In a nutshell, redundancy is where an employer has a reduction in need for employees - either because the whole company is closing, because a part of it such as a department or site is closing, or because there is reduced need for staff to carry out a particular role. Usually, but not always, redundancies are for economic reasons.
Employers need to follow certain procedures to ensure that redundancies are carried out fairly. If there is any alternative motive by an employer for making a member of staff redundant - or the redundancy process is not executed fairly and properly, then this could result in claims against the employer for:
- Wrongful Dismissal (i.e. a claim for notice pay)
- Unfair Dismissal
- Redundancy payment, either based upon the legal minimum or based upon the employee's employment contract
- A claim for a protective award for failure to properly consult with employee representatives
Prior to undertaking the redundancy process, employers should carefully consider the overall situation, being mindful of the following:
- Ensure their company takes reasonable steps to avoid compulsory redundancies
- Have employment strategies enabling their organisations to address short-term labour fluctuations effectively
- Maximise alternative opportunities for utilising the skills of their workforce
- Comply with statutory requirements
- Minimise (where possible) the impact on those who lose their jobs
- Support the 'survivors'
It is imperative that the employer ensures that communication strategies are in place and ensure that everyone has the correct information. Ideally, compulsory redundancy should always be viewed as a last resort. Redundancies are always bad news and traumatic for the company and its employees. Redundancies are likely to have an adverse impact on company culture, morale, employee trust and productivity, and it can take years to recover. Careful and considerate handling of both redundant employees and those who remain can help.
What are the Alternatives?
A redundancy process is but one possible solution to a business problem, it is very seldom a complete answer. The organisation needs to ensure that its whole business strategy is reviewed and that all reasons for lost competitiveness are addressed. There are strategies, falling short of redundancies, which although having an adverse impact, may be better than the alternative.
These strategies include:
- Natural wastage - which can be effective where reductions are required across the entire workforce and over a prolonged period.
Drawbacks include, the most able leave, attracting new talent causes resentment and turnover continues after achieving the desired workforce level.
- Stopping overtime - can be effective if it has become part of normal working practice.
Drawbacks include, the differing impact on workforce groups and the subsequent difficulty in getting exceptional work requirements met
- Early retirement measures - offer early retirement to volunteers.
Drawbacks include the loss of some of the most experienced staff.
- Terminating temporary contracts - which can be relatively quick to implement.
Drawbacks can include insecurity for some workers, loss of supplier confidence and contractual penalties.
- Retraining or re-deployment - this should always be explored in depth. It is more cost effective than compensation, recruitment
and induction costs.
Drawbacks include re-training being time consuming; re-deployment may not be acceptable to staff if they are required to move home or commute longer distances.
What are the Employer's Responsibilities?
- The employer must draw up a plan to decide which roles will be kept on and which roles will be put at risk of redundancy, and why
- Where those at risk of redundancy are in a 'pool' and the employer needs to select who will be retained, the employer must give careful consideration to selection criteria (see below)
- The employer must inform the affected staff as soon as possible, so they have a chance to comment on the criteria (where applicable), put forward alternatives or apply for other jobs with the current employer or with another employer
- The employer should consider any proposals that the employees or their representatives make as an alternative to redundancy before making a decision
- The employer must consult with elected employee representatives, (this includes Unions) if 20 or more people are at risk of redundancy within a 90 day period
- The employer must discuss alternatives to redundancy and the selection criteria for redundancy
- The employer can carry on the redundancy procedures whilst the consultation is going on (for example, sending out 'at risk' letters to the affected employees). However, the employer should not issue redundancy notices before he/she has had a chance to consult properly
- If the employer does not consult properly the Employment Tribunal can make the employer pay a 'Protective Award'. This is up to 90 days' actual pay per employee
Department of Business, Innovation and Skills (BIS)
The employer must notify BIS, using form HR1, at least 30 days before dismissal if 20 - 99 employees are at risk of redundancy. Notification should be provided to BIS at least 45 days beforehand if over 100 are to be at risk. One of the reasons for this is so that the DTI can compile accurate employment statistics and records and ensure adequate support for the unemployed.
