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A quick guide to the redundancy process Side Arrow

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Redundancies are an unfortunate if sometimes necessary part of running a business. Having to face the reality of making an employee redundant is never an easy process but it may be necessary to ensure the future viability of the wider company or organisation.

Given the current challenges many businesses face, the rate of redundancies is on the rise and so employers must be informed about the legal processes involved.

The law does not interfere with an employer’s freedom to make redundancies, provided that a tribunal would be satisfied that redundancy is the genuine reason for a dismissal and it is fair.

To ensure that employers do not fall foul of the rules surrounding redundancy, we have outlined the general process in the steps below.

Identifying the reason for redundancy

A business must first establish whether there is a genuine redundancy situation. The law (Section 139 of the Employment Rights Act 1996) simply states that a genuine redundancy situation, which allows a person to be dismissed, may arise where an employer has ceased or intends to cease business or the place of business where the person works closes.

Businesses can also seek redundancy where there is a reduced requirement for employees to carry out work of a particular kind.

Establishing the redundancy pool 

Having identified the reason(s) behind the redundancies that need to be made, an employer must consider how many people should be made redundant and which members of staff it needs to dismiss.

If 20 or more redundancies (including employees with less than two years’ service) are being proposed in a 90-day period then collective consultation obligations will need to be met and several obligations will apply, for example, the need to consult with employee or trade union representatives.

If a business needs to undertake a collective consultation the employer must notify the Secretary of State:

  • At least 30 days before the first dismissal takes effect (i.e. the date on which notice is to expire or employment is to end) where the employer proposes to dismiss 20 to 99 employees within a 90-day period, or
  • At least 45 days before the first dismissal takes effect where the employer proposes to dismiss 100 or more employees within a 90-day period.

If fewer than 20 redundancies are being proposed then it will be necessary to follow a fair procedure concerning each employee at risk of redundancy.

Identifying the pool

There are no fixed rules about how the pool should be defined. However, the following principles should be considered:

  • In deciding whether a redundancy selection was unfair, a tribunal must decide whether the employer’s choice of the pool was within the range of reasonable responses. Pools of one may face greater scrutiny.
  • The question of how the pool should be defined is primarily a matter for the employer to determine and, provided an employer genuinely applies its mind to the choice of a pool, it will be difficult for an employee (or a tribunal) to challenge that choice albeit not impossible.
  • A particular set of circumstances may give rise to a variety of permissible pools and there is no legal requirement that a pool should be limited to employees doing the same or similar work.

Factors that are likely to be relevant to identifying a pool are:

  • What type of work is ceasing or diminishing?
  • The extent to which employees are doing similar work (possibly even those at other locations).
  • The extent to which employees’ jobs are interchangeable.
  • Whether the employer “genuinely applied” its mind to the composition of the pool.
  • Whether the selection pool was agreed with the union or employee representatives.

As well as considering the reasonableness of the selection pool, the tribunal will consider whether the selection criteria used by the employer are reasonable.

To be reasonable, the redundancy selection criteria should, as far as possible, be both objective and capable of independent verification.

This means that the criteria should be measurable, rather than just being based on personal opinion. Potentially fair selection criteria include:

  • Performance and ability.
  • Length of service.
  • Attendance records.
  • Disciplinary records.

It is legitimate for an employer to attach weightings to the criteria, reflecting their relative importance, but it should be able to justify any such weightings.

The risk of discrimination

When selecting criteria employers should avoid criteria that are discriminatory, particularly any criteria that discriminate directly on any of the protected characteristics, such as:

  • Gender
  • Maternity or pregnancy
  • Marital status or civil partnership
  • Age
  • Race
  • Disability
  • Sexual orientation
  • Gender reassignment
  • Religion or belief
  • Fixed-term or part-time status

Selecting the pool from a single group within these characteristics should be avoided as they could result in a claim for unfair dismissal, as well as unlawful discrimination.

Selection on purely subjective grounds is also likely to be unfair. This is to ensure that an employee is not selected by a manager due to personal animosity, or for an automatically unfair or discriminatory reason.

Methods of selection

There are various methods that businesses can employ to select their pool, some of which focus on the criteria previously covered. These include, but are not limited to:

Last in First Out – Based on the length of service, this method is less used as it can lead to discrimination against younger employees with less experience. Employers should be mindful when using this as a criterion, in particular when there are other objective criteria to choose from.

Performance and ability – Scores employees on a weighted system based on their ability and track record. Businesses must, however, consider the skill and knowledge required for their current and future needs. This method should be based on written records, such as performance appraisals.

Attendance – When an employer wishes to refer to attendance records, it should check the accuracy of the information and consider the reasons behind the absence. Consideration should be given to whether any particular periods of absence should be discounted, such as paternity leave or a serious long-term illness or disability.

Alternative employment

As part of procedural fairness rules, employers must consider whether suitable alternative employment exists within their organisation. As such, they should undertake a sufficiently thorough search for alternative employment and ensure their search is documented.

