In our latest HR Coffee Break Briefing webinar, Employment Expert & Associate Chris Dobbs looked at redundancy dismissals, how they work, the legal basis and pitfalls.
This is the summary of that webinar. You can watch it back below, or read on for the summary.
What is classed as redundancy?
Redundancy is potentially a fair reason for dismissal.
Redundancy occurs where the reason for dismissal is wholly or mainly:
- The employer ceasing to carry on the business for which the employee is employed,
- Either as a result of the business ceasing to trade entirely (liquidation/insolvency), or in one area,
- The employer ceasing to carry on business in the location the employee is employed,
- In insolvencies or in cases of downsizing,
- The requirement for work carried out by employees of a particular kind diminishes.
What is a Redundancy Situation?
Surprisingly, this phrase ‘redundancy situation’ doesn’t actually appear in the legislation despite the fact that we all use it! As a result, in proceedings, you have to outline why a redundancy is taking place in accordance which the three areas outlined above.
The primary reason for redundancy should be one of those three, however a dismissal for another reason can still occur even in a redundancy situation.
If, for example, you’re in the middle of a redundancy consultation exercise and one of your potentially redundant staff commits an act of gross misconduct, it may be of benefit to investigate and potentially dismiss on those grounds.
The term ‘business’ is used in all three criteria for redundancy in the legislation. It is very broadly defined but, for the purposes of redundancies, the ‘business’ doesn’t have to be a corporate or commercial entity.
Related: How to avoid making redundancies
What makes a redundancy unfair?
A dismissal for redundancy can still be unfair, if it is shown that:
- There was no genuine redundancy situation,
- The process followed was unfair, and/or
- The individual who was made redundant was correctly, and reasonably, selected under Section 98(4).
An unfair dismissal claim, as a basic award, gives the same payment as a statutory redundancy. But, an unfair redundancy award can also include a compensatory payment of up to a year’s salary; so its worth being cautious and following correct redundancy legislation.
Related: What's the difference between unfair and wrongful dismissal
What is the redundancy process?
There is always an expectation on employers to conduct a redundancy consultation even if there is just one redundancy planned.
Firstly, its good practice and helps retain a good relationship with the employee and, secondly, communicating with staff reduces the likelihood of unfair dismissal arising.
In collective redundancies there is a legal obligation on employers to consult and follow the redundancy process.
Related: How to make redundancies - A guide for employers
Small-Scale Redundancies
Redundancies that aren’t considered collective don’t have specific legislation for timings. Meaning there are no rules on how long the process has to last, but consider your duty to be reasonable and fair.
And, its still good practice to cover:
- The reasons for redundancy,
- How to avoid them,
- Issues the employee has with the process,
- Opportunities for alternative employment/finding new work.
In my mind, the earlier you inform your employees of potential redundancy; the better, as you are allowing them time to find alternative work and reducing the impact of said redundancy.
What is the process in Collective Redundancies?
Collective redundancies are defined as redundancies that include more than 20 proposed dismissals, within a 90 day period at one establishment.
These 20 or more redundancies includes voluntary redundancies and those potentially redeployed into alternative roles as, by law, the role itself would still be made redundant.
In collective redundancies, employers need to notify the Redundancy Payments Service (HR1) either, in redundancies of 20 to 99, 30 days before the first redundancy or, in redundancies of 100 or more 45 days prior. Failure to do so is a criminal offence.
What is the consultation process for redundancy?
If there is a pre-existing union, you must liaise with them. If there is not, you must allow elections of staff representatives or, if that fails, consult directly.
The consultation should cover:
- The reasons for redundancies
- The numbers and categories of employees involved
- The numbers of employees in each category
- How you plan to select employees for redundancy
- How you will carry out redundancies
- Calculation of payments
The purpose of consultation is to reduce either the number of redundancies or at least their impact. So, its important to hold open and honest discussions to discuss options, alternatives and ideas as they are presented.
I’d also recommend consulting on the definition of the ‘pool’ and the selection criteria, even if just to tick the box.
Related: How does the redundancy interview process work
Do you have to consult on redundancy?
If employees aren’t correctly consulted on termination of employment, there is potential for an unfair dismissal claim to arise for those with over two years’ service..
There is a ‘protective award’ that can be claimed either by employees or with the backing of their union, of up to 90 days’ pay per affected employee. So, for example, if you fail to consult 10 people, you are potentially looking at the equivalent of 30 months' pay!
There is a ‘special circumstances’ defence for failure to consult, that basically covers rare, unexpected situations that couldn’t have been pre-empted and prevented proper consultation. Unexpected insolvency is probably the best example of that but it is very rarely successfully pleaded.
What is a redundancy pool?
‘Pools’, by definition, are groups of similarly skilled employees. So, for example, if you have separate sales and marketing teams whose skills overlap, there is justification to say they should be in the same ‘pool’, even if you only intend to wind-down one of those departments.
For this reason, it’s important to clearly identify what amounts to a ‘pool’, and who is considered to be in it, as early as possible; allowing consultation to be unaffected.
The selection criteria should be objective, fair and measurable (e.g., sales targets). Be mindful of discrimination linked to pregnancy, treatment or sickness absence due to disability etc., willingness for flexible working and sex discrimination.
Related: Discrimination and Equality - Unlawful Conduct
What is a redundant employee entitled to?
- Notice periods – in compliance with their contract and/or statutory legislation.
- Redundancy pay – statutory or contractual.
- Based on length of service, multiplier for age, weekly pay (including holiday, regular overtime, bonuses) etc.
- Suitable Alternative Vacancies should be offered where applicable, the employee should not have to apply.
- There should not be a significant reduction in skillset or pay, or a change in skillset. It should be reasonably comparable to their previous role.
- If there are multiple candidates, this can involve an interview process.
- However, priority should be given to those on forms of parental leave in accordance with family friendly protections.
- The alternative vacancy must start within 4 weeks of the redundancy.
If an employee unreasonably rejects a suitable alternative vacancy, they may lose their entitlement to redundancy pay.
Learn more
You can watch back the webinar in its entirety here.
In addition, you can sign up to our newsletter here to receive updates on changes to government and employment law.
Chris’ next session will be held on Wednesday 4th September, where he’ll be looking at termination issues, including the fairness of dismissals, mitigation of damages, tribunal claims and more. Subscribe to our newsletter here to receive an invite.
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