Managing the risk of redundancies

It’s hard to juggle all the necessary demands involved in a redundancy process correctly, especially when you consider the wider context of the pressures that have resulted in having to make reductions in the workforce for the sake of your business in the first place.  It’s even harder when you factor in that you often know, and may work closely with, some of the individuals who are going to lose their jobs.  That’s often why mistakes are made; it’s stressful and can even be emotional for staff, not to mention the disruption caused to those conducting the process, often on top of their day to day roles and, more widely, the consequent negative effect on morale.  That’s why we want to set out how to navigate the challenges of a redundancy process, so that if or when the time comes, you’ll be familiar with the best way to conduct the process and minimise risk.

So, here is our expert guidance on how to avoid the all-too-common mistakes that can lead to unfair dismissal claims arising from redundancy.

 

So, the initial point to clarify is, what is a redundancy? 

It occurs when there is either a:

• Business closure,
• Closure of premises (ie a particular branch or site), or a
• Reduction in numbers of staff.

Once you know your business has to make redundancies for one of these reasons, there is a particular process to be followed to ensure that any resulting dismissals are fair.

 

The first step is therefore to Warn employees…

The employer must give as much warning as possible of impending redundancies so that the representatives (if any) and the affected employees can inform themselves of the facts, consider possible alternatives to redundancies or seek alternative employment.

The warning is usually given at a meeting of all those affected.  Whoever holds the meeting should prepare a script, so that they are sure to be able to summarise WHY, WHEN and HOW the decision will be made.

At such a meeting the employer should inform staff of the following:

• the reasons for redundancy
• the numbers expected to be dismissed
• who is in the pool of employees at risk
• the consultation period
• the process of selection, including the criteria for assessment and the timetable
• the right of appeal
• opportunities for redeployment
• next steps – ie that there will be individual consultation and, possibly, further open meetings

Staff should be given the opportunity to ask questions at that meeting but, obviously, although some employees may try and press you – no indication should be given at this stage as to who will be made redundant, unless it’s obvious i.e. a whole department or workplace is to be closed.

Following this meeting, a letter should be given to individual employees:

• confirming that they are at risk of redundancy
• identifying the options of voluntary redundancy, redeployment and compensation for redundancy
• referring to further meetings to consult on an individual basis (with the right to be accompanied)

 

Consult

Then comes the all-important consultation stage – to me, this is the real heart of the process and is central to any eventual dismissal being deemed to be fair.  Further, from a management point of view, it’s also the human side of the process, involving one-to-one contact and discussion so, done well, it can help the employee to process and accept the situation a bit more easily.  It can also steady the ship more generally, through the provision of information and the process of listening to concerns.

 

Nature of consultation

 Consultation should involve:

• consultation when the proposals are still at a formative stage
• adequate information on which to respond
• adequate time in which to respond
• conscientious consideration of the response to consultation

It is clear that, where there is no consultation on a collective level, the employer is required to consult individually on:

• the individual’s selection for redundancy, and
• whether there are alternatives to redundancy

It must be at a formative stage, in order for the consultation to be ‘genuine and meaningful’  – essentially meaning that an employee or employee representative can still, potentially, influence the outcome. What this means in practice may depend upon the particular circumstances.

Ultimately, a failure to consult may render the dismissal unfair even where fair selection criteria have been applied, as it will mean the employee is unable to discuss certain issues, such as ways of avoiding dismissals.

 

Right to be accompanied

 An employee does not have the statutory right to be accompanied at a redundancy consultation meeting, since such a meeting is not a ‘disciplinary’ meeting.

However, we consider that it may affect the fairness of the dismissal if a reasonable request to be accompanied to a redundancy consultation meeting is refused.

Where the redundancies arise from the closure of the whole business, the process may be truncated as there will usually be a much-reduced need for consultation in relation to selection, opportunities for alternative employment or enhanced redundancy.

Generally, however, during the consultation process there are therefore a few issues that should be considered and addressed.

One such key point is to consider ways of avoiding redundancy.

Indeed, we would recommend that, as a matter of good practice, an employer should always consider ways of avoiding compulsory redundancy, e.g.:

• restricting new recruitment
• voluntary severance
• retraining and transfer to other work
• moving the affected employees to another site
• cost-saving measures such as:
  • short-time working and job sharing
  • reducing overtime
  • wage cuts
  • removing discretionary benefits
  • sabbaticals

Another key issue is to…

 Identify a selection pool. A selection pool is a group of employees from which the employees to be made redundant will be selected.

Where the redundancy dismissals are as a result of the closure of the whole business, all the employees will be dismissed, and a selection pool will not be relevant.  However, where the situation leading to the redundancies involves a reduction of a particular kind of work, a selection pool will be relevant.  The issue for an employer in such circumstances will be whether to include in the pool just those performing the same role, or also those whose skills are interchangeable.

