Making redundancies will unfortunately be the harsh reality for many employers due to the impact of Covid-19. For those employers who, over the coming weeks and months, find themselves in the difficult position of having to making compulsory redundancies, it is crucial that they follow a fair process.
My colleague, David Roath, recently wrote an article about avoiding redundancies post lock-down. This article explores the various alternative options that may be available to employers for consideration in order to avoid the need to make employees redundant. It is important that employers consider the alternatives to redundancy before proceeding with dismissing an employee.
Unfortunately, however, there is little doubt that some businesses will simply not be able to survive the economic impact of Covid-19 and will be forced into making redundancies. I have also written a blog on “collective consultations” that may be of interest to you.
Redundancies – Key steps towards fair dismissals
An employee who has 2 years continuous service with an employer will be able to bring a claim for unfair dismissal at the employment tribunal if they believe that they have been dismissed unfairly. This article considers the broad steps employers will need to follow when making employees redundant. There are certain key steps which employers must follow to make a redundancy dismissal fair:
The employer must identify the genuine redundancy situation. In law, there are three types of genuine redundancy, which are:
- business closure (closure of the business altogether);
- workplace closure (closure of one of several sites, or relocation to a new site); and
- diminished requirements of the business for employees to do work of a particular kind.
The employer must first of all be satisfied that there is a genuine redundancy situation in line with one or more of a-c above. Employer’s should be careful not to mix redundancy with other reasons for dismissal, such as an employee’s performance, absence or disciplinary record. Employers will need to explain to those employees affected why there is a redundancy situation and why this means their role is at risk of redundancy.
A business closure will usually be fairly easy to identify. Many employers will be facing the harsh reality that their business will not survive the pandemic and will be forced to shut its doors and put everyone at risk of redundancy. A workplace closure can cover both relocation of a workplace and a simple site closure. Often, the more common redundancy situation is limb c), diminished requirements of the business for employees to do work of a particular kind. This can arise where the employer restructures their workforce. Employers may decide over the coming weeks and months that, due to a downturn in work, they now require less employees to do the work. Alternatively, there may be a similar amount of work but the employer requires less staff to do that work on the premise that it is seeking to make better use of its resources.
An employment tribunal will generally not interfere with the business decision to make the role redundant (unless it is alleged by the employee that there was a discriminatory motive behind the redundancy).
Therefore, the first step for employers is to identify the genuine reason for redundancy.
The employer must act reasonably and follow a fair process. A tribunal will consider whether the decision to dismiss an employee was within what is known as the range of reasonable responses available to that employer. The key elements of a fair redundancy process include:
- Consultation: Employers must warn and consult with their employees or their representative(s), about a proposed redundancy. Individual consultation with those at risk of redundancy is fundamental to a fair process. For consultation to be meaningful, it needs to happen at a formative stage with the employee’s comments and suggestions being taken on board and considered. This will mitigate the risk of an employee claiming the consultation process was a sham and the decision had already been made to dismiss them. This article focuses on individual consultation rather than collective consultation (which is necessary where the employer plans to dismiss 20 or more employees during a 90 day period – watch out for a further blog on collective consultation in due course).
A fair and balanced consultation process should allow the employee to comment, challenge, make suggestions and consider alternatives (if any) to redundancy. There are no prescribed timescales within which consultation should take place. However, a usual redundancy consultation process will involve 2-3 meetings with each employee as a minimum and sometimes more if required. Employers should remember that the shorter the consultation, the more likely it is that its fairness may be called into question. It is good practice for employers to allow an employee to be accompanied to a consultation meeting by a colleague or trade union representative.
- Selection: The employer must adopt a fair basis on which to select for redundancy. An employer must identify an appropriate pool from which to select potentially redundant employees and must select against fair criteria. Where more than 1 job role is at risk of redundancy, the employer must consider the appropriate pool(s) of employees to be made redundant. Employers have flexibility in this regard but will need to apply their mind to the makeup of the pool. This should be carefully documented. Important things to consider with regards to the pool will be:
- What type of work is ceasing or diminishing;
- The extent to which employees are doing similar work; and
- The extent to which employees’ jobs are interchangeable.
Once the pool(s) have been established, the employer must then apply fair selection criteria to those in the pool(s). The criteria used should be objective and measurable. Employers need to be careful that the criteria used is not discriminatory (on the grounds of a protected characteristic) or too subjective. This can lead to claims for discriminatory and unfair dismissal. In additional, the application of the selection criteria must also be done fairly. Employees should then be consulted with about their scores and given an opportunity to ask questions (which, if they have been scored the lowest, they will most likely have). This is an important part of the consultation process.
- Alternative employment and alternatives to redundancy: Employer must consider suitable alternative employment. My colleague’s article regarding avoiding redundancies deals with the key considerations employers need to consider before proceeding with a redundancy. Alternatives to redundancy can include alternative vacancies in the company. An employer is under a duty to look for alternative employment within their organisation as part of a fair process. The search must be thorough but employers are not expected to create new roles. If an employee accepts an offer of alternative employment, it might be subject to a statutory trial period and any unreasonable refusal of an alternative role which has been offered to them could jeopardise an employee’s right to a statutory redundancy payment. This is a complex area and so I recommend specific advice is taken before employers make this argument.
Other alternatives to redundancy can include:
- reducing headcount by way of voluntary redundancy or a temporary recruitment freeze;
- offering employees to take sabbaticals, annual leave or unpaid leave, or lay off;
- reducing hours by way of short-time working, part-time or flexible working;
- furlough leave – if an employee is currently on furlough leave, can they remain on furlough for a further period of time, and if not, why not? If the employee is not on furlough leave, can they be asked to go on furlough leave as an alternative to redundancy? Furlough leave will not be appropriate in all circumstances, but it would be sensible for employers to at least consider this an alternative to redundancies whilst the scheme is in operation.
Employers should take specific advice if they are making contractual changes not allowed for in the employee’s contract of employment. If there is no alternative vacancy for the employee, or other alternative as set out above, then the employer can dismiss. The employee will in most cases be entitled to:
- their notice pay;
- any accrued but unused annual leave; and
- a statutory redundancy payment (or any enhanced contractual payment).
- Appeal: An employee who has been dismissed due to redundancy has a right to appeal their dismissal. An appeal hearing should be arranged and someone who is independent and ideally more senior to the dismissing officer should chair the hearing.
Fail to prepare…
Planning is vital for employers when undertaking a fair redundancy process. A well-planned redundancy process can reduce stress for both the employer and employee, and is likely to achieve a better outcome for all concerned. A disgruntled employee is more likely to consider issuing an employment tribunal claim if the process has been handled badly or rushed. Rather, if the employer follows a fair, transparent, informative and balanced consultation process, this will go someway to mitigate the risk of an employee issuing tribunal claims. Over the coming months I would encourage employers to take advice on following a fair redundancy exercise in order to achieve their goals.
If you are considering the possibility of making redundancies and would like some advice please contact a member of the Employment team.
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