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Making Staff Redundant

Staff redundancies are never an easy situation. Companies have to follow a strict procedure when choosing which staff are redundant and this often varies based on how many employees are involved, as well as pool and non-pool cases.

Pooled cases refer to situations where you are making staff redundant who undertake similar work and as an employer you have to make a choice between which employees are made redundant.

In these situations, you need to have a clear, objective redundancy procedure, so as to avoid any discrimination or favouritism. This can use internal figures, such as sales reports, to release the least efficient staff. A ‘last one in, first one out’ policy can sometimes be adopted but care has to be taken against age discrimination.

Non-pool redundancy refers to situations where an employee fulfils a unique position within the company (so will often be in a ‘pool’ of one). Here, employers have to openly discuss possible redundancy with the staff-member, who in turn has the right to defend their position.

When is a dismissal by reason of redundancy?

The Employment Rights Act clearly defines when a redundancy situation arises. Put succinctly, a redundancy situation can arise in the following three situations:

  • where the employer ceases altogether to carry on the business, or intends to do so;
  • where the employer ceases to carry on the business in the place where the employee is employed, or intends to do so;
  • where the business no longer needs any, or as many, employees to carry out work of a particular kind, whether in the place where the employee is employed or generally, or expects that to be the case.

An employer dismissing employees by reason of redundancy has a number of statutory obligations to consider including:

  • the employer must make redundancy payments to those who qualify.
  • The employer must act fairly or may be liable in a claim of unfair dismissal.
  • The employer must comply with the collective information and consultation obligations that apply in relation to larger scale redundancies.

If 20 or more people are being made redundant, then the Secretary of State has to be notified and the company is obliged to open discussions with employees’ representatives as well as the employees individually. In discussions with representatives you need to discuss if redundancies are required, the reason for them and timescale – including any alternative options – and outline the process for determining which staff are chosen.

Where 20 or more jobs are at risk no actual redundancies can be effective for 30 days from the start of the process, or 45 days if more than 100 employees are involved.

Legal Difficulties

So, why is this a difficult situation for businesses? One of the biggest risks is failing to fully carry out the required procedure. If you don’t openly discuss the situation with employees and union representatives, or issue a redundancy notice prematurely, then the redundancy itself can be legally challenged – it could also qualify as unfair dismissal.

Similarly, it is vital companies adopt a clear process for determining which employees are made redundant. Otherwise, staff may feel they were chosen through prejudice, leading to further cases of discrimination and unfair dismissal.

Practical advice on implementing a Redundancy process.

The first step is the business decision on the necessity of making one or more employees redundant. At the outset, alternatives to redundancy should be considered. This could include restrictions on recruitment, a ban on overtime, job sharing, retraining or redeployment and any other possible methods of preventing loss of employment.

Irrespective of the number of employees who at risk of redundancy, as an employer you should give as much warning as possible to the employees affected, to enable them to take stock, and assist in identifying possible ways of avoiding redundancies.

As an employer you should identify the areas where redundancies are likely to be required and the likely number of employees affected. Employers may also wish to give consideration to whether in any particular area of the business employees should be invited to volunteer for redundancy. This may not always be commercially liable, but an employer should be able to objectively justify why calling for volunteers was not appropriate.

If redundancies are necessary, and in the absence of a pre-defined policy or procedure, employers should try to agree as part of the consultation process an objective criteria for selection for redundancy. Such criteria must not be discriminatory, but could include factors such as length of service, the skills possessed by the employee, disciplinary records, and employees efficiency at the job (to name but a few). Consideration should also be given about whether it is appropriate for the criteria to be weighted according to the importance of them. Employers often use a matrix format and scoring system in order to ensure fairness. Our specialist employment team can help you work through this process and assist in the preparation of the proposed matrix to be adopted.

Once satisfied that your criteria are fair (and ideally has been agreed with the affected employees/representatives) the employer should then apply the criteria to the relevant employees. This process will usually result in the employee achieving a ‘score’. Ideally, you should have more than one person / manager assessing the employees, again to ensure fairness.

The employer should then make provisional selections on the basis of these objective and fairly applied criteria. Proper consultation is key, as well as establishing a timetable for individual consultation as part of the redundancy programme. Consultation meetings should then by held to discuss the situation and would usually include:

  • the background to the decision to make redundancies,
  • the basis for the selection,
  • the timetable of events,
  • the fact that the employee has been provisionally selected,
  • whether or not there is any suitable alternative employment available.

As part of the consultation process the employer should consider any representations the employee makes before making a final decision. Try not to rush the process. More than one consultation meeting is likely to be required, and you should keep a detailed record of the consultation meetings.

If following a consultation period, it is deemed necessary to make an employee redundant, formal notice of redundancy should be given. The dismissal letter should set out the reason for redundancy, summarise the procedure followed, and confirm that consideration was given to whether any suitable alternative employment was available. The letter should set out entitlement to statutory redundancy (or if contractually enhanced what this is), entitlement to notice (statutory or contractual) whether the employee is required to serve their notice, will be placed on garden leave, or whether a payment in lieu of notice will be made. The employee is also entitled to be paid for accrued but untaken annual leave up until the date of dismissal. It is therefore important that employers budget properly for redundancy situations. The letter should also set out the right of appeal.

Due to the inevitable complexities which can arise during a redundancy process, employers are encouraged to obtain legal advice from a member of our specialist employment team. We will set you off on the correct path, advise you throughout the actual process and assist you with drafting any required documents or letters.

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