- If an employer needs to lose some of a group of employees doing the same role, then selection criteria are required
- The employer must show in detail the selection procedure and criteria, and the criteria should be as objective as possible. While traditionally 'last in first out' was used, this can lead to age discrimination claims. It is still possible to use it, but we recommend only doing so as part of a mix of other criteria
- The selection criteria should not be based upon an individual's view of each employee, (for example, what the personnel manager thinks) and instead should be as objectively measurable as possible
- The employer should also try and agree the selection criteria with the employees (and in the case of collective redundancies, with the representatives or Union)
- There are no set rules on what criteria can be used or how scoring should work - but the employer's system should be reasonable. Criteria which could be discriminatory could give rise to a claim - for example, if you use employees' absence record in selection, you should ensure you exclude any absences related to disability
Consulting Each Employee
The employer must consult each affected employee individually before dismissal notices are given, so that there is a chance of real consultation and time for the employee to respond.
The consultation should involve the following:
- Why their role is at risk
- Explain why according to the selection criteria this employee may be chosen for redundancy
- The employee should be given a couple of days to respond after being told
- The employer should consider any views or opinions expressed by the employee before a decision is made to terminate employment
- Both the employer and employee should consider any alternative work that the employee could do or any ways in which the employee could stay in their current job
- Once the selection has been finally decided the employer should have a second interview with each of the effected employees
- Anyone who is dismissed by reason of redundancy should be given a right of appeal - this should be to someone with sufficient seniority to be able to overturn the original decision if necessary
The employer can offer the employee alternative work instead of making them redundant. The employee has a choice whether to accept it or not, though if the employee unreasonably refuses an offer of suitable alternative employment, the employer may avoid paying them redundancy pay. To meet the definition of 'suitable', the job must have similar pay, conditions and skill requirements. Whether refusal is reasonable is looked at from each individual employee's view. Some employees may accept the offer, others for their own personal reasons may not. For example, the new job may require more travelling for some employees than their current job, but less for others.
The alternative job offer must be made before the current job ends and the start date must be no more than 4 weeks after the old job ended. The first 4 weeks of the new job will be a trial period. During this the employee can still leave the job and claim their redundancy payment. The employer and employee can agree a longer trial period for the new job if they want, the 4 weeks is the minimum period.
Qualifying for Redundancy
Generally, in order to qualify for redundancy payments, the employee must be working under a contract of employment and have at least two years' continuous service with that employer. To calculate redundancy payments in accordance with legislation, please use the link below.
Being Made Redundant
If you are dismissed because of redundancy, this usually means that your employer has needed to reduce their workforce. This may either be because the place where you work is closing down, or because there is no longer the need (or no longer expected to be the need) for you to carry out the particular kind of work that you do. It is not a plausible redundancy if your employer immediately takes on a direct replacement for you. It does not matter, however, if your employer is recruiting more workers for work of a different kind, or in another location (unless you were required by contract to move to the new location). The definition of redundancy therefore covers 3 basic situations:-
- Where the employer ceases to carrying on business (other than involving a transfer of an undertaking) on a permanent or temporary basis
- Where the employer ceases business in the place where the employee is employed
- Where the employer's business no longer requires any employees or as many employees to do a particular kind of work (whether generally or in the place where the employee was employed)
You may be able to claim unfair dismissal:
- If the process was unfair and/or
- If redundancy was an excuse to dismiss you for some other reason
These are only a few examples. You generally need to have 103 weeks' service in order to claim unfair dismissal. For further information, please go to the Disciplinary page in this section of the site which outlines Grievances and Appeals.
Redundancy - Management Aftercare
Once the redundancy period is completed, there will be a need to rebuild the team - to manage the 'Survivors'. An initial feeling of relief at having escaped the axe soon goes. Often in the aftermath, staff have feelings of guilt, anger, and uncertainty. There is a lack of morale and more likely, a need for motivation and direction in the day to day work. There is a need to address the reservations, fears and negative views of staff and management, to ensure awareness of the feeling and issues, therefore creating a climate for prompting solutions to areas of difficulty.
Often the remaining roles and responsibilities will require significant changes and the development of more effective procedures. The tools (training, processes, procedures, leadership) need to be provided for staff to be more effective workers, communicators and/or managers as appropriate. Providing private and group sessions can give staff the opportunity to discuss their concerns about day to day operations, their future and company plans.
Help and Advice
Redundancy processes, are difficult and emotionally traumatic and because of this it can be prudent to involve specialist Employment Law Consultants to be a part of the process. If you don't have the benefit of an HR department, there can be huge risks by taking this road alone. Pure Employment Law are offering users of the Transport's Friend website free initial advice. You can contact us on 01243 836840 or visit our website www.pureemploymentlaw.co.uk
For further information on the subject of Redundancy, please visit the links to the following websites