Redundancy – An essential guide for employers

Redundancy - An essential guide for employers

Article by Rebecca Dennis

Redundancy is a fact of commercial life from time to time. It is a process that can cover a number of different commercial situations from simply reducing costs and headcount to a root and branch business reorganisation to improve efficiency.

It is important to remember that redundancy is only a potentially fair reason for dismissal. To ensure that a proper decision is reached it is essential to ensure that the process and decision-making are fair. This short guide is designed to provide practical guidance for businesses to show what fair processes are required.

Please remember that every business reorganization and redundancy process is different and the best advice is always to take advice before you plan and execute a redundancy process!

Questions to be answered in this article

1.Where to begin? What do you need to do?

Any process that results in redundancy requires a sound evidential platform in the form of a Business Case. This document does not need to be hugely complicated or lengthy and it does not need to reveal sensitive financial or commercial data.

Your Business Case needs to be sufficiently detailed so that any potentially affected employee understands why the business needs to effect change.

You should be prepared to share your Business Case with affected employees and use it for discussion during consultation. Ideally the document should include two organograms to reflect the existing workforce and the planned changes. The document should only refer to posts/job titles and not people.

2. What does the rest of the process look like?

The procedure is clear. It has evolved over a period of time as a result of judicial decision-making. The steps are now well established and must be followed in any redundancy process. Redundancy is a dismissal and so these steps are essential to ensure a safe dismissal.

  • Early warning to staff of impending redundancies.

  • The identification of a pool of potentially affected employees.

  • The application of fair selection criteria to that pool.

  • Fair selection in accordance with the criteria.

  • Meaningful individual consultation and a consideration of alternative employment.

  • A right of appeal of any decision to dismiss.

3. How do you identify the pool of ‘at risk’ employees?

There are no prescribed rules about the identification of the pool and employers do have flexibility. A pool can be wide or narrow. It is even possible in some circumstances for the pool to be a self-selecting pool of one although this can be risky.

It may be reasonable to limit the pool to those employees performing the same or similar work. You will need to think about the type of work that is ceasing or diminishing and the employees who perform that type of work. Look at what the employees actually do on a day-to-day basis and also consider interchangeable skills if your workforce is agile and multi-skilled.

4. What are fair criteria to apply to that pool?

Selection criteria are used to determine who is selected for redundancy.

The criteria must be objective, capable of independent verification, measurable and without discriminatory effect. Each affected employee is scored against the criteria. You should be prepared to show individual and comparable scoring results.

Criteria usually include performance and ability, track records of measured success, length of service, attendance records and disciplinary records. Criteria which are imprecise, vague or subjective will not fulfil the test of reasonableness.

5. What is meaningful consultation?

There is no statutory time limit for a period of consultation where the plan involves less than 20 redundancies.

The point is that consultation needs to allow sufficient time for the employee to be warned in the first place and then given information about the business needs and intended process. The affected employee needs time to read and digest that information and then time to respond to that information.

To be meaningful, consultation needs to provide the employee with an opportunity to comment on the basis for selection in terms of the pool and selection criteria and a chance to challenge the redundancy selection assessment, and to suggest ways to avoid redundancy.

There must obviously be time for the employer to actively consider the observations made by the employees before a decision can be made.

There are some situations where consultation is futile but these are rare and businesses are well advised that the shorter the period of consultation the more likely it is that the quality of the consultation will be challenged in the event of dismissal.

6. Can I ‘bump’ staff to avoid redundancy?

Bumping means moving a potentially redundant employee into another role and dismissing the person currently performing that role.

Bumping is permissible and can be deployed to avoid a redundancy of a valuable and senior member of staff especially in circumstances where the bumped employee is relatively junior or short service. However, it is not without risk. It can be damaging to employee relations and the bumped employee may well claim that they have been unfairly treated and unfairly dismissed. A bumped employee is also likely to be entitled to a redundancy payment if they have more than 2 years’ service.

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7. Why bother with the process at all? Doesn’t ‘last in, first out’ represent a fair and easy way to get to the result?

This was historically a popular way to select for redundancy. It is fairly crude however. It also avoids the necessary application of selection criteria and meaningful consultation.

It is better to identify a pool of ‘at risk’ employees and then to use objective selection criteria. This reduces the risk of arguments that the consequences of LIFO produced a discriminatory outcome and/or meant that consultation was pointless and unfair. Reserve LIFO decision-making for tie break situations where scoring has not produced a clear result.

8. What is a redundant employee entitled to financially on dismissal?

Employees are entitled to be paid statutory or contractual notice whichever is the greater, accrued outstanding holiday pay and statutory redundancy pay. Please remember that employees may also be entitled to enhanced redundancy pay if this is an express term of employment or an implied term by reason of sustained custom and practice. And finally, any dismissed employee is entitled to appeal that decision.

The redundancy process can be complicated, and is crucial to get right. Goughs’ Employment Law expert, Rebecca Dennis is here to support you and your business. Get in touch today to find out how we can support you in running your business and provide you with tailored, comprehensive and practical advice. We are not here to tell you what to do, but to help you to make things happen, how and when you want.

We are also now offering a HR Hotline that provides you with direct access to one of our professional employment law specialists within your budget​. To find out more about the HR Hotline and get your bespoke quote, click here today.

Head of Employment Law, and author of this article, Rebecca Dennis.

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