Redundancy: seven questions employers should ask themselves
What are your legal requirements as an employer when making redundancies?
In the volatile market situation we find ourselves in at present, redundancies may be unavoidable for some organisations, but there are certain legal obligations that need to be fulfilled when employers take this route. Here, we’ll look at seven key aspects employers should consider before embarking on this.
1. Is redundancy a ‘legally straightforward’ way of dismissing employees?
Not really. There are plenty of variables that can easily complicate and delay a redundancy process. These include an employee’s length of service, the number of employees at risk, the involvement of a trade union, the number of sites affected, and the timescales involved. Add to these the logistics of trying to arrange the consultation process mid-pandemic, and it can quickly become difficult.
2. What is required before I can start a redundancy process?
The key condition is that a ‘genuine redundancy’ situation must be proven. In the current context, it would be relatively easy for many businesses to show that they find themselves in such a situation.
There is no one-size-fits-all test, but the situation must fall within one or more of the following categories: a business closure (the business shuts altogether); a workplace closure (the business is partly shut/ is relocated); or a reduction of workforce (the business no longer has sufficient work for some or all its staff).
As well as the impact of Covid-19, other scenarios could include a reduction in demand and/or customers, automating systems and streamlining staff.
3. How should I choose the employees to be made redundant?
At the outset, the business should identify the ‘pool’ – i.e. the group of employees from which it will choose those who are to be made redundant.
When choosing those who are to be made redundant, fair and objective selection criteria should be used. Common examples can include length of service; disciplinary history; performance, skills, qualifications, experience and appraisals.
Selection criteria should not be based on unlawful/unfair grounds, such as an employee’s age, sex or race (discriminatory factors), absence for family, maternity, or disability related reasons, a role as a trade union or employee representative, or whistleblowing.
There is usually no requirement to consider any selection criteria if all employees are being made redundant, or if there is a pool of one.
4. Do I need to consider any alternatives to compulsory redundancy?
One option to consider at the outset is to offer voluntary redundancy. This might reduce the number of employees in the process, or prevent it happening altogether.
Before and during any meaningful process, you should consider other ways in which compulsory redundancies could be avoided, or at least reduced. This might include:
- Identifying and offering alternative employment.
- Recruitment freezes.
- Reviewing and ending contractor arrangements.
- Reducing overtime.
- Allowing sabbaticals, flexible or reduced working, career breaks etc.
- Cutting bonuses and other benefit schemes.
- Early retirement.
If an employee has two years’ service or more, employers will be under a legal obligation to consider alternatives like the above, or otherwise be faced with the risk of a claim for unfair dismissal.
Employees and their representatives may also have their own suggestions on how to avoid a redundancy situation, which should come to light during the consultation process.
5. Do I need to think about collective consultation?
Quite possibly. In addition to individual consultation, if the number of proposed redundancies will be 20 or more within a period of 90 days at a single establishment, this will trigger collective consultation requirements. These include:
- Notifying the Redundancy Payments Service before any consultation starts.
- Consulting with trade union/elected employee representatives, and providing them with certain prescribed information.
- An obligatory freeze on any redundancies taking effect for a 30-day period for 20 to 99 redundancies, or 45 days for 100 or more redundancies in 90 days.
Failing to follow these rules can prove costly. An employment tribunal can award up to 90 days' uncapped pay per affected employee where an employer has breached its obligations.
If fewer than 20 redundancies are proposed, there are no strict collective consultation rules to follow, but it is always best practice to fully consult employees (and their representatives if applicable) throughout the process.
6. How do I consult during the pandemic?
If businesses remain open and staffed, and it is possible to do so, the traditional way of consulting face-to-face and electing representatives (within social distancing guidelines) may still be a viable option.
For many businesses, however, the alternative virtual route may be best. Employers can, just as efficiently, inform and consult employees through Microsoft Teams, Zoom, Skype etc. Provided that the legal requirements are met, conducting the process remotely should not prove to be an obstacle for employers.
Similarly, employers who have been required to arrange elections of employee representatives (which should be done by secret ballot) have found online tools such as Doopoll and SurveyMonkey useful for gathering nominations, while still protecting anonymity.
7. What will I need to pay redundant employees?
If an employee has two years’ continuous service or more, they will normally be entitled to a statutory redundancy payment (SRP) – calculated on the basis of their age, pay and length of service, and paid tax-free. There is also a weekly cap (currently £538) and a total cap (currently £16,140) when it comes to calculating SRP.
Some businesses may also offer enhanced redundancy packages, over and above SRP, which may also be paid tax-free (but not guaranteed) up to £30,000.
For those who have less than two years’ service, there is no automatic legal right to SRP. The employee’s contract and all redundancy-related policy documents should be checked, however, to make sure that no such right exists.
In addition, redundant employees (regardless of their length of service) will be entitled to their notice period and pay at the end of the procedure. Depending on the employee’s contract, you may be able to make a payment in lieu of their notice period (otherwise known as PILON).
Interested in this topic? Read How to handle redundancies sensitively.