Employers must ensure that they deal with redundancies appropriately. This guide will explore some of the key points which an employer in Great Britain must consider in terms of its approach to the issue of redundancy. The guide will also explain why taking the correct approach to redundancies is important.
Within an employment context, the word 'redundancy' is used to describe the situation whereby an employer dismisses an employee (in other words the employer terminates an employee's contract of employment) because the employee's role is no longer required. The term redundancy has a specific legal definition. The dismissal of an employee will fall under the legal definition of redundancy where the dismissal is entirely or mainly due to the employer:
When an employer is making a dismissal by reason of redundancy, it must ensure that the redundancy falls within scope of the legal definition.
Even where a redundancy situation is not currently contemplated by an employer as an imminent possibility, there are still steps which can be taken to assist in the management of a future redundancy situation. It is for this reason that many employers choose to hold a policy document. Although policy documents do not tend to form part of an employee's contract of employment, a formal redundancy policy document can be useful in order to:
Given that it is vital for an employer to ensure that its redundancy process is fair and that it does not unlawfully discriminate against employees during any redundancy situation, an employer may also wish to consider creating an equal opportunities policy in order to address this matter specifically and in detail.
In the event that an employer believes employee redundancies may be necessary, there are a number of factors which the employer should consider. The most significant of those factors are set out below.
Where an employer is considering making staff redundancies, the first factor to consider is whether such redundancies are necessary or whether they may be avoided. A redundancy must fall within the legal definition (as described above) and redundancies should therefore only be made when those circumstances apply.
An employer should also thoroughly explore all possible alternatives to redundancies. For example, an employer may consider:
An employer may conclude that employee redundancies cannot be avoided. An employer should then plan how it will deal with the redundancy process, taking into account any redundancy policy it holds or any agreement it may have with a trade union. In particular, the employer should identify specific details of its redundancy proposals with regards to the quantity, the timeframes and the selection criteria which will be used. The employer should ensure that the following steps are then considered and applied where applicable:
(1) Informing employees
In all redundancy situations, employees should be informed by the employer that it is considering making employee redundancies. All affected employees should be met with so that the relevant information about the redundancies can be explained to them. This information will include the reasoning behind the redundancy proposals, the number of redundancies which are proposed and an outline of the next steps.
It is important to note that affected employees are not just those who are at risk of redundancy, but also those members of staff who may be affected in any way by the redundancies. Those employees who are at risk of redundancy should also receive written information to inform them of this position, together with a written outline of the redundancy plan.
(2) Individual and group consultations
All employees who may be affected by a compulsory redundancy should be consulted. This process will involve meetings to allow for a discussion with the relevant employees. This may take place in a group setting but at least one individual (private) meeting should take place with each affected employee. This process should take place whilst redundancy proposals are still in the formative stage (i.e before any final redundancy decisions have been made).
The process will provide affected employees with the opportunity to comment upon the redundancy proposals generally and to voice any concerns they may have in respect of the particular features of the proposals. Any comments and concerns made by employees should be considered and taken into account by the employer.
(3) Collective consultations
Where an employer is intending to make 20 or more redundancies within any 90 day period, a collective consultation must take place. A collective consultation will involve discussions with 'appropriate representatives'. Appropriate representatives will be either be the relevant trade union (where the affected employees are members of a recognised trade union) or elected employee representatives where no recognised trade union is applicable. An election process may therefore be required to allow employees to vote for a representative who will represent the affected members of staff.
The consultation will allow for a dialogue to take place between the appropriate representatives and the employer in order to consider a number of factors, including how:
In a situation where the employer is proposing that the number of employees who will be made redundant over a period of 90 days or less is between 20 and 99, it must commence the collective consultation process no less than 30 days prior to the date upon which the first proposed redundancy takes effect. In those circumstances, the employer must also inform the Secretary of State in writing of the proposals no less than 30 days prior to the date upon which the first proposed redundancy takes effect.
In a situation where the employer is proposing that 100 or more employees shall be made redundant over a period of 90 days or less, it must commence the collective consultation process no less than 45 days prior to the date upon which the first proposed redundancy takes effect. In those circumstances, the employer must also inform the Secretary of State in writing of the proposals no less than 45 days prior to the date upon which the first proposed redundancy takes effect.
(4) Making fair selections
The employer will have made clear the method by which it proposes to make the redundancy selections throughout the above processes. When making the final selections, it is important that the criteria used is fair and objective. The criteria should be applied to the employees in a factual manner, and should not be opinion based. The application of the criteria should be applied consistently throughout the selection process.
The selection process must not be discriminatory in any way. More details about particular types of discrimination and the characteristics which are specifically protected by law can be found on the government website.
Once the consultation and selection process have been properly carried out, the employer should meet with each employee who was informed that they had been at risk of redundancy, in order to confirm the outcome of the selection process. Employees should be permitted to be accompanied to the meeting should they so wish.
For those employees who have been selected for redundancy, they must also be informed in writing of the redundancy decision through a redundancy notice (which takes the form of a letter). Such a notice will include important information such the employee's score in reference to the scoring criteria and the details of any redundancy pay to which the employee may be entitled. Furthermore, the notice will serve the purpose of providing proper notice to the employee to terminate their contract of employment.
