This blog provides an overview of the procedure to be followed when making employees redundant and explains the decisions to be made on choosing the pool of employees, selection criteria and the consultation process. It is not intended to be a comprehensive description of all the law relating to redundancy. If you need legal advice on a redundancy process, please contact us to arrange a consultation.
Our blog does not deal with the specific legal obligations that arise when 20 or more employees are made redundant in a specific time period. If you are making more than 20 employees redundant, separate procedures may apply. Please get in touch with us and we can provide you with specific advice on this.
What is a redundancy?
A dismissal by reason of redundancy arises when an employee is dismissed because of:
- Actual or intended closure of the whole Company;
- Actual or intended closure of the Company at a particular workplace (i.e. a particular branch); and/or
- A reduction in the need for employees to carry out work of a particular kind.
With regard to the reduction in need for employees, there can be a fine line between a redundancy situation and a re-structure where (usually) there is a redistribution of work, but the overall number of employees does not change.
When is a redundancy an unfair dismissal?
Redundancy is a potentially fair reason for dismissal. However, the dismissal itself (and the procedure leading up to it) must still be fair and reasonable in all the circumstances otherwise employers run the risk of an unfair dismissal claim being brought against them.
Ways to ensure a redundancy process is fair.
In order to show that the redundancy process is fair and reasonable, an employer must show the following:
- There is a genuine redundancy situation – see the above reasons for a genuine redundancy situation.
- Establish how many redundancies are being proposed (i.e. how many employees will be ‘at risk’).
· If more than 20 employees are facing redundancy in a 90 day period, then the collective consultation obligations will come into play and it will be necessary to notify the Secretary of State of the proposed redundancies (this is a basic summary for the purpose of this blog).
· If less than 20 redundancies are being proposed it will still be necessary to follow a fair procedure for each employee ‘at risk’.
- Ensure that they plan in advance.
· They must plan how the selection and consultation process will take place. Any managers who will be involved must ensure they know the employers’ legal obligations. Further the employees will need to have been given advance warning that they are at risk and also any meetings.
- The employees concerned have been consulted individually about ways to avoid and/or mitigate the effects of the potential redundancy;
- The appropriate pools of employees have been decided (please see below for more information);
- Selection for redundancy has been made against a set of fair and objective criteria (please see below for more information);
- A list of alternative vacancies has been put together and alternative employment has been offered if possible; and
- A fair process has been followed including (as a minimum) the employee being advised in writing that they are at risk, a meeting being held between the employee and employer to discuss alternatives to redundancy, the employee has been pooled and a fair and objective criteria applied. If the employee is made redundant, they should be given the right to appeal against the decision and a further appeal meeting should be held if necessary.
It must be noted that a redundancy where the employee is selected for certain reasons (e.g. most commonly, reasons related to a pregnancy/taking maternity leave and asserting certain statutory rights) will always be unfair.
Employers should also be mindful that it is of course possible for employees to argue that there is not a genuine redundancy situation and/or that the procedure is effectively a sham.
Redundancy is usually a no-fault dismissal, i.e. the business situation causes the employees to be made redundant, rather than capability or conduct issues causing the dismissal. Tribunals are aware however of employers dismissing for other reasons and labelling it as “redundancy” for example where they cannot find another fair reason to dismiss, and such dismissals are likely to be found to be unfair.
Pool for selection
When facing the possibility of redundancies an employer must decide where the redundancies need to be made. This involves identifying which categories of staff the redundancies should be made from. This is known as the selection pool. There are no fixed rules about how the pool should be defined and unless there is a collectively agreed or customary selection pool, employers have flexibility in this aspect.
The employer needs to be able to show that the system for choosing the pool is fair. If they cannot show this, then the redundancies could lead to claims for unfair dismissal.
Who should be in the pool?
If the employee is in a unique position then there will be no need to have a pool of selection. If there are employees doing the same or similar jobs, then the pool should contain those employees otherwise employers run the risk of employees arguing that the pool should have been wider. Care should be taken not to structure the pool so that one class of employees (e.g. women) is disadvantaged.
When selecting the pools employers should have regard to the following:
- What type of work is ceasing or diminishing?
