Redundancy: How to Stay Compliant – Our Blog Explores the Pitfalls
At some point, you may find your business having to undergo a redundancy exercise. If and when this happens, how confident are you that you can manage this, staying fully compliant with employment legislation?
To minimise the risk of potential claims, such as unfair dismissal and discrimination, first you have to know what the definition of redundancy is:
Under Section 139 of the Employment Rights Act 1996, an employee is dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to:
a) the fact that the employer has ceased or intends to cease:
i. to carry on the business for the purposes for which the employee was employed, or
ii. to carry on that business in the place where the employee was so employed, or
b) the fact that the requirements of the business:
i. for employees to carry out work of a particular kind have ceased or diminished or
are expected to cease or diminish, or
ii. for employees to carry out work of a particular kind in the place where the
employee was employed by the employer have ceased or diminished or are expected to cease or diminish
As there are different time-frames for managing individual and collective redundancies, it is important to identify the number of proposed redundancies within a 90 day period.
- where 19 or less redundancies are proposed, there is no requirement to have a collective consultation
- where between 20 and 99 redundancies are proposed at one establishment, a collective consultation is required at least 30 days before the first of the dismissals takes effect
- where 100 or more redundancies are proposed at one establishment, a collective consultation is required at least 45 days before the first of the dismissals takes effect
An example of a Collective Consultation:
You made 15 employees redundant 1.5 months ago, and 2 employees took voluntary redundancy* bringing the total to 17. Now you are proposing to dismiss 6 more employees as redundant (it doesn’t matter whether less people are actually being dismissed at the end of the process). Therefore, this totals 23 employees within a 90-day period, so a collective consultation must begin.
*Collective consultation includes voluntary and redeployment.
Where there are less than 20 employees being proposed for redundancy, then there are no timeframes to adhere to.
So, what does Collective Redundancy actually mean?
Collective redundancy involves ‘electing’ suitable representatives for all affected employees (this will include those not at risk of redundancy). You may have a trade union that will have representatives in place for this purpose. You also need to consider that an election process may take up to 4 weeks, but is more likely to be nearer 2. The elected representatives or trade union representatives will be involved with the consultation process with the employer on behalf of the employees.
How do you choose employee ‘Representatives’?
Employees are entitled to vote for as many candidates as there are representatives, and the entire process must be in secret.
Those elected as employee representatives have the right not to be dismissed because their role or activities will involve being a representative.
What do you ‘Consult’ about?
The consultation undertaken by the employer will aim to reach an agreement with the representatives, which includes:
- avoiding dismissals
- reducing the numbers of employees to be dismissed, and
- mitigating the consequences of the dismissals
As part of the consultation, the employer must disclose the following in writing to the representatives:
- the reasons for its proposals
- the numbers and descriptions of employees whom it is proposed to dismiss as redundant
- the total number of employees of any such description employed by the employer at the establishment in question
- the proposed method of selecting the employees who may be dismissed
- the proposed method of carrying out the dismissals, with due regard to any agreed procedure, including the period over which the dismissals are to take effect
- the proposed method of calculating the amount of any redundancy payments to be made to employees who may be dismissed
- the number of agency workers working temporarily for and under the supervision and direction of the employer and the parts of the employer’s undertaking in which those agency workers are working, and the type of work those agency workers are carrying out
What happens if we fail to Collectively Consult?
If the collective consultation has not been carried out correctly, your employees could be compensated for up to 90 days’ pay at their ‘normal’ rate as a punishment to you as the employer. Called a ‘protective award’, this payment is in addition to any notice pay and redundancy pay.
There are very few reasons that will hold up as a defence for not consulting collectively – always get your numbers right at the very outset!
Collective consulting happens before you start the redundancy process, and counts within the given time-frame!
How to Start a Redundancy Exercise
OK, you’ve identified whether collective consultation is required or not, so what happens next? For the purpose of this blog, the remainder of the information is generic and not specific to collective consultation.
You need to have carefully identified your reasons for redundancy – do they fit the definition and are they genuine?
You need to have considered alternatives to redundancy, such as removing the use of agency workers, stopping overtime, short-time working, and possibly lay-off (if you have the right contractually).
What area of the business is affected? Do you need to reduce headcount, or are you looking to close an entire department or even the business itself? If you are closing a department, it’s unlikely you’ll need to determine the criteria for selection, as all affected employees will more than likely be made redundant.
If you need to reduce the headcount, chances are you will need to identify and apply a selection criterion to those affected employees. You will need to consult about this, either individually or collectively, and when it has been agreed, apply this to all employees and score accordingly. This will show you the employees that are at risk of redundancy.
Redundancy Selection Criteria
You need to ensure that your criteria does not discriminate and, where possible, ensure this can be measured. If you use attendance as part of your criteria, be careful when it comes to the absences you include – some may need to be discounted or you’ll run the risk of a discrimination claim. Remember: claims for discrimination have unlimited compensation.
You may use disciplinary records, production rates, as well as skills and knowledge as your criteria. This must be easily measured and quantified (subjective), as it may be subject to objective analysis.
Redundancy Selection Pool
Who should be in the redundancy pool? Consider employees that may have interchangeable skills or carry out similar tasks.
Remember, you need to retain the best employees to help you take your business forward. Consider people’s work ethic, flexibility (be careful not to discriminate against those with dependants and part-time employees), skills, experience, knowledge, attitude and results.
You have to be able to demonstrate meaningful consultation regardless of it being with individuals or collectively. We have listed some suggested steps below:
- Announce the proposed redundancies to the workforce.
- Where selection criteria are required, provide details and allow for challenge. You do not have to change this, but you do have to consider any suggestions and determine why you are not able to accept these.
- Score affected employees against the agreed criteria.
- Inform employees whether they are safe or at risk of redundancy.
- Commence consultation meetings as per the number of proposed redundancies.
- Meeting 1
Explain the scoring, allowing this to be challenged or corrected. Ask for suggestions to reduce or minimise the impact of the number of proposed redundancies. Confirm your understanding of any questions that have not been answered.
- Meeting 2
Provide answers to outstanding questions and suggestions. Determine whether the employee is still at risk. Identify further matters in respect of consultation.
- Meeting 3
If agreed, then the consultation can be concluded – and if nothing has changed – confirm the employee that has been selected for redundancy.
This is purely a guide; the complexity of the situation will dictate the number of meetings required.
Employees with at least 2 years’ service are allowed a reasonable amount of time off during their redundancy notice. In addition, 40% of their normal working week needs to be paid as a one-off payment during their entire notice period.
This blog has barely scratched the surface when it comes to redundancy. There are so many other considerations and areas of risk. If you need commercially-focused help to navigate the redundancy process and remain legally compliant, please contact us today for redundancy compliance expertise. Call 01455 231982 or 07716 918272 or Contact Us.