There are two types of redundancy pay which an employee may be entitled to receive from the employer; statutory redundancy pay and contractual redundancy pay. An employer may also choose to offer an enhanced payment.
(1) Statutory redundancy pay
Statutory redundancy pay is the legal minimum amount which eligible employees must receive if they are made redundant. Employees with at least two years' continuous service will be eligible for statutory redundancy pay. Statutory redundancy pay is calculated with reference to an employee's gross weekly salary (up to a limit of £571), length of service (the most that can be taken into account is 20 years) and age. The maximum amount of statutory redundancy pay which an employee can receive is currently £17,130.
(2) Contractual redundancy pay
An employee may also be entitled to contractual redundancy pay if their contract of employment expressly states that this is the case. The contract may set out the contractual redundancy pay policy, or it may refer to another document or agreement. It is also possible for an employee to have an implied contractual entitlement to redundancy pay, where certain terms of redundancy pay are applied by a particular trade, industry or employer.
(3) Enhanced redundancy pay
An employer may choose to offer an enhanced redundancy payment, sometimes referred to as an 'ex gratia' payment, even where there is no contractual obligation to make a redundancy payment. This decision may arise in circumstances where the employer believes this is commercially beneficial, amongst other case specific reasons.
It is best practice to offer an employee the opportunity to appeal a redundancy decision in the event that they feel it is an unfair decision. Any appeal process will ordinarily be set out within a contractual or policy document, or within the redundancy notice itself.
Where an employee of no less than two years' continuous service has been given notice dismissal by reason of redundancy, they will be entitled to a reasonable amount of time off whilst they remain in employment with the employer in order to look for another job, or to carry out any training for future employment. The employer must pay at least two-fifths of a week's pay for any such time off (and the remainder may be unpaid).
An employer should also consider any additional support it may be able to offer to any employees who are at risk of, or have been selected for, redundancy. For example, the employer may offer support groups or signposting services in order to support employees through the process.
Although there is no overarching statutory procedure which covers the specific steps which must be taken during redundancy dismissals, there are still certain processes and factors which must be addressed by employers throughout a redundancy situation. Some of the key factors have been highlighted above.
An employee of not less than two years continuous employment has the legal right not to be unfairly dismissed by their employer. This legal right can cover the situation of an unfair redundancy dismissal. Furthermore, employees of any length of service have this right where a redundancy dismissal is made on certain grounds which are deemed to be automatically unfair (such as whistleblowing or pregnancy). Where an employee has been treated unfairly during the redundancy process because they have one or more of the protected characteristics, it will amount to discrimination.
Where a redundancy dismissal is found to be unfair by an employment tribunal, an employer will usually be required to pay to the employee sums to compensate the employee for financial losses. This type of compensation is divided into two categories:
(1) Basic award
The basic award is calculated in reference to the employee's length of service, age, weekly pay and any statutory redundancy pay received by the employee. The maximum amount which an employer may be required to pay to an employee as a basic award is currently £17,130.
(2) Compensatory award
The purpose of a compensatory award is to compensate the employee for the financial loss suffered as a result of being unfairly dismissed from their job. This includes previous losses and reasonable future losses. The maximum amount which an employer may be required to pay to an employee as a compensatory award is currently £93,878.
In some circumstances, when considering an unfair redundancy dismissal claim, an employment tribunal may order that an employee should be reinstated in their role.
Discrimination claims do not have a limit in terms of the amount of compensation (the award which covers financial losses of the employee) which may be awarded. In some cases, an employee may make a claim in respect of both unfair dismissal and discrimination. An employment tribunal cannot award the same compensation for the same financial loss twice. It may however order an additional award for discrimination (in cases where the financial losses exceed the compensation limit for unfair dismissal) or alternatively it may make the entire award by reason of discrimination, meaning that there there will be no limit.
Unlike unfair dismissal claims, an employer may also be required to pay an 'injury to feelings' award to an employee where there has been a finding of discrimination. An injury to feelings award is designed to compensate the employee for the negative impact the discrimination had upon the their emotional wellbeing. These types of awards are divided into three bands:
(1) The lower band
For less serious or minor cases, the tribunal can currently award between £990 to £9,900 under this band.
(2) The middle band
For serious cases which do not fall within the upper band, the tribunal can currently award between £9,900 to £29,600 under this band. This could include a less serious case of discrimination, but one which led to the loss of a job.
(3) Upper band
For the most serious cases of discrimination, the tribunal can award between £29,600 to £49,300 under this band. Exceptional cases are capable of exceeding £49,300.
As we have discussed above, where an employer is making more than 20 redundancies, it is required to carry out a collective consultation process and it is also required to notify the Secretary of State. An employer may:
(1) be required to pay a protective award to an employee of up to 90 days' gross pay for any failure to inform and consult; and
(2) be held criminally liable for any failure to consult the Secretary of State of a collective redundancy. The financial penalty for such an offence is a fine which may be for an unlimited amount.
Notwithstanding the above legal factors, any failure of an employer to deal with redundancies properly and fairly may have a negative impact upon affected employees and may also damage overall workforce productivity/morale. Furthermore, the majority of employment tribunals are held in a public format. Where an employer has been found to have unfairly dismissed an employee or has been found to have been discriminatory, there is a risk that it will receive negative publicity. This in turn may have an adverse impact upon the business as a whole.