Welcome to a special issue of our employment law bulletin. It’s an overview of redundancy and of the steps employers must take to get the process, and their decisions, right.
What is redundancy?
Redundancy is essentially where you:
(a) close your business;
(b) close a workplace; or
(c) need fewer employees to do a certain type of work, or to work in a certain place.
Many employers use the word ‘redundancy’ to describe a redundancy where someone’s performance is drifting off a bit, or because they think if they call it ‘redundancy’ then they don’t need to go through the procedures they know exist for misconduct issues. But that can cause problems, because if the dismissal isn’t technically a ‘redundancy’ – as defined above – or you don’t follow the correct redundancy process, you can end up struggling to defend an employment tribunal claim.
So you need to get it right. This begins by getting to grips with the situation in which you find yourself, and understanding what redundancy means. Employers can come unstuck when they assume that they are in a redundancy situation when they’re not, and vice versa.
If any one of the three situations above apply, you’ve passed first base. You can begin the redundancy process. But the rules on how you should go about this, and the steps you need to take, are strict. Even if you are clear that you have a ‘redundancy’ reason for dismissing staff, the dismissal can quite easily become unfair if you trip up at any of the stages.
Remember that redundancy rules only apply to your employees. They do not apply to agency workers, or self-employed contractors, for example.
There are also special rules which apply if you’re thinking about making more than 20 people redundant within a rolling 90-day period. They include notifying the Department of Business, Innovation and Skills, and holding consultations with a union (if you don’t recognise a union, you have to hold an election for employee representatives). These rules are demanding, complex, and carry serious financial consequences if they’re not followed. Please speak to us if you are concerned that you might be making more than 20 people redundant within a rolling 90-day period and we’ll help you through the process.
Think through the process
Plan the redundancy before you start. Map out the steps, the timings and the people from within your business’s management that you will need to involve. Remember to take and keep good, written records of what you’ve done and how you reached your decisions. There really is no substitute for this.
Factor into the planning process your contracts and policies. Check to see what they say about redundancy, both in terms of company procedure and redundancy payments. You must comply with your policies (or have a very good reason for departing from them). You will also need to underpin every aspect of your planned redundancy process with ‘reasonableness’, since tribunals are ultimately looking to see if you’ve acted reasonably in every aspect of the dismissal process. In the redundancy context this broadly means letting staff know where they stand; listening and taking on board suggestions; being fair in who you select for redundancy; looking hard for suitable alternative jobs within your business for people who are facing redundancy; and offering a meaningful appeal against dismissal.
There are different ways of going about this and if you are making only a small number of redundancies, there’s no rigid regime that you must follow. There are rules and pieces of guidance to follow but you have some freedom to design a redundancy process around your business and its circumstances.
Define your pool
You may have heard about ‘redundancy pools’ and ‘pools for selection’. These are terms for the groups of people identified as being potentially redundant. Not all will necessarily be made redundant. You will select from these pools the employee or employees who you’ll take through the remainder of the process and who you might, ultimately, dismiss for redundancy.
Sometimes it will be easy to decide which employees should make up a pool. There may be just one person whose role has disappeared, in which case they alone can form the pool and no one else need usually be involved. It’s less straightforward if you have people whose roles cross departments, specialisms, projects or contracts, and locations, for example.
Once you have defined the pool, write to the affected employees and tell them that they are at risk of redundancy. It’s quite common for employers to meet with these employees collectively. Explain why you’re doing what you are doing and invite ideas about ways of reducing the number of people who might ultimately be made redundant, or about ways of avoiding redundancy altogether.
And follow up on suggestions; there could be options available to you that you hadn’t thought about. This doesn’t mean you have to follow your employees’ suggestions – far from it – but you do need to have a credible reason as to why it doesn’t make business sense to follow their suggestions. One of the most common reasons why redundancy dismissals are held to be unfair is that the employer can’t establish that it followed up on suggestions about avoiding redundancy.
Select
You need to have fair selection criteria, against which you can ‘score’ employees in the pool (and those with the lowest scores will be those whom you select for redundancy).
What sort of selection criteria should you use? Length of service, attendance, experience & skills, disciplinary record and performance (where it can be measured objectively) are fairly standard, but it’s up to you to decide the categories that matter most. You are free to give different weightings to different criteria, but be clear and consistent in how you do this.
One of the biggest rules around selection is to avoid anything that requires you to make a subjective assessment. Your opinion of how reliable an employee is, for example, isn’t a valid criterion. You should be able to show how you arrived at the score you did, and that it’s backed up by records you hold – appraisal notes, for example.
Be careful to avoid straying into the realms of discrimination. Selecting an employee for redundancy because you think they’re too old, or too young, will be direct discrimination. Dismissing someone because they are pregnant or on maternity leave will be automatically unfair. But there are less obvious discrimination traps too. Tread carefully where you are using ‘last in, first out’ (‘LIFO’) as a scoring mechanism. It may seem like the fairest way to select staff, but it can be tainted with age discrimination (and sex discrimination too), so you would be risking an unfair dismissal and an indirect discrimination finding against you unless you combined LIFO with other objective criteria.