The fairness of a redundancy dismissal is judged not only at the date on which notice of termination is given to an employee but also when an employee’s employment terminates.

Employers should also provide employees with sufficient information about any vacancies so that they can take an informed view as to whether the position is suitable for them. However, there is no duty on employers to create an alternative role where one does not exist.

Aspects of suitability that should be considered include:

  • Status
  • Pay and benefits
  • Skills, aptitudes and experience
  • Hours
  • Responsibility

If any of these elements are significantly diminished by the offer of alternative employment then it may not be considered fair by a tribunal.

By following these rules if an employee unreasonably refuses an offer of suitable available alternative employment, or unreasonably resigns or gives notice during a trial period, they will be treated as having been dismissed by their employer but they will lose their right to a statutory redundancy payment.

The consultation process 

To help employers prepare for the redundancy procedure we have outlined the consultation process below:

Step 1 – General meeting with all potentially affected employees

The employer meets with employees who might be made redundant and explains:

  • The reasons for the potential redundancies
  • The number of jobs that are potentially at risk of redundancy
  • The pools and proposed selection criteria
  • The right to take time off to seek alternative employment
  • Ways of avoiding redundancies.

At this stage, employers should also ask employees if they have any suggestions of ways to avoid redundancies and see if any employees are willing to consider voluntary redundancy.

In some cases, employers may wish to offer a better package of remuneration for those that leave voluntarily.

Step 2 – Send letters outlining what was said in the meeting

Employers should send out a letter to employees that confirms the information given during the first meeting in writing.

With this letter, they should include a copy of the selection criteria and scoring guidelines, if relevant to the method of selection being used.

Step 3 – Selection 

Score each potentially redundant employee using the selection criteria and scoring guidelines.

Ensure that at least two line managers conduct the scoring, to help ensure scores are as objective as possible and not biased by personal relationships.

Step 4 – Letters out to those provisionally selected

An employer should write to those employees that have been provisionally selected for redundancy, inviting them to a meeting to discuss their provisional selection.

You must include an invitation to bring a trade union representative, colleague or another personal representative to the meeting.

This document should set out the reasons for the redundancy situation and for provisionally selecting the employee for redundancy, and summarising the consultation that has been held with them to date.

Confirm that no final decision has been made at this stage and that a further meeting will be arranged if their selection for redundancy is confirmed.

Step 5 – Individual meetings 

Having given employees reasonable time to consider the prospect of redundancy you should begin to consult with employees on an individual basis.

This is an opportunity to consider any comments from the employee, particularly in relation to their scores and their ongoing role in the company.

Employers should also discuss available alternative roles within the group. Make sure you have someone take a detailed note of the meeting.

Step 6 – Second meeting 

Having reviewed your notes from the first meeting and made a decision on who should be made redundant each individual selected should be invited to another meeting. Again, make it clear that they are entitled to bring a representative of their own to the meeting.

Assuming that nothing has changed, confirm that the employee has been selected for redundancy and go through the package that is available to them. Remind the employee of the right to time off to seek alternative employment and take a detailed note of the meeting.

Step 7 – Dismissal letter

Write to the employee confirming the decision to dismiss them as redundant and specify the termination date (termination may be with immediate effect if the employer is paying the employee in lieu of notice).

Explain the calculation of the redundancy payment and any other payments to be made such as notice and holiday pay.

Confirm that the employee has the right to appeal. Explain how to appeal and the relevant time limit.

The appeals process

If an employee appeals, invite them to attend a further meeting to hear their appeal. If possible, the meeting should be held by someone senior to the person who held the previous meeting(s).

Allow the employee to be accompanied by a trade union representative or work colleague. Following the meeting, write to the employee confirming the outcome of the appeal and that this is a final decision.

The implications of furlough 

While the Government has introduced many measures to assist struggling employers, including the CJRS, some businesses will unfortunately still be forced to close.

The Coronavirus Job Retention Scheme (CJRS) confirms that an employee can be made redundant while on furlough or afterwards and that an employee’s redundancy rights will not be affected by being furloughed.

Redundancy pay calculations must be based on an employee’s pre-furlough salary and not the reduced amount available via the CJRS.

You mustn’t claim reimbursement for redundancy payments via the Coronavirus Job Retention Scheme.

There is also no mechanism for employers who dismiss and pay in lieu of notice to reclaim the Payment In Lieu Of Notice (PILON) payment under the CJRS.

The normal redundancy rules apply in relation to informing and consulting with employees at risk of redundancy who are furloughed and employers should carry out a fair redundancy process.

Given the restrictions that are in place, employers will need to think about how best to communicate with employees and how consultations may be conducted if they will need to take place remotely.

How we can help

If you need to make redundancies in the weeks or months ahead, whether as a result of the current challenges or for any other reason it is important you seek advice beforehand.

We have helped a number of employers with the redundancy process, guiding them on the rules and scenarios that may affect their decisions. To find out more about our specialist employment law services, please contact us.

For more information please consult our Employment Law Expert: