Factsheet: Redundancy Advice for Employers

1. An introduction to the redundancy process for you as employers
2. How to make an employee redundant
3. Redundancy provisions: who is covered?
4. What is redundancy?
5. What does not constitute redundancy?
6. Transferred redundancy (bumping in redundancy)
7. The redundancy procedure and the consultation process for redundancy
8. Settlement Agreements
9. Can you vary a Settlement Agreement?
10. Collective redundancies
11. What constitutes unfair redundancy?
12. Are employers obliged to pay redundancy?
13. Can employers refuse to pay redundancy?
14. How quickly can you make someone redundant?
15. Need redundancy advice for you as an employer?

An introduction to the redundancy process for employers

When it comes to redundancy, it is vital to follow the correct procedure, including the correct redundancy consultation process.

A genuine redundancy situation can result in a finding of unfair dismissal at Employment Tribunal if you do not adhere to the correct processes.

To ensure you follow the correct procedures, it is advisable to take legal advice from specialist redundancy solicitors when considering making any of your employees redundant.

The right to claim unfair dismissal only arises after two complete years of service, including the statutory notice entitlement not the contractual period. But selection for a discriminatory reason can result in a claim from the onset of the employment relationship, as there is no service requirement. We therefore strongly advise a best practice approach for all employers.

How to make an employee redundant

In order to make an employee redundant you need to first establish that there is a genuine redundancy/restructuring situation. You then need to ensure that a fair redundancy process is followed. This should include fair selection, a meaningful consultation process and consideration of any ways to avoid redundancy including offering suitable alternative employment.

Redundancy provisions: who is covered?

All employees, defined as any individual who had entered into or who works under a contract of service, are covered.

Your employees need at least two years’ continuous employment to claim a redundancy payment.

However, where you select one of your employees for redundancy for a reason that is automatically unfair, such as whistleblowing, no qualifying period is required and your employee can bring a claim without any qualifying period.

In addition, if one of your employees has been selected for any discriminatory reason, with reference to the Equality Act 2010, such as because they are on maternity leave or because they have a disability, they do not need to complete any qualifying period to bring a discrimination claim.

What is redundancy?

An employee is regarded as redundant where dismissal is wholly or mainly attributable to:

Move of the place of business

This is where you as an employer moves, or intends to move, the place of business from the place where your employee was employed. The test here is where your employee worked, not where they could be required to work under their contract of employment.

Whether the move is sufficient to warrant a redundancy situation is based on the distance between the old and new premises, and the level of inconvenience to your employee.

Cessation of business

This is where you have ceased, or intend to cease, to carry on the business for the purpose for which your employee was employed. It also applies if the part of the business where your employee works is closed, but the rest of the business continues.

Surplus labour

This is where you require fewer of your employees to carry out existing work, or there is less work for your existing employees.

An Employment Tribunal will not simply look at the actual work your employee was doing at the time of dismissal, but also the work they could be required to perform under the contract of employment.

Redundancies can arise out of a work re-organisation where fewer workers are needed because of the introduction of labour-saving devices or where different skills are required.

What does not constitute redundancy?

An employee would not be regarded as redundant where a dismissal is wholly or mainly attributable to:

• Transferring night workers to day workers
• Changes to a shift system to promote efficient working
• Reduction of overtime

Transferred redundancy (bumping in redundancy)

Bumping in redundancy is where your employee, whose own position is redundant, is transferred to another position, making the holder of that second position redundant. Redundancy bumping is legally permissible, provided the correct procedure is followed in respect of your bumped employee.

By linking a dismissal to a reduced  need for employees, a redundancy situation arises for the bumped employee, notwithstanding that it may not be a reduction in the work which the dismissed employee carried out or could have been required to carry out.

The redundancy procedure and the consultation process for redundancy

When a redundancy situation arises, the following steps should be followed.

