Redundancy – Getting it Right
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1. What is redundancy?
A redundancy is a dismissal, so you need to follow the correct statutory procedure and include an appeal in the dismissal process. It occurs
- Because you have ceased to carry out your business or intend to cease to carry out your business either for the purposes for which the employee is employed or in the place where the employee was employed
- Or because the requirements of your business for employees to carry out work of a particular kind have ceased or diminished or are expected to do so, or the requirements in that place have ceased or diminished or are expected to do so.
2. Alternatives to redundancy
Making employees redundant is the act of last resort. If you can avoid the need for redundancy, you may keep necessary skills and good people in the business. Possible alternatives include
- Seeking applicants for voluntary redundancy and/or early retirement
- Seeking applications from existing staff to work flexibly
- Terminating contracts with self-employed workers
- Laying off casual or sub-contracted staff
- Recruitment restrictions
- Reducing or banning overtime
- Filling vacancies with existing employees
- Retraining employees and then moving them to other parts of the business
- Temporary lay-offs
- Reducing hours and/ or wages
3. Selection for redundancy
Use a procedure which is fair, objective and non-discriminatory, incorporating a range of objective criteria, such as attendance, disciplinary record, appraisal rating, skills or qualifications.
- Try to give as much warning of the redundancies as possible.
- Use objective criteria when deciding who will be made redundant and give the employees affected the chance to comment on their scoring against your criteria.
- Try to ensure that the selection for redundancy is fair and in accordance with the criteria set.
- Try to find alternative employment for the employee.
- Where you have to select some individuals from a group of people doing the same job, the approved way is to put together a matrix based on a range of objective criteria.
- You may dismiss a woman on maternity leave, so long as you can very clearly and objectively show that the selection is not in any way related to her pregnancy.
- She must be offered alternative employment, if available, without having to apply for the post or be interviewed.
- While you can apply the matrix and select part-time employees for redundancy, you should not select a person for a reason connected with their part-time status, even if the part-time status is not the only reason.
4. Redundancy notification procedure
Before carrying out redundancies, you must carry out reasonable consultations with affected employees, advising individual employees of the risk of redundancy and taking such steps as are possible to reduce or remove the need for redundancy.
- There may be several meetings. The final meeting with the employee will be formal and allow the right to be accompanied. It’s at this stage that the redundancy dismissal is confirmed.
- Arrange for a more senior manager to hold an appeal meeting, if the employee wants to appeal against your decision to dismiss.
If you are selecting from a group, using a matrix, there will be five possible meetings with each employee concerned:
- The first meeting to outline the situation and explain the risk of redundancy
- The second to start the process and show the employees in the selection pool the unscored matrix
- The next to take feedback on the matrix
- The fourth to present the scored criteria from the matrix to each person in the ‘at risk’ group and inform them about suitable alternative jobs they can apply for
- The final, formal meeting is to confirm that no suitable alternative has been found and he is therefore redundant.
If only one person or everyone is being made redundant, you only need an informal meeting, to discuss the situation, followed by a formal one, which is set up by letter (there is a right to be accompanied and a right to appeal against the decision to dismiss).
5. Voluntary redundancy
Voluntary redundancy is a recognised category of dismissal for redundancy. There is no legal requirement to ask for volunteers for redundancy, but it is generally considered to be good practice.
- Make sure you reserve the right to refuse to allow voluntary redundancy.
- Voluntary redundancy is still a dismissal and this means that the usual procedures must be followed if the employer is to avoid a claim of unfair dismissal.
Bumping occurs when an employee loses his position in the company and is moved to another worker’s job, thus displacing the second employee and causing his dismissal. Factors to be considered include
- The existence of other vacancies
- The extent to which the two jobs are different
- The difference in pay
- The relative length of service of the two employees
- The qualifications of the original employee at risk.
7. Right of appeal
Because redundancy is a dismissal, an employee who is dismissed for redundancy is entitled to have a right of appeal, if he so chooses.
- The appeal meeting need not take place before any dismissal or sanction takes effect.
- If you don’t follow the procedure properly, the dismissal is likely to be unfair.
8. Redundancy payment
To qualify for a redundancy payment, an individual must be an employee, must have been dismissed, and either have at least two years’ continuous service on the date on which his notice expires or, if termination is without notice, the date on which termination takes effect. Where there is a practice of paying enhanced redundancy payments, this may become a contractual right.
