Making an employee redundant
Businesses today operate in an environment which is very different to that of ten or twenty years ago and those which are not able to respond to changes in the marketplace and deploy their services in new and innovative ways will inevitably fail to succeed and grow. The inevitable corollary of this is that the needs of businesses in terms of their workforce change on a more regular basis and often the only route forward for them is either to lay staff off or to make staff redundant. Redundancy is never a pleasant option, either for the employer or the staff being made redundant. However it is one which can, and must be, managed so as to cause the least possible problems to everyone. This item sets out what is required of the employer and the steps which should be taken so as to lessen its detrimental impact.
Redundancy, in terms of employment law, arises when there is a need by an employer to reduce the size of their workforce. Whilst there are many situations in business terms which can give rise to a redundancy, including a reduction in the need for a product or service, a reduction in the profitability of producing a particular product or service, external financial pressures and changes in production or provision methods, nevertheless all of these reasons boil down to just three key effects:
- the business as a whole needs to close down
- part of the business needs to close down
- the business needs to reduce the number of employees which it has - either generally or doing a specific task
These effects are recognised in law, in that the section 139 of the The Employment Rights Act 1996 recognises that an employee who is dismissed shall be regarded as having been made redundant if the dismissal is wholly or mainly attributable to:
- the fact that his employer has ceased or intends to cease—
- to carry on the business for the purposes of which the employee was employed by him, or
- to carry on that business in the place where the employee was so employed, or
- the fact that the requirements of that business—
- for employees to carry out work of a particular kind, or
- for employees to carry out work of a particular kind in the place where the employee was employed by the employer,
have ceased or diminished or are expected to cease or diminish.
Subject to the factors such as the reasons being genuine, the reason why the redundancy has arisen is not in itself specifically relevant - merely the fact that it has arisen. Provided that the correct procedures are followed, the redundancy will amount to a fair dismissal.
Alternatives to redundancy
Most employers do not want to make staff redundant. It is normally a business imperative which is forced upon them. All the more reason, therefore, that the first step which employers should be taking is to consider whether there are any alternatives to redundancy, and regarding redundancy only as a solution of last resort.
There are a number of alternatives to redundancy which might be relevant - although clearly not in all circumstances. These include:
- reducing the number of employees by natural wastage - for example by retirement - and redeploying remaining staff into the jobs left vacant
- restricting or suspending overtime so that work is spread around the whole workforce
- suspending further recruitment and training up existing staff to take on new roles within the business
- redeploying redundant staff into other roles, not just within the business itself but in associated companies. See elsewhere as to trial periods of employment.
- encouraging staff to apply for voluntary redundancy, possibly backed up by the offer of assistance in finding other work
- encouraging staff to take early retirement
- encouraging staff to take on job-shares with other colleagues
The suitability of these solutions will clearly depend upon the circumstances of the business but may also, in the case of the attitudes of staff, be something which comes out one of the other responsibilities which employers face - namely consultation.
Collective Redundancies
Any employer who plans to make redundant 20 or more people at any one establishment over a period of 90 days or less must, by law, consult with representatives of a recognised trade union or, if there is no such union, an elected representative of the employees. This requirement arises under the provisions of Part IV of the Trade Union and Labour Relations (Consolidation) Act 1992. This consultation should address issues such as:
- how to avoid dismissals
- how to reduce the number of people affected
- the numbers and jobs of the people facing redundancy
- how staff will be selected for redundancy
- how any dismissals will be carried out
- the level of redundancy payment if above the statutory minimum
- how to mitigate the effect of the dismissals.
Thus the process to an extent feeds into the points raised above of avoiding redundancies from taking place, and applies even when some of the redundancies in question are voluntary. Employers should note in particular that failure to carry out a consultation can lead to a claim for compensation known as a protective award. Such an award would require the employer to pay to all affected employees their normal week’s pay for the protected period, which could be up to 90 days.
Consultations with representatives should commence in good time and as a minimum must begin:
- at least 30 days before the first redundancy when between 20 and 99 employees are being made redundant, and
- at least 90 days before the first redundancy if 100 or more employees are involved
Employers are strongly advised to ensure that this consultation process is concluded before any public announcement of the proposed redundancies is made and that notices of redundancies are not sent to employees before a meaningful stage in the discussions has been reached, at the very earliest.
Consultation with staff
If the proposed redundancies affects fewer than 20 employees then there is no specific legal obligation to consult with employee representatives but employers may still wish to do so. In any event, they must warn and consult with the individuals who are likely to be made redundant and must follow the statutory procedures in relation to the steps taken.