Advanced warning

Give your employees sufficient advance warning of the impending redundancy situation and the fact that it may affect them. It is advisable for this to be confirmed in writing in the form of an ‘at risk’ letter. Ensure your employees who are absent for whatever reason, including maternity and disability reasons, are also contacted.

Fair selection: a selection pool

In some instances, there will only be one of your employees potentially affected by redundancy and therefore  no need to identify a pool for selection. For example, a local office may be closing where only one employee works, or a certain role may no longer be required.

In all other cases, you should identify a pool of employees from which to select those who are potentially redundant. The type of work your employees do will be important and the pool of employees must relate to the reason for the proposed redundancy.

For example, it would be inappropriate to include canteen or administrative staff in the pool if you needed to reduce the number of shopfloor workers.

You are entitled to determine the make-up of the pool. However, it may be advisable to consult with your employees beforehand and reach an agreement on the correct membership. You can create a number of pools to reflect redundancies being made in different parts of the business and at different levels.

Redundancy selection criteria

Once the pool has been agreed upon, you should determine how employees will be selected from that pool. A list of criteria should be drawn up to reflect your business priorities in order to retain the best of your employees.

Criteria must not be discriminatory and must be capable of objective assessment or measurement. In particular, attention should be paid to avoid indirect discrimination.

For instance, could your criteria have a disproportionately adverse effect on an ethnic group, gender group or disabled person? For example, criteria based on flexibility in working hours might adversely affect single parents – a greater proportion of which are women – and this may constitute indirect sex discrimination.

A dismissal will be automatically unfair if your employee has been selected for an inadmissible reason, for example, because your employee is pregnant. No qualifying period of continuous employment is needed for your employee to bring a claim where it is alleged that they have been selected for an automatically unfair reason.

Last in first out, or ‘LIFO’ has previously been a popular sole selection criterion. While this method is both simple and, on the face of it, fair, it may not produce the desired result for you.

By using this method, you may lose the employees best able to drive the business forward. It may also indirectly discriminate against younger employees. Length of service should therefore only be used as one of a number of potential criteria which can be weighted according to priority. LIFO should not be given the greatest weight.

It is advisable to consult with your employees as to the criteria to be used, explaining:

• How the proposed system will work
• Why the criteria have been chosen
• Why some criteria, if any, are weighted

Give your employees time to consider the proposals and comment on them. You should carefully consider your employees’ responses and act accordingly (for example, amend the criteria, or explain why the criteria are not to be amended).

One commonly used system is point scoring. There will usually be several criteria, including:

• Skills needed to take the business forward
• Performance
• Flexibility
• Disciplinary record
• Sickness record (discounting any periods of absence for disability- or pregnancy-related reasons)
• Length of service

These should be applied to all of your employees in the pool, and scores allocated for each employee. Criteria may be weighted to reflect those values which hold the most value to you. Totals can then be added up and compared. Avoid potentially subjective criteria if these cannot be assessed on the basis of existing records such as appraisals.

Redundancy consultation process

You must enter into meaningful and proper consultation process for redundancy with your employees selected for potential redundancy.

A meaningful redundancy consultation process means more than simply informing your employee(s) of a decision already made.

You need a two-way dialogue with the objective of finding ways of avoiding the dismissal if at all possible; for example, job sharing, sabbaticals and a reduction in hours. At least two individual consultation meetings are recommended.

Your employees are entitled to know why they have been selected for redundancy and to see their selection scores.

Suitable Alternative employment

As the employer, you must make genuine efforts to ascertain whether suitable alternative employment exists within the employing entity of any associated company. Suitable alternative employment, if available, should be offered during the course of the redundancy consultation process.

Before dismissing on grounds of redundancy

You should not give your employee notice until the consultation process has been completed. And any contractual redundancy procedure must be followed in addition to the above.

Before effecting any dismissal, it is important that in addition to the above you send a written statement to your employee setting out the reasons they have been selected for redundancy.

Your employee must be invited to attend a meeting with you as the employer, where they are entitled to be accompanied by a chosen representative. This is usually a work colleague or trade union representative.

After the meeting you must inform your employee of your decision and notify them of their right to appeal the decision.

Settlement Agreements

There are some situations where you might want to consider offering a Settlement Agreement to employees you are making redundant.

For example, where you and your employee agree that this is the best way to end the employment relationship but neither of you want to go through the process, which usually takes about a month.

You may also want to repeat post termination restrictive covenants contained in your employee’s contract to ensure they do not contravene them.

A Settlement Agreement ensures those dismissed by reason of redundancy do not bring claims against you for unfair selection/dismissal. This may require you to pay a contribution towards their legal costs as a Settlement Agreement must be ‘signed off’ by an appropriate legal adviser.

It is usual to offer an ex-gratia payment over and above their statutory redundancy payment as an incentive for them to waive their rights to bring a claim over and above their statutory and contractual rights.

Can you vary a Settlement Agreement?

When your employee seeks legal advice, their solicitor may ask that the Settlement Agreement you offered is varied. Your response will depend on what amendments have been asked for. It is sensible to seek legal advice for guidance on the terms, the compensation offered and how this is taxed before offering a Settlement Agreement to your employees.

Collective redundancies

Where you are proposing to dismiss as redundant 20 or more of your employees at one establishment within a period of 90 days or less, you must follow a collective information and redundancy consultation process in addition to the redundancy procedures above.

The law requires employers to consult about the dismissals with all ‘appropriate representatives’ of those who may be affected by the proposed dismissals. The redundancy consultation process should cover and seek to reach an agreement about ways to:

• Avoid the dismissals
• Reduce the number of employees to be dismissed
• Mitigate the consequences of the dismissals

In addition, you should disclose in writing to the representatives:

• Reasons for your proposals
• Numbers and descriptions of employees you are proposing to dismiss as redundant at each and every establishment
• Proposed method of selecting the employees who may be dismissed
• Proposed method of carrying out the dismissals including the period over which they will take affect
• Proposed method for calculating any redundancy payments

Where special circumstances render it not reasonably practicable for you to comply with these requirements, you need to take all reasonably practicable steps in the circumstances. The failure of an employer to follow collective redundancy consultation obligations leads to additional awards known as ‘protective awards’.

What constitutes unfair redundancy?

It is important to follow a fair redundancy process. If the correct procedures are not followed or if the redundancy is a “sham”, it could potentially lead to claims for unfair dismissal.

A fair redundancy process means that employers must ensure a genuine consultation with employees at the earliest opportunity, if applicable ensuring there is a fair selection pool, that fair, reasonable and objective selection criteria are adopted and the employee is consulted with, and that suitable alternative work is considered.

Are employers obliged to pay redundancy?

All employees who have been continuously working for their current employer for 2 years or more are normally entitled to statutory redundancy pay. There are exceptions to this, including if an employee is offered suitable alternative work which they refuse without good reason.

Can employers refuse to pay redundancy?

If an employee is entitled to statutory redundancy pay, the employer must pay this. The employee may have the right to take their former employer to the Employment Tribunal or civil court to get the money that is owed.

How quickly can you make someone redundant?

It is important not to rush the redundancy process if this is at the expense of following a fair redundancy procedure. Once an employer has confirmed that they are making an employee redundant, the employee is entitled to a minimum notice period – this depends on how long they’ve been working for the employer.

For employees who have 12 years’ service or more, the statutory notice period is 12 weeks. For employees who have worked between two and 12 years, the notice period is one week per year that they have been employed. For employees who have worked between one month and 2 years, they are entitled to at least one week’s notice.

In some situations, employees may be asked to serve out their notice period away from work. This is known as ‘gardening leave’. The employee is still legally employed and will receive their salary and benefits during this period despite not actually working. Employees must stick to the rules of their contract and cannot start a job with a new employer during this time.

Need redundancy advice for employers?

Our specialist redundancy solicitors are experts in providing redundancy advice for employers and employees.

Contact us today on 01273 609911, or email info@ms-solicitors.co.uk.