Redundancy Processes for Employers

Redundancy is one of five statutory fair reasons for dismissing employees and is used most often when a business is going through a difficult time. Affected employees are usually entitled to a statutory payment and they may be able to challenge the termination of their employment if a fair process is not followed.

Employers making redundancies should always bear in mind that a number of steps need to be taken throughout the process to avoid claims for unfair or wrongful dismissal. We would always recommend seeking legal advice for your specific situation, however we have set out a summary below to highlight some of the key considerations:

Identifying a redundancy situation

Firstly, a genuine redundancy situation must be identified, so reason for making the redundancy must be ‘wholly or mainly attributed’ to one of three situations:

  1. A complete closure of the business;
  2. A closure of a particular office or workplace; or
  3. where there is a reduced requirement for work of a particular kind in a particular location

If the situation does not fit within these scenarios, then specific advice should be sought to consider the next steps.

Identifying and informing employees at risk

Should a genuine redundancy situation be identified, the employer will then need to consider carefully the number of employees affected and identify ’selection pools’ of employees carrying out the same or similar roles.

As soon as an employer identifies that there is a risk of redundancies, it should communicate this to the affected employees.

Consultation

Where 20 or more employees are being made redundant over a period of 90 days or less, special rules apply and the Secretary of State must be notified. You must hold both collective and individual consultations, as well as consulting with trade union representatives. If there is no trade union, you must consult with elected employee representatives.

An employment tribunal can award up to 90 days’ pay in respect of each employee where there has been a breach of these collective consultation duties.

Where fewer redundancies are proposed, the employer should consult with the individuals affected through a series of consultation meetings. It is important to use this process to put forward any ideas or suggestions of ways to avoid redundancies, such as reduced hours or pay cuts.

Selection for redundancy

Objective and fair selection criteria should be used to identify the employees provisionally selected for redundancy. Examples of appropriate criteria may be the standard of work, skills, qualification, experience, attendance and disciplinary records. It is key to keep good records to justify the decisions made.

Employers need to be aware of potential discrimination issues. For example, employees can not be selected for redundancy because of a particular “protected characteristic”, such as their age or sex or because they work part-time. The Equality Act 2010 provides protection in relation to protected characteristics and further details can be found here.

Confirming the decision

If no alternative to redundancy can be found during the consultation, the employer will need to communicate this decision through a final meeting and in writing. The employee also has  the right to appeal the decision made.

Redundant employees are entitled to:

Notice pay

Notice must be given of the leaving date, which is subject to the employment contract and the statutory minimum requirements based on length of service:

The employer can also offer an immediate date with payment in lieu of notice or garden leave, but the right to this should be included in the contract or agreed.

Statutory redundancy pay

Where an employee has worked for an employer for at least two continuous years, they will be entitled to statutory redundancy pay calculated at the following rate:

One week’s pay is subject to a cap which is currently set at £544 (April 2021).

You can use the statutory redundancy pay calculator available on the gov.uk website here.

Employers also need to consider whether any contractual redundancy entitlements apply.

The Government has announced that from 31 July 2020 employees on furlough will be entitled to receive redundancy payments at a rate of 100% of their normal pay, rather than at their reduced furlough rate. You can find the new rules here and care will need to be taken to ensure the most up to date rules are applied.

Accrued but untaken holiday pay

Employees are entitled to be paid in lieu of any accrued but untaken holiday outstanding as at the date their employment ends.

Alternatives to redundancy

Redundancy is an unpleasant situation for all involved, and in order for a redundancy to be fair and genuine, all reasonable alternatives have to be considered. Employers can consider the following:

Alternative employment

If the employer is looking to fill a role that may be suitable for an employee being made redundant, it should be offered to the employee at risk as an alternative to redundancy. This offer needs to be in writing, made before their contract is terminated, different to the job they are currently operating, and start within four weeks of the previous job ending.

Voluntary redundancy

Employers can ask employees to put themselves forward for redundancy before the selection process. You should follow any company voluntary redundancy procedure, and it is best practice to ask for requests in writing. Volunteering employees will only be made redundant if this is agreed, so crucial and highly experienced employees can be kept on even if they have volunteered.

Settlement agreements

Employers can also encourage voluntary redundancies by offering settlement agreements, in which enhanced redundancy pay could be offered. Find out more here.

Lay-offs and short-time working

If an employee’s contract allows, employees can be temporarily ‘laid-off’ and asked to stay at home, or given short-time working, if there is not enough paid work for them to do. This would have to be agreed with staff before actioned, either within their employment contract or collectively agreed with the trade union.

Employees may be entitled to statutory guarantee payments if they are not provided with a full day’s work during their working hours. Additionally, employees can claim redundancy pay in certain situations.

Furlough

While the CoronaVirus Job retention scheme remains in operation, it will also be important to consider whether this has any impact on the situation or provides any alternative to redundancy.

Advice from a redundancy solicitor

When considering making redundancies and going through the selection process it is important to get advice from a redundancy solicitor. This will help you navigate the process and treat all employees fairly, therefore reducing the risk of any discrimination or unfair dismissal claims. Our solicitors are here to support you and ensure you follow the correct procedures, and look at the best commercial solution with you. You can contact us here.

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