As your business grows and you take on more employees to support that growth, there are inevitably going to be some challenges that arise along the way. There’s often no linear path to growth – you may be hiring tens of employees one quarter and the next, a shift in the market may mean that you need to make some employees redundant.
Whatever stage of growth your business is currently at, it is sensible to familiarise yourself with current redundancy procedures to make sure you comply with employment law and take the best possible course of action for your business. Use our below redundancy advice specifically for employers to familiarise yourself with the law and find answers to questions you may be asking yourself currently.
What does redundancy encompass?
There are several situations in which a redundancy or redundancies may arise. An employee may be dismissed by reason of redundancy due to the following scenarios:
- Business closure – If you cease or intend to cease to continue with the business.
- Workplace closure – If you cease or intend to cease to continue with the business in a particular location where the employee was employed.
- Reduced requirement for employees – If you have a reduced requirement for employees to continue with work of a particular kind or at a particular location.
Why might you be considering redundancies?
There are many hypothetical reasons why you may be considering making redundancies. These could include:
- Economic strain such as recession, leaving you with no choice but to make redundancies and potentially business closures.
- Changes to your products or services that no longer warrant the staff you currently employ.
- Relocating your business or business locations so that the commute is no longer viable for current employees.
- Developments in technology resulting in a change in current need for staff.
- Internal restructuring of your staff to streamline roles and duties and become more efficient.
It’s worth noting that the reasons for which you might make redundancies is down to you and the choices you make for your business. Employment law will not interfere with the decisions you make regarding your business and the reasons why you might make redundancies, as long as the redundancy is the real (or principal) reason for the dismissal and you act reasonably in carrying out that dismissal.
Collective consultation procedure and what it entails
If you find yourself in the situation that you will need to make 20 or more employees redundant over 90 days or less, you will need to comply with the Trade Union and Labour Relations (Consolidation) Act 1992. This requires you to take the following steps:
- In the absence of a recognised trade union, you must consult with existing employee representatives or elect employee representatives for this purpose. Consultation periods should begin in good time. Keep in mind that if you are making less than 100 redundancies the consultation period is 30 days. But if you’re making 100 or more employees redundant you will have a consultation period of 45 days.
- You must also notify the secretary of state for Business, Energy and Industrial Strategy (BEIS) of the redundancies. Using the HR1 form, you must notify the secretary of state at least 45 days before the first dismissal when making 100 or more employees redundant. Where you’re making less than 100 employees redundant you will have 30 days. Failure to notify the secretary of state is a criminal offence so advice should be sought where necessary.
- You must consult on avoiding employee dismissals. You must go further than simply announcing employee dismissals. Instead you should carry out a meaningful consultation process with a view to reach an agreement on how to avoid employee dismissals or to reduce the numbers of employees to be made redundant. Part of a meaningful consultation should include considering alternatives to redundancies such as part time roles, job shares, flexible working etc. It would normally also include consultation on the method of selection for redundancy, including any selection criteria. It is also advisable that you consider the subject of pooling (i.e. from what group or groups of employees will be redundancies be made) very early in the process and be in a position to demonstrate the rationale for your decision making.
- You must provide employee representatives with the relevant information. You should inform the trade union or elected employee representatives of the following information as part of the consultation:
- Reasons for the employee dismissals
- The number and description of employees you intend to dismiss
- The total number of people employed at the business
- The selection criteria you will be using to choose employees for dismissal
- How you propose to undertake the dismissals, accounting for any pre-agreed procedures and the period over which the consultation will take place
- How you propose to calculate the amount of any relevant redundancy payments (over and above the statutory payment)
- Suitable information about use of agency workers
Bear in mind that a breach of duty to consult could entitle any employee affected by the failure to compensation (a protective award) of up to 90 days gross pay per employee affected. Unlike claims for unfair dismissal, there is no minimum service requirement for entitlement to a protective award. If you fail to notify the secretary of state within the required time period you could be fined.
If, due to “special circumstances”, it is not reasonably practicable for you to provide the relevant information in the specified consultation period set out by the legislation then you may not be able to comply with your duty. However, “special circumstances” are defined narrowly and will only apply to such instances as sudden and unexpected disaster, whether financial or physical, meaning that the business is no longer able to comply. Even in such circumstances, you must still be seen to be taking reasonable steps towards compliances as is reasonably practicable.
This area of law is complex, and there are many hazards for the unwary, we would therefore recommend you take legal advice before embarking on any collective consultation process.
