Fair Redundancy Process
Alan Kitto
Despite the fact that the Government’s Job Retention Scheme has been extended until 30th June 2020, and could be extended further, I know that a number of companies are already looking further ahead and are thinking the redundancies may need to follow the end of the current restrictions. With this in mind, I thought I would take a few minutes to explain how to make sure any redundancies are fair and that the cost-savings you achieve by reducing headcount doesn’t go towards defending Employment Tribunal claims for unfair dismissal, or worse losing these claims and having to pay compensation.
If the Job Retention Scheme is to be extended, we will likely hear in mid-May as that is the time when larger organisations would need to start consultation (see below).
If you’re not thinking about possible redundancies, feel free to stop reading here.Redundancy is one of the potentially fair reasons for terminating employment, but to be fair, there is a process to follow, and the current coronavirus situation cannot be used as an excuse not to follow the required process.
Consultation with affected employees is the first stage of the process. As well as individual consultation, if 20 or more employees at one establishment are to be made redundant within 90 days, collective consultations with recognised trade unions or elected representatives must start within minimum time scales:
For dismissals of 100 or more employees, this is at least 45 days before the notification of redundancies.
For dismissals of 20-99 employees, it’s at least 30 days before the notification of redundancies.
Consultation must be completed before notices of dismissal are issued. If there are no recognised trade unions or employee representatives, the employer must facilitate an election, by the employees, of representatives for the consultation. The law requires ‘meaningful’ consultation – it’s not enough only to inform employees of a decision that has already been made. For example employees are entitled to be consulted on the proposed selection process and scoring system. If employers fail to collectively consult the maximum extra compensation payable is 90 days’ pay per employee, known as a protective award.
At the start of the consultation process the employer is legally obliged to give the following information to the representatives:
The reason for the redundancy dismissals.
The number of proposed redundancies and their job types.
The total number of employees affected.
The proposed methods of selection.
The procedure to be followed in dealing with the redundancies.
The method of calculating redundancy payment.
Employers are also required to consult individual employees and give them reasonable warning of impending redundancy. Although there’s no minimum statutory timescale when fewer than 20 employees are made redundant, the individual consultation must be meaningful and may also be covered by contractual terms or policies. We’d recommend as a minimum, a week’s consultation.
An employee is entitled to be accompanied at all individual consultation meetings by a trade union representative or colleague.
Selecting employees for redundancy is the next stage of the process.
When the consultation is finished, the employer may need to choose individuals from within the selection pool for redundancy. These choices should be based on objective criteria such as:
Length of service (only as one of a number of criteria)
Attendance records
Disciplinary records
Skills, competencies and qualifications
Work experience
Performance records.
Last in, first out (LIFO) is a risky selection method as those with less service are likely to be younger so this could result in potential age discrimination claims. Case law shows that LIFO may still be relevant as part of a wider range of selection criteria, but it mustn’t be used as the sole method, and the employer must be able to justify its use. It can also be an unsatisfactory way of keeping the most competent employees.
Employment tribunals look favourably on selection procedures based on a points system which scores each employee against relevant criteria. Employers must take great care in the choice and application of the criteria to avoid discrimination. For example, selecting part-timers could be discriminatory if a high proportion of women are affected.
Scoring should, if possible, be carried out independently by at least two managers who know all employees in the selection pool in relation to skills, competency, qualifications and work experience. Marks from the two assessors should then be added together to give a total score for each employee.
Next, employers must effect the dismissal and deal with any appeals.
The employer should give written notice to those selected for redundancy that they are ‘at risk’ of redundancy and invite them to individual meetings. At least one further consultation meeting should be held, with the actual number of meetings depending on what the employee has to say. The employer must consider any points that the employee puts forward.
Once the individual consultation is complete, the employer must decide whether the employee is to be made redundant and give a written redundancy notice. This will be either the statutory minimum notice or the contractual notice, whichever is the greater. The employer must also explain the redundancy payment calculation.
Employees should be allowed to appeal against the redundancy decision.
It's automatically unfair to make an employee redundant for a number of reasons, including:
Trade union membership (or non-membership)
Part-time status
Pregnancy- or maternity-related reasons.
The law currently gives women made redundant while on maternity leave the right to be offered a suitable alternative role in advance of their colleagues. A Bill to extend this protection for six months beyond maternity leave was not passed in the last Parliamentary session. It may be reintroduced.
In addition, making someone redundant because of their age, sex, sexual orientation, marital status, disability, race or religion or any other protected characteristic is unlawful under the Equality Act 2010.
Looking for suitable alternative employment for displaced employees is also mandatory.
Employers must consider offering suitable alternative work to redundant employees where such roles exist. If employees unreasonably refuse suitable alternative work they may lose their entitlement to a statutory redundancy payment. Employees can have a four-week trial period in a new role. If the employer and employee then agree that the role is not a suitable alternative, the employee reverts to being redundant.
The law requires employees who have at least two years’ service to be given paid time off to look for work during the final notice period.
Dismissed employees will be entitled to be paid:
Their contractual notice entitlement (which they can be asked to work)
Accrued holidays
A statutory redundancy payment, based on their age, length of service and salary (or a contractual redundancy payment if you operate an enhanced redundancy pay scheme).
If you are contemplating redundancies within your organisation, we strongly advise that you seek our advice, both in terms of the process itself, documentation and selection.