Redundancy pay is calculated as follows:
- Up to the age of 21 – 0.5 week’s pay for each completed year of service
- 22-40 years of age – 1 week’s pay for each completed year of service
- 41+ years of age – 1.5 weeks’ pay for each completed year of service
- Employees are also entitled to receive their notice pay, based on their contract or, in the absence of that, statutory entitlement
- To avoid discrimination problems, enhanced redundancy pay must be calculated in the same way as statutory redundancy pay, except that there is no limit on the amount of week’s pay which can be taken into account and the amount may be increased (but not reduced) by applying a multiplier, either to the amount of a week’s pay used in the calculation or to the result of the calculation.
There is no minimum statutory consultation period when making fewer than 20 employees redundant, but you should still consult on an individual basis, otherwise the dismissal procedure may be considered to be unfair. Statutory consultation will be required where you are likely to make 20 or more employees redundant. The numbers and timescales are as follows:
- If between 20 and 99 employees are involved, the consultation period must be at least 30 days
- If 100 or more, the period is 90 days.
- If 150 or more, then the provisions of the Information and Consultation of Employees Regulations 2004 apply.
10. Collective redundancies
If you are proposing to make a large number of redundancies, you must consult in advance with representatives of the affected employees, and notify the projected redundancies to the Department for Business, Innovation and Skills (formerly BERR).
- The first step is to consult the representatives of any affected employees. You must inform and consult affected employees who are not represented by a trade union and it’s your responsibility to ensure that consultation is offered to appropriate representatives.
- Where employee representatives are to be specially elected, you must make such arrangements as are reasonably practical to ensure that the election is fair and determine whether the affected employees should be represented either by representatives of all the affected employees or by representatives of particular classes of those employees
- The law requires that you must begin the process of consultation in good time and complete the process before any redundancy notices are issued.
- The representatives will need enough information about the redundancy proposals to be able to take a useful and constructive role in the process of consultation, so you must disclose certain information in writing.
- You can only issue redundancy notices when the consultation has been completed.
11. Garden leave
It is usual for companies to put employees who are at risk of redundancy on garden leave.
- Employees are often very upset by the news and need time to compose themselves.
- It can be awkward for employees who know that they’re not at risk if their ‘at risk’ colleagues are working alongside them.
- There is the possibility that a disgruntled employee may cause damage to the business.
- It is wise to include a garden leave provision in the employment contract.
12. Time off when at risk of redundancy
An employee who is given notice of dismissal because of redundancy is entitled to reasonable time off with pay during working hours to look for another job, or to make arrangements for training for future employment.
- You must allow the time off before the employee’s notice period expires.
- The courts have indicated that ‘reasonable time off’ might be two or three days per week, but it depends on the circumstances.
- Employees should be paid the appropriate hourly rate for the period of absence from work. This is arrived at by dividing the amount of a week’s pay by the number of the employee’s normal working hours in the week.
- The entitlement to paid time off is limited to 40 per cent of a week’s pay for the whole notice period.
You are under a duty to tell employees who are at risk of redundancy about suitable alternative work.
- These employees will have the first opportunity to express interest in alternative roles and to be interviewed for them, where appropriate.
- The alternative work shouldn’t be advertised more broadly until the employees who are at risk have had a chance to be considered.
- It doesn’t mean that they automatically get the role.
- An employee who does accept an offer of alternative work is allowed a trial period to see if the work is really suitable.
- If an employee leaves his work with good reason or is dismissed during the trial period, he will retain his rights to payment under the protective award.
14. Redundancy and the TUPE regulations
If a business transfers to another organisation, employees’ terms and conditions are protected by the Transfer of Undertakings (Protection of Employment) Regulations 2006 (known as TUPE).
- Both the transferring business (the transferor) and the business to which it is transferred (the transferee) are liable for any failure to inform and consult with the transferring employees.
- If a transferring employee refuses to work for the new employer, the refusal will be treated as a resignation and he will have no right to claim unfair dismissal or to a redundancy payment.
15. The legal risks
Redundancy dismissals in certain circumstances can be unfair and/or discriminatory:
- If the redundancy is not genuine
- In a collective redundancy situation, the employer must follow a fair procedure and must adhere to special rules requiring collective consultation with trade union or employee representatives.
- If you select employees for redundancy using an inappropriate mechanism, or discriminatory criteria, you may face claims of unfair dismissal and discrimination.
- Employers are under an obligation to determine whether there is any suitable alternative employment within the company available to employees being considered for redundancy.