- Whether other employees are doing similar work (possibly even those at other locations).
- Whether the employees’ jobs are interchangeable.
- Whether they have “genuinely applied” their mind to the pools structure.
- Whether the selection pool was agreed with a union or employee representatives.
Even if an employee is in a unique position (i.e. there is a pool of one) the employer needs to ensure they follow a full and fair consultation process with that individual. This will include discussing any suitable alternative roles and ways to avoid the redundancy.
Selecting which employees in the pool are to be made redundant
Once the pool has been identified, the employer needs to be able to rank the employees using fair and (so far as possible) objective selection criteria. After scoring and ranking the individuals, the employer will be able to identify the low scoring employees as potentially redundant.
Potentially fair criteria
If criteria has been agreed in advance with a union or employee representative body, then these should be used. If there are no agreed criteria it is on the employer to choose a fair and objective criteria.
Objective criteria commonly include a selection of the following criteria :
- An Employees Performance and ability- these must be assessed objectively and the criteria applicable should be clearly defined;
- Skills, qualifications and knowledge – again these must be assessed objectively.
- Length of service – note that anyone with over two years’ service has the requisite service to bring an unfair dismissal claim. However, take care this this criteria as it can risk indirect age discrimination if it is the deciding criteria in an otherwise tiebreaker scenario. We’d recommend speaking to us to take legal advice on the choice of selection criteria.
- Disciplinary record – HR records should be used as evidence of this.
Potential criteria that employers can use but should be cautious about are:
- Last In First out– this was popular in the past, but is becoming less so as it can be damaging to the employer’s skills base. There is also the possibility that this is indirectly discriminatory against women who have recently returned to work after raising a family or on the grounds of age.
- Attendance records/sickness absence – it is not a good idea for this to hold too much weight, as the reasons behind an employee’s absence can vary. Any absence owing to a disability or maternity leave should be discounted so as not to fall foul of the law surrounding discrimination.
A Tribunal will usually accept more subjective criteria provided they are balance with objective ones and justifiable. Examples may include an “employees’ trajectory or future potential”. If used, the employer should be able to provide evidence in support of the scoring given.
The application of the criteria must be fair. A point scoring method is therefore commonly used to achieve this, and some criteria will often hold more weight than others. It is permissible to weight criteria as the needs of the business dictate, but employers should be able to justify such weightings given.
Consultation is always required no matter how many people are being made redundant. If there is a recognised union or employee representative body, it is advisable to consult at this level even if less than 20 employees are being made redundant. Employers will need to hold individual consultations with employees. At individual consultation meetings, you should always offer employees the opportunity to be accompanied by a colleague or a trade union representative.
There are specific requirements in respect of collective consultation when more than 20 employees are being made redundant, as mentioned above. However, almost always the employer must still consult with those employees on an individual basis, as otherwise the dismissal will be found to be unfair.
When should consultation take place?
In order for the redundancy process to be fair, consultation should begin as soon as possible before the decision to make anyone redundant has been made. The process of consultation should continue throughout the process until the dismissals (i.e. the redundancy) take effect. At all stages consultation should be fair and genuine and employees should have the opportunity to express their views and put forward proposals for avoiding redundancy. The employer needs to be able to show that it took any proposals or suggestions put forward by the employee/s seriously and has taken them into consideration.
What should consultation be about?
Once it becomes clear that redundancies may be required, the employer should consider possible ways of avoiding redundancies such as reducing overtime, pausing recruitment and asking for voluntary redundancies. It may be possible to reduce or alleviate the needs of compulsory redundancies by these methods, but sometimes it is inevitable.
The employer should give employees as much advance warning as possible to allow them to assess their position in the Company and, if necessary, look for alternative employment.
If redundancies are inevitable, employers should then consult with employees about alternative options, why their positions should not be made redundant, the pool for selection, the selection criteria that will be applied and the method of application to establish who will be made redundant. Once consultation over these issues is complete and no agreement has been reached, the process of selection can go ahead.
If a number of employees are being scored, due care must be taken in the scoring process with reference to the employee’s records.
