins LLP, looks at what you need to do if you are contemplating making redundancies in order to get it right.
There is no legal requirement to take steps to prevent redundancies but it is sensible to consider this first, in order to avoid the stress and cost involved in making redundancies. The alternatives to redundancy include limiting overtime, stopping the use of agency workers, putting employees on short-time working, agreeing a reduction in hours of work, implementing a recruitment freeze and offering sabbaticals. If you are able to avoid redundancies, you will retain the skills and experience of staff that you may need in the future, without having to spend time and money on recruitment.
In order to defend a claim for unfair dismissal, you need to have a genuine reason for making redundancies. There are three reasons permitted by law:
- you intend to cease to carry on the business;
- you intend to cease carrying on the business in the place in which the employee is employed; and
- your requirements for employees to do work of a particular kind have ceased or diminished.
In practice, employment tribunals rarely question the reason for making redundancies and tend to focus much more on whether the procedure followed was correct.
It is important to get the redundancy procedure right, in order to avoid claims for unfair dismissal, and there are a number of steps you need to follow. If you are making one redundancy and there is only one person doing the job, it can be relatively straightforward. If, however, there are several people doing the same job, you will need to define the pool from which the redundancies will be made, which will include all those within the relevant job category or department. Your pool must be fair. At this point you should tell everyone in the pool that they are at risk of redundancy, explain the procedure you will follow and consider asking for volunteers for redundancy.
1. Selection criteria
You need to choose your selection criteria, which must be objective and applied fairly. Factors such as skills, experience, performance, attendance record and disciplinary record can be taken into account. Scoring should be completed by at least two managers, in order to avoid any bias, and you should ensure that you have evidence to back up your scores. Those with the lowest scores will be provisionally selected for redundancy.
You need to carry out individual consultation, which must be a two-way process where the employee has a chance to comment and to explore any alternative roles. It should last for at least a couple of weeks. You should also continue to explore alternative employment with the employee if the employee works out their notice.
If you are planning to make 20 or more redundancies at one place of work in 90 days or less, there are additional obligations that involve consulting with trade union representatives or representatives elected by the employees. You also need to notify the government. Failure to comply can lead to very expensive penalties so it is worth getting it right.
Whilst this is not a strict legal requirement, it is recognised best practice to allow employees to appeal against their selection for redundancy. They also have the right to paid time off work during their notice period to look for another job or arrange training.
An employee with more than two years’ service who is being made redundant will be entitled to a statutory redundancy payment, based on their age, length of service and pay. The payment is broadly one week’s pay for each year of employment, with a current cap of £475 on a week’s pay. Up to 20 years’ service can be taken into account and the maximum payable is £14,250. Some employers enhance this payment, for example by ignoring the cap on a week’s pay.
Employees will either work their notice period or leave immediately and receive a payment in lieu of notice, which is the pay they would have received during their notice period. They will also be entitled to pay for any holiday they have accrued and not taken.
Some employers offer outplacement services to assist employees in finding another job.
If you are making additional payments, which are not required by law or the employee’s contract, you should consider asking the employee to enter into a settlement agreement. This is a legally binding document that will prevent them from bringing any employment law claims against you in return for a lump sum. It is a legal requirement that they take legal advice on the terms of the agreement for it to be binding.
An employee with the necessary length of service can bring a claim for unfair dismissal in the employment tribunal if they believe the redundancy was not genuine or you did not follow the correct procedure. The current maximum compensation is £78,335 or 52 weeks’ pay if less. An employee may have a claim for automatic unfair dismissal if they believe they were selected for redundancy on a number of grounds, such as pregnancy or maternity and membership of a trade union.
If you do find yourself defending an employment tribunal claim, we can offer you advice and representation
If an employee thinks that they were selected for a discriminatory reason – for example, on the grounds of their sex, age or disability – they will be able to bring a discrimination claim, where the compensation is unlimited.
An employee will also have a claim if you fail to pay the correct amount of statutory redundancy pay, notice pay or holiday pay.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.