Regrettably, redundancy is a possibility when the economy is suffering or businesses need to restructure to adapt to market conditions.
Despite the government’s relaxation of lockdown restrictions and extension of the furlough scheme, many businesses are being forced to consider changes and reductions to their workforce. Where the collective consultation obligations apply, employee representatives must be appointed and minimum periods of consultation applied meaning businesses must plan and start processes well in advance of the first redundancy dismissals. Employees facing redundancy will be very worried about their futures. It is important for both parties to plan and communicate early and considers ways of avoiding redundancy if possible.
What is redundancy?
‘Redundancy’ is categorised as a fair dismissal under the employment protection legislation. It arises if the reason for a dismissal is ‘wholly or mainly attributable to’:
- The employee’s workplace closing;
- The entire business closing; or
- The business having less need for the work the employee does.
These commonly arise where a business needs to close its offices, restructure or reduce its workforce.
What are an employer’s duties when making someone redundant?
It is important for businesses and employees to understand the redundancy rules, including collective consultation obligations, to reduce the risk of an unfair dismissal claim. Even where a company can show a genuine redundancy situation exists, it must still follow a proper and fair process in order to avoid the dismissal being found to be unfair. A failure to follow collective consultation obligations can also give rise to a separate claim for a protective award.
Businesses must consider the following reasonable redundancy procedures including:
- Warning employees they may be made redundant.
- Consulting with employees (or their representatives) about ways of avoiding redundancy.
- If 20 or more employees are at risk of redundancy the collective consultation obligations may apply. These require that the business;
- appoints employee representatives where none exist;
- consults with trade union or employee representatives for at least 30 days (45 days if 100 or more redundancies are contemplated);
- does not dismiss any employees before the end of the consultation period;
- conducts individual consultation; and
- notifies the Government about the redundancies using the HR1 form;
- In all cases, identifying pools of “at risk” staff;
- Using fair and consistent selection criteria when choosing who to make redundant.
- Considering suitable alternative jobs for the at risk staff.
- Considerings alternatives to redundancies, e.g. suspending recruitment, allowing flexible working, or furloughing staff.
Employees with more than 2 years’ service are eligible to bring an unfair dismissal claim if their employer fails to follow a fair procedure or uses unfair criteria. A trade union, employee representative or individual employee can also bring a claim for a protective award of up to 90 days’ pay where collective consultation rules are not followed. Employers must not use discriminatory criteria when choosing who to make redundant, as this could result in a discrimination claim.
What is a redundant employee entitled to?
Where a redundant employee has more than 2 years’ continuous service, they are entitled to a statutory redundancy payment. In some cases, employers may offer redundant employees contractual redundancy pay in excess of the statutory redundancy pay entitlement. The first £30,000 of a redundancy payment or compensation for loss of employment can be paid tax-free.
The statutory redundancy payment is based on an employee’s age, length of service, and weekly pay. This will be specific to each employee and legal advice should be sought.
Employees may also be entitled to notice pay, and accrued but untaken holiday pay.
Where the employer is insolvent and unable to pay, employees can apply for payment from the National Insurance Fund instead. This recourse may become more common if businesses continue to struggle under coronavirus lockdown conditions. The Government may introduce specific new measures to help business and staff in this situation.
Both parties should be aware that redundant employees are entitled to appeal their redundancy selection.
Some employees may believe their redundancy is ‘just an excuse’ for their employer to get rid of them. For instance, many ex–British Airways’ staff have alleged that the current travel ban is being used as an excuse for making pre-planned job cuts. Businesses must establish that the principal reason for the dismissal is redundancy in order to defend an unfair dismissal claim.
This is why a consultation is important in allowing employers to explain why the redundancies are necessary and allowing employees to review and suggest alternatives.
Qualifying employees who feel they have been unfairly dismissed can bring claims for unfair dismissal, discrimination, wrongful dismissal and a protective award if proper processes have not been followed.
Some employers offer employees settlement agreements (also known as ‘compromise agreements’ or ‘severance agreements’), whereby the employee agrees to waive their rights to bring claims against their employer, in exchange for compensation. You can read more about settlement agreements in our dedicated note here.
Settlement agreements allow both parties to avoid the stress, costs and uncertainty of litigation. The employee must receive independent legal advice before signing the settlement agreement for it to be legally binding. An employer usually pays for this independent legal advice; a recent case concluded that a fee of £500 plus VAT is a reasonable minimum contribution for advice on a settlement agreement.
For employers worried about the risk of claims, insurance is available. Insurance is an option under our employment protection service which includes a helpline to deal with employment law and HR queries. More details of our “Blaze” service can be found here.
Our dedicated team of employment lawyers is experienced in advising both employers and employees on all stages of the redundancy process. If you are looking for further advice, please contact our employment team on +44 (0) 203 814 2020, or email James Simpson at email@example.com or Debbie Sadler on firstname.lastname@example.org.