Scoring people on their attendance, too, can cause difficulties where the employer doesn’t take account of the reasons for an employee’s low score. Maternity leave and disability-related absence are common reasons to bear in mind.
That said, people with a protected characteristic (age, sex, disability, religion/belief, sexual orientation etc) are not immune from selection for redundancy. You will, however, be expected to not treat them any less favourably than their colleagues. The same applies to part-time workers, who have a right to not being treated less favourably than full-timers. So it is unwise to focus on part-time employees, or those who have flexible working agreements, as those to be dismissed during a redundancy process.
Consult
As a precursor to consultation, it is usually worth asking whether any of the employees in the pool would be interested in applying for voluntary redundancy. Remember that if you ask for volunteers, their dismissal will still be for redundancy and so they’re entitled to the usual payments and other terms.
Treat compulsory redundancy as the last resort. You should allow plenty of opportunity for people within your organisation – including the employees directly affected – to come up with ideas of ways to avoid redundancy dismissals. (Don’t forget to consult with those who are absent from work.) Sharing information with employees and inviting them to give their views can sometimes lead to solutions that reshape the proposed redundancy. Perhaps part-time working, salary sacrifices or adjusting your use of agency workers, for example, could provide solutions.
We mentioned earlier that there are specific rules that apply if you are proposing to dismiss 20 or more employees within 90 days. If the number is lower than 20, you still need to consult, but it’s not governed by legislation in the same way. Don’t take that to mean that consultation can be skirted over in cases of smaller-scale redundancies; it’s regarded by tribunals as a really important part of a fair redundancy process.
Write to the employees you’ve provisionally selected for redundancy. Tell them that dismissal is a possibility and that you would like to meet with them individually to discuss:
- Their selection
- Their selection score
- Any ideas they may have for avoiding redundancy
- Alternative roles you may be able to offer them
You don’t have to allow employees to be accompanied at these meetings unless your contracts or policies say so, but if they ask to take a colleague or a union representative along, you should allow it.
Show the employee their selection score and explain how you arrived at it. They’ll probably question aspects of this, so be prepared to explain your reasoning and even to adjust your scoring if need be. You won’t usually be required to share with the employee their colleagues’ scores, but it can sometimes help to resolve concerns. The best course of action is usually to wait until the employee takes particular issue with your scoring. Anonymise the scores of their colleagues, making sure that individuals can’t be identified, and share them in that way.
Suitable alternative employment
You have a duty to look for suitable alternative employment for employees who you’re about to make redundant. This duty is an ongoing one, lasting until the employee has been dismissed.
The duty is to look for another role that is suitable. This doesn’t mean that you necessarily have to offer the employee a role – perhaps there just isn’t anything suitable – but you must look and you shouldn’t assume that the employee wouldn’t be interested in taking a lower grade position. Your idea of suitable may be different to theirs, hence there are frequent legal arguments about when this duty has, and hasn’t, been met.
One significant point to bear in mind here: if the potentially redundant employee is on maternity or adoption leave then they have a special entitlement when it comes to offers of suitable alternative employment (generally, they trump other employees). This is an area where you should take legal advice.
Dismiss?
Once you have gone through the full process and have decided there is no option other than to make the employee redundant, you should meet with them to confirm this. Write to them, too. Your letter should set out the terms on which they’ll leave. These include, if they have at least two years’ service, a statutory redundancy payment and other contractual entitlements – enhanced redundancy pay, or holiday pay, for example.
You also need to offer a right of appeal. Just as in a disciplinary dismissal scenario, appoint a new (usually more senior) appeal officer, listen to the employee, and adjourn to consider everything and to explore any new avenues that may have opened up. Then either reverse the dismissal decision or confirm it in writing.
You may want to consider negotiating a settlement agreement to buy out claims that the employee has and to draw a line under their employment.
Summary
Redundancy is often complex. It’s intensive, there’s a lot to it and it challenges employers on many levels. And because it is about the application of broad rules to very specific facts – and an overarching requirement to be fair and reasonable – there is always the potential for employees to make an argument that their redundancy was in some way flawed.
That is why we work with clients to advise from start to finish, making sure that they make the best decisions, legally and commercially.
Top Tips
- Do everything you can to avoid having to make staff redundant. You may have options; take them seriously.
- Get to grips with what redundancy means in law, and what it would mean for you and your employees.
- Check redundancy provisions in your contracts and policies.
- Do the maths. Be clear about the costs and the benefits.
- Be prepared. Plan the redundancy thoroughly before you embark on it.
- Keep an open mind throughout. Don’t pre-judge and don’t be seen to have made up your mind about anything before you’ve taken the necessary steps.
- Consider all potential ramifications of your decisions before you make them. You could discriminate unwittingly.
- Level the playing field to avoid less favourable treatment.
- Continually ask yourself: is this the reasonable thing to do? Remember that a legally safe redundancy requires (a) a genuine redundancy situation; and (b) a fair process.
- Keep good notes of everything, including your thought processes. Seemingly insignificant details can win and lose cases.