The employer's guide to: Redundancy

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With the announcement of the public sector spending review the British public are braced for an age of austerity. This will almost certainly lead to extensive redundancy rounds, affecting both the public and also the private sector. This article looks at how an employer should go about getting a redundancy process right and minimising the risk of costly Employment Tribunal claims.

An employee with over one year’s service who is made redundant could bring an unfair dismissal claim in the Employment Tribunal if the selection process or the redundancy procedure generally has not been conducted in a fair and reasonable manner. A claim for unfair dismissal can result in compensation being awarded by the Employment Tribunal of up to £65,300.

In order to avoid an unfair dismissal claim, the employer must follow the correct procedure. Firstly, this means ensuring that there is in fact a genuine redundancy situation. This will arise where an employer is closing down entirely or closing a particular place of work, but will also occur if the requirements of the employer for employees doing what they are currently doing has ceased or diminished. The latter is the most common scenario currently being encountered.

Secondly, assuming there is a genuine redundancy situation, the employer must carried out a fair procedure. The starting point is to identify the pool from which redundancies are required. Having done this, those staff within the pool must be notified in writing that they are at risk of redundancy and a consultation period should be entered into.

The purpose of the consultation period is to allow affected employees to put forward any comments or suggestions which they may have on ways of avoiding a redundancy. The consultation period should take place at a time when no formative decisions have been taken by the employer. Where an employer has identified a pool from which redundancies are required, the employer must then come up with appropriate and objective selection criteria which are applied to all members of the pool to determine who will ultimately be made redundant.

Employees should be given the opportunity to comment upon the criteria and how such criteria have been applied to them. As part of the consultation process, there should also be full consideration given by the employer to finding alternative employment for affected employees. At the end of the consultation period, if it has not been possible to find any ways of avoiding the redundancy, then the employer must write to the employee notifying them that they are to be made redundant. The employee is entitled to be given notice in accordance with their contract of employment. Many employers will pay in lieu of notice or put the employee on garden leave, where they remain employed but are not required to attend work. An employee with over two years continuous employment is also entitled to a statutory redundancy payment based upon their age, length of service and weeks salary. Many employers will also operate enhanced redundancy schemes and pay more than the statutory minimum.

Where an employer feels they may be at risk of a claim or is paying more than the statutory minimum, it is common that they will require an employee to enter into a compromise agreement. This is a legally binding agreement where the employee agrees to waive any potential claims which he or she may have against the employer. The employee must either have advice from their Trade Union or from an independent solicitor on the terms of the agreement. It is usual that the employer will make a contribution towards the associated costs of taking such advice.

In the current economic climate, it is important that employers know how to conduct a fair and reasonable redundancy procedure, as otherwise they could be facing costly legal claims at a time where their finances are already very stretched. Employees who are being made redundant, on the other hand, may face a very uncertain financial future with the job market hardening considerably. They will therefore be keen to maximise any redundancy payment in order to give them a greater financial cushion. This could well lead to an increase in legal claims arising from unfair redundancies.

This guide is for information only and does not replace the need for specific legal advice in each individual case.

Guy Hollebon is Director, Solicitor and Head of Employment at Bevans.

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