In dealing with individuals, the process which firms must follow are:
- writing to the employee advising them of the redundancy, the reasons for it and when it is likely to come into effect and inviting them to a meeting with the employer to discuss it
- attending a meeting with the employee to discuss the redundancy. This is a useful step since the employees themselves might have ideas as to how the redundancy can be avoided. The employee is entitled to be accompanied to this meeting by a colleague or trade union representative.
- The employee is then informed of the outcome of the meeting and of the fact that they have a right to appeal against the decision
- If the employee wishes to appeal, then an appeal meeting is held (again the employee has a right to be accompanied) and the employee is then informed of the final decision.
Employers should note that if this procedure is not followed, and the employee makes a claim, then the redundancy will automatically be treated as unfair dismissal.
Selecting employees for redundancy
Employers should, whenever they select employees for redundancy, utilise criteria which are objective, rational, fair and justifiable so as to ensure that all employees are treated equitably. These criteria must be consistently applied without favouritism.
A number of criteria for selecting for redundancy will automatically be regarded as unfair. These include:
- participation in, or membership or non-membership of, a trade union
- carrying out duties as an employee representative for collective redundancy purposes
- taking part in electing an employee representative
- seeking to be accompanied to a disciplinary or grievance hearing
- requesting flexible working
- being, or acting as, a designated health and safety representative or taking part in a consultation on health and safety issues
- asserting a statutory employment right
- maternity, paternity or adoption leave related grounds
- refusal to do shop or betting work on a Sunday
The list is not exhaustive and you should check with employmentlawhelp if you require specific advice on these or any other possible grounds.
In addition to these grounds, employers should be particularly aware of the fact that they must not select for redundancy on discriminatory grounds. This could even apply, for example, to selecting part-time employees for redundancy if a predominantly large number of those employees were of a particular sex or race when compared with the rest of the workforce.
The employer’s starting point in terms of selection is to establish a “pool” of employees from which the redundancies will be made. This may be by ascertaining the particular role within the business which is no longer required or by identifying the part of the business, be it a department or location, which is surplus to requirements. Pools can cross over departments, job descriptions and locations. Often the wider the pool from which people are drawn the more likely the redundancies will be fair.
Having established the pool, the employer should then devise and apply the criteria which are to apply. These should be as objective as possible and should be fair and reasonable. Additionally, the employer should keep in mind the future viability of the organisation and should attempt wherever possible to retain a balanced workforce. Examples of selection criteria which may be applied include:
- relevant skills
- capability
- experience
- disciplinary records
- other competencies
- involvement in the business
It may also be advisable if the employer has a formalised system of scoring against criteria and that more than one person is involved in the scoring exercise to avoid accusations of bias.
Once those from the pool who are to be made redundant have been identified, the employer should write to the employees in question, informing them that they have been provisionally selected for redundancy and inviting them to a meeting to discuss the matter further. Remember that wherever possible you should explore the possibilities of alternative employment with the employee
Notice periods
Having ascertained who is to be made redundant, the employer needs to ascertain appropriate notice period that applies to the employee(s) being made redundant. The periods of notice will be the same as those to which an employee is entitled by law in all cases of termination of employment - unless of course a longer notice period has been agreed in the contract of employment. Those periods are:
- at least one week’s notice if the employee has been employed by the employer continuously for one month or more but for less than two years;
- at least two weeks’ notice if the employee has been employed by the employer continuously for two years’ and
- one additional week’s notice for each further complete year of continuous employment for a period of less than 12 years’ continuous employment; and at least 12 weeks’ notice if the employee has been employed by the employer continuously for 12 years or more.
In addition to a period of notice, the employee is also entitled to a reasonable amount of time off with pay during the notice period and during working hours to look for another job or make arrangements for vocational training.
Calculating the redundancy payment
The amount which an employee will receive on redundancy is based upon age, wage and length of service. The employer will need to calculate how many weeks worth of pay the employee is entitled to and then multiply that by the week’s pay (limited to a maximum figure by law). If the employee earns less than the maximum figure then that is the amount which is used in the calculation - if they earn more it is limited to the maximum.
The number of weeks pay is calculated by taking the relevant date - usually the date upon which notice of redundancy expires - and working backwards to calculate the relevant service. The number of weeks pay is the calculated from:
- 1.5 weeks’ pay for each full year of service where the employee was aged 41 and over
- 1 weeks’ pay for each full year of service where the employee was aged 22 and above but less than 41
- 0.5 weeks’ pay for each full year of service where the employee was aged less than 22
On making the redundancy payment the employer is expected to give the employee a written statement setting out how the payment was calculated. Failure to provide the statement can result in the employer being fined.
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