If no agreement is reached after scoring, it will be for the employer to decide upon a fair and reasonable approach. It is therefore a good idea to have 2 scores taken by different managers so that an average score can be taken. This helps avoid arguments of bias. In any situation where an employee has been marked against a selection criteria, employees should have an opportunity to put forward representations on their scores to challenge this before any decision is made.
If it is the case that there are no alternatives, and an employee has been selected for redundancy employers should confirm this with the employee and give them formal notice of their dismissal.
One formal notice has been served, employees will have the right to take time off to seek alternative employment and employers should explain this to them.
Employers should follow the redundancy confirmation in writing essentially confirming their dismissal. In the dismissal letter employers should confirm the termination date, the redundancy payment to be paid to the employee including the calculation of this, as well as their notice period and the treatment of such (i.e. if they are expected to work this). Employers should also make the employee aware of their right to appeal the decision and remind them of their right to take time off to look for alternative employment if you are expecting them to work their notice.
Right to appeal
All employees have the right to appeal against the decision to be dismissed for redundancy. The employer should make sure the employee is advised of this at the same time as the employee is given notice of their dismissal. The appeal should be addressed to someone more senior than the dismissing officer and someone who has not been involved in the redundancy process (wherever possible). If the employee wishes to appeal, the employer should arrange an appeal meeting to discuss this. Again, the employee should be invited to be accompanied to the appeal meeting. After the meeting, even if the employer does not think redundancy can be avoided, they should ensure that the employee’s points are considered properly. The employer should then write to the employee with the outcome of the appeal and confirm that the outcome is final.
At each meeting, the employer should take contemporaneous notes (or ensure a note taker is present). You should also send a copy of the notes to the employee to confirm that they agree their accuracy. This is so that, if a claim is later brought for unfair dismissal, it is possible to demonstrate the procedure followed. You can record the meeting, provided that everyone in attendance is happy for a recording to take place. A copy of the recording should be sent to the employee.
When is an employee entitled to a redundancy payment?
To be entitled to a redundancy payment, an employee must have been working for the employer for at least 2 years. Where suitable alternative employment is accepted, there will be no redundancy pay due. This does not just mean a role that the employer considers the alternative is “suitable” so employers should take legal advice before refusing to pay redundancy pay.
Statutory Redundancy Pay
Statutory redundancy pay is calculated with reference to :-
- Length of service;
- Weekly pay, which is currently (Jan 2024) capped at £643 but usually increases every April.
The Redundancy Pay Formula
- For each complete year of continuous service between the age of 18 and 21, an employee will receive half a week’s pay;
- For each complete year of continuous service between the age of 22 and 40, an employee will receive one week’s pay;
- For each complete year of continuous service above 40, an employee will receive one and a half week’s pay subject to an overall maximum of 20 years.
An employer may also have an enhanced redundancy pay policy and therefore reference should be made to all policies in place to ensure the correct payments are made.
Redundancy Procedure: points to note.
There is no set procedure which must be followed in every circumstance, and it is best to seek legal advice on the exact procedures to follow in each situation. The following are some general points to note:
- There should, wherever possible, be a warning stage before the decision to go ahead with the redundancies is made. During this stage consultation can go ahead to discuss proposals from the employees to avoid the redundancies.
- Once employees have been provisionally selected for redundancy (i.e. they are in the pool), they should be invited to an individual meeting and informed of this. During this meeting the employee should be given an opportunity to have the selection process explained to them. Where scoring criteria is being used, employees should be consulted on the proposed criteria before scoring commences.
- Consideration of any alternative employment available can begin during the consultation period, provided it is clear that no decision has yet been made to make that employee redundant.
- When looking at alternatives, do not assume an employee will not take a lower paid/status job. You must offer the job if the employee is capable of doing it. This can even mean removing someone out of their job (a process named bumping) and the employer may consider this option but there is no obligation to do so.
- The employee will be entitled to a statutory trial period of four weeks in an alternative role. Any offers of alternative employment should be made before the termination of the employee’s redundancy position and should start not less than four weeks after the previous position terminates. There is scope for the four weeks to be extended and we would recommend taking legal advice from us.
- If an employee is to be made redundant, employers should provide them with paid time off to allow them to search for new roles, attend job interviews or arrange to retain in a new skill.
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