Managing the Redundancy Process
by Tamara Barbeary & Sunny Rafaeli
1 in 5 firms planning to make redundancies as Furlough Scheme winds down: what can employers do to manage the redundancy process?
In response to a British Chambers of Commerce survey of 250 businesses, one in five firms reported plans to make redundancies as a result of recent changes to the Coronavirus Job Retention Scheme (Furlough). Since 1 July, employers were asked to contribute 10% towards the wages of furloughed workers for hours not worked. That amount has now risen to 20% during August and September.
As a result, many employers who are struggling financially will be forced to make redundancies.
Redundancies are a potentially fair reason for dismissal and should only be considered if part or all of the organisation is closing or already closed, there is a reduced requirement for employees to carry out work of a particular kind or to do so at the place where the employee was employed to work.
We understand that navigating through this process can be a minefield for both employees and employers. Click here to download our redundancy procedure checklist giving a step-by-step guide on the issues that employers may need to address in a redundancy situation. Below are our 6 key tips for employers to help manage the process.
Tip 1 – Plan and prepare:
Employers who face difficult urgent decisions to keep the business viable may feel that planning ahead of making redundancies is a luxury they cannot afford. However, in all but the most extreme cases of urgency, planning is critical. It not only helps to put a proper process in place from the outset, but importantly, it informs the decision makers of crucial information relating to alternative options, financial savings, the associated costs of potential redundancies including contractual entitlements, and time frames. Many disputes can be avoided by taking the time to plan, seeking advice if needed, and then executing that plan.
Tip 2 – Consider ways to avoid redundancies:
Redundancies may not be considered fair if the employer has not thought about other less drastic solutions to a reduction in work. This may include, for example, not hiring any new employees, reducing overtime, seeking agreement to change working hours, making pay cuts or moving employees into other suitable roles. It is important for employers to note that the employee may have a priority right to any suitable alternative vacancies if they are on maternity leave, adoption leave or shared parental leave.
Tip 3 – Devise a fair and measurable selection criteria:
Having identified the appropriate pool of employees from which the selection exercise will take place, it is important to draw up a fair and measurable selection criteria. Where possible, the criteria should be both objective and capable of independent verification to avoid bias, justify the scoring, and ensure that other factors that may be discriminatory or render the dismissal unfair are not considered. Examples of selection criteria could include performance, attendance, or disciplinary records.
Employers should ensure the criteria is applied fairly and consistently when selecting staff for redundancy and measured by reference to HR records. Having more than one manager involved in the scoring is also advisable.
Employers should note that it is unlawful to select an employee for redundancy on grounds relating to protected characteristics under the Equality Act 2010 such as race, age, disability and maternity and pregnancy. It would also be automatically unfair to select an employee for redundancy when the reason (or principal reason) for the dismissal is one of those proscribed by the Employment Rights Act 1996 and certain other statutory provisions, for example health and safety dismissals, dismissal for asserting a statutory right or because the employee made a protected disclosure under the whistleblowing legislation.
Tip 4 – Hold meaningful consultations with affected employees:
Employers must consult with affected employees before finalising any redundancies. If genuine and meaningful consultations are not held before making redundancies, employees could have a claim for unfair dismissal.
During the consultations, employers should discuss various details about the redundancy including the changes that are needed and the criteria for selecting employees. Employers should genuinely engage with employees and listen to and consider any suggestions put forward by the employee. It is important to remember that consultation is a two-way process not merely a box checking exercise to put across the employer’s position and justify a decision that has already been made.
Where 20 or more employees are to be made redundant over a period of 90 days or less, employers must consult with the employee’s representatives and notify the Secretary of State. Please find the link to our checklist for more information.
Tip 5 – Calculate redundancy pay and contractual entitlements correctly:
An employee who has at least two years’ continuous service is entitled to a statutory redundancy payment in addition to any contractual enhancement and other contractual benefits that the employer may have provided for in the contract.
We would advise employers to check employment contracts for any contractual rights to enhanced redundancy pay, payment of bonuses, commission etc. We would also advise employers to ensure that the calculations for statutory redundancy pay and other entitlements are done correctly at an early stage to minimise the risk of a dispute arising. To check the statutory redundancy entitlement, a calculator is available at https://www.gov.uk/calculate-employee-redundancy-pay
It is important to note that some employees have an implied entitlement to receive more than a statutory redundancy payment as a result of established custom and practice of making enhanced redundancy payments being consistently followed within either their employer’s business or the wider industry in which it operates.
It is not uncommon for employers when making enhanced redundancy payments above statutory and contractual entitlements, to require the redundant employees to sign settlement agreements waiving their right to bring any further claims against the employer. The settlement agreement must fulfil a number of statutory criteria and the employee must have received independent legal advice on it. Employers commonly pay for (or make a contribution towards) the cost of the advice.
Tip 6 – Give the correct notice of dismissal:
Once employees have been selected and consulted, employers should give notice of redundancy. Employers should check for minimum statutory notice periods that must be given and note that whilst some contracts may have longer notice periods, an employer cannot give less than the statutory minimum. For example, an employee who has 8 years’ service and the right to 4 weeks’ notice in the employment contract, will be entitled to 8 weeks’ notice.
The employer may choose to make a payment in lieu of notice (PILON) under the provisions of the employment contract. Where such a provision does not exist, a payment made in this way would be a breach of contract and may have implications on the amount due to the employee and the enforceability of any restrictive covenants. Employers should seek legal advice where necessary in relation to making a PILON.
DISCLAIMER: The checklist and the content of this article has been prepared for informational purposes only. The content does not constitute legal advice, nor does it give rise to a solicitor/client relationship. Specialist legal advice should be taken in relation to specific circumstances.
If you do require specific assistance in relation to the above issues or any other employment related matters, please contact our specialist team here at Lennons.
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