Considering alternatives to redundancies
Depending on your circumstances, finding alternatives to redundancies could help you maintain the status quo or slowly build your business back up. As part of collective consultation, you will need to consider all your options to help you avoid making redundancies or to reduce the number of redundancies made, so by taking the time to consider all your options, you may provide your business with a new route that you hadn’t previously considered. Think about the following alternatives to making redundancies and whether they could benefit you and your staff in the long run:
- Temporarily suspend all recruitment
- Reduce or remove any opportunities for overtime
- Don’t renew contracts with third-party providers or contractors
- Reduce or stop the use of agency workers
- Offer your employees who will be made redundant alternative roles if available
- Offer your employees voluntary redundancy
- Offer your employees early retirement under the pension scheme
- Reduce your employees’ hours or ask them to consider working part time temporarily
- Temporarily lay off employees (but keep in mind that this could mean that the employee is entitled to a redundancy payment)
What about individual consultation with the effected employees?
Collective consultation should never be a substitute for consulting with employees individually. Even when you will need to consult with a trade union representative or other employee representatives, this should never take the place of individual consultation. However, once the initial notification has been made to the elected representatives, individual and collective consultation can be run in tandem. Consulting with employees individually makes it easier for you to ensure that a fair redundancy process is being carried out, reducing the risk of unfair dismissal claims being made.
Individual consultation with employees should include discussions about the reasons for the redundancies, how employees will be selected for redundancy, and the possibility of any alternative employment opportunities for affected employees. It is advisable to have an agreed procedure in place for individual consultation with employees to take place, whether that is after the collection consultation procedure has been carried out or concurrently with it.
What are the potential implications of the getting the consultation procedure wrong?
The main implication of not correctly following collective consultation procedure is a claim for a protective award. A failure to consult individually is likely to result in unfair dismissal claims. This could cause more financial strain and unnecessary stress in what could already be a rather challenging time, so it’s important to follow procedure carefully and reduce the risk of such claims wherever possible.
Keep in mind that an employment tribunal will use the following criteria to determine whether a redundancy dismissal is unfair:
- You should give as much notice as possible of redundancies.
- You should consult with employee (and if necessary) employee or trade union representatives as to how the outcome can be reached as fairly as possible and with minimum hardship to employees.
- You should agree the selection criteria for redundancies with the trade union so that it’s clear as to which employees will be affected.
- When employees have been selected for redundancy, you should, along with employee and trade union representatives agree that the selection has been made in accordance with non-discriminatory selection criteria.
By taking these steps, you will reduce the risk of the consultation process and the redundancies having a bigger impact on the business than it should.
What do you need to know about redundancy payments?
Employees are eligible for statutory redundancy pay (under section 135 of the Employment Rights Act 1996) when they have at least two years of continuous employment when being made redundant. Statutory redundancy payments are calculated based on the employee’s age, their length of service (up to a maximum of 20 years) at the company, and their pay. The formula for calculating statutory redundancy payments is detailed in section 162 of the ERA 1996.
In the case of your inability to provide a redundancy payment to an employee (e.g. if the company is insolvent), employees may make an application to the secretary of state for a redundancy payment from the National Insurance Fund, under section 166 of the ERA 1996.
Depending on the details of their employment contract, the employee may also be entitled to a contractual redundancy payment. This entitlement could either be explicitly expressed or implied. If the employee’s contract clearly expresses a redundancy policy, then this should be followed if the employee is affected by redundancy. It is not uncommon for a redundancy policy to be detailed in another document such as a handbook (or collective agreement if you have inherited public sector or employees from large organisations) which is referred to in their contract of employment. In any case, this means that the policy should be followed when required.
Redundancy terms may be implied into an employment contract in certain trades or industries or by an employer where this is customary. For the employee to show that an enhanced redundancy policy is implied, they must be able to show that the custom and practice in question is “reasonable, notorious, and certain”. This means that the terms must be fair, established and well known, and clear. The law around implied terms is complex. It is recommended that you take advice where implied redundancy terms are in play.
If you operate an enhanced redundancy policy for your employees, you should make sure that this will not leave you vulnerable to claims for discrimination. Most commonly in the case of redundancies, age discrimination claims are made, so make sure that you follow all procedures in relation to selection criteria of employees and calculating pay.
By getting solid advice from an experienced employment solicitor you will be able to navigate a consultation process without the need for employees to make claims of unfair dismissal. Likewise, having clear redundancy policies and procedures in place for this kind of scenario, can assist in making somewhat difficult but necessary decisions to help your business continue to succeed.