An employer’s preference will usually be to keep the pool as narrow as possible, as this will keep the number of employees affected by the uncertainty of redundancy to a minimum but it’s not always the preferred approach, as it can be an opportunity to remove employees that are not up to par and keep more valuable members of staff who would otherwise be made redundant.

If there is an agreed redundancy procedure as part of a collective agreement, check this for any process to be applied to selecting the pool.

Where an individual is selected to be in the pool, ensure they are given an opportunity to question their inclusion as part of the consultation process. There is no rule that there must be a pool; an employer, if they have good reason for doing so, may consider a single employee for redundancy, i.e. there may be a pool of one.

However, the range of reasonable responses test applies to the employer’s decision as to what is the appropriate pool for selection, i.e. where the employer adopts a pool of one it will be for the tribunal to consider whether it was reasonable for the respondent not to consider a wider pool of employees. When considering whether an employer has used a correct pool of candidates from which those to be made redundant should be selected, the applicable principles are:

• the question of how the pool should be defined is primarily a matter for the employer to determine but the employer must be reasonable in its approach
• there is no legal requirement that a pool should be limited to employees doing the same or similar work unless the relevant categories have been selected by agreement with the union
• conversely, the employer may well be justified in limiting selection to employees holding similar positions
• the tribunal is entitled, if not obliged, to consider with care and scrutinise carefully the reasoning of the employer to determine if they have genuinely applied their mind to the issue of who should be in the pool
• if the employer has genuinely applied their mind to the issue of who should be in the pool, it will be difficult, but not impossible, for an employee to challenge that decision

It follows that, if the employer has selected a pool which is within the range of reasonable responses open to an employer in those circumstances, it will not be open to challenge.

 

Identify fair selection criteria 

If there is an agreed redundancy procedure as part of a collective agreement, the employer should check this for any pre-agreed selection criteria.

Selection criteria should be as objective and measurable as possible. However, not all aspects of employee performance or value lend themselves to objective measurement, and there is no obligation only to use criteria which are capable of objective measurement. ACAS guidance gives the following examples of selection criteria:

• standard of work or performance
• skills, qualification or experience
• attendance record, which must be accurate and not include absences relating to disability, pregnancy or maternity)
• disciplinary record

Other criteria that have been held to be appropriate include:

• efficiency
• skills/qualifications/training
• greater experience in certain particular tasks or on certain machines
• length of service

Use of length of service, or ‘last in, first out’ (LIFO), alone as a selection criterion is now rare, although it is often used a tie-breaker between two employees scoring equally on other criteria.

Generally, the employment tribunal will not substitute its own view of what are fair selection criteria unless the criteria adopted by the employer are ones that no reasonable employer could have adopted.

 

Apply the criteria fairly

The employer should select employees for redundancy fairly and objectively on the basis of the criteria.

A tribunal is likely to be satisfied as long as a reasonable system for selection has been set up and can be shown to have been administered fairly. Detailed analysis of scoring systems is unlikely to be permitted by the tribunal when considering a claim of unfair dismissal. On the other hand, if the employee is able to show the employer has failed to apply a non-judgmental criterion fairly (eg length of service), they may be entitled to disclosure of a number of documents relating to the retained employees and pertaining to all of the criteria.

An employer is entitled to rely on the judgement of the individual manager carrying out the selection process. Their application of the selection criteria will not be subjected to detailed scrutiny by the tribunal, although a glaring inconsistency in the application of the criteria may render the dismissal unfair.

Where two sets of employees are scored by different managers, it may be prudent for the employer to use some form of ‘moderation’ to ensure there is no inconsistency. However, a selection process will be unfair, even though it avoids the application of subjective criteria, if it measures the skills of those in the redundancy pool:

• by subjecting them to an assessment conducted by persons with no previous knowledge of the individuals
• without any reference to their past performance (either by questioning those who had managed them or by looking at their past appraisals)

Individual employees will wish to be consulted on how the selection criteria have been applied and how they scored, both individually and in comparison with other employees. A failure to allow an employee to contest their assessment scores until after the decision to dismiss was taken has been held to render the dismissal unfair.

An employee should usually be provided with a copy of their own assessment. Employees will want to know the scores of the other employees in the pool so that they can see their own scores in context. There is no case which says that an employer is obliged to disclose the scores of others in order to ensure that the dismissal is fair, but the employer should think about disclosing some information (eg, the average score or the ‘break point’) where the scoring will otherwise be meaningless.

If other employees’ scores are disclosed, for data protection purposes this should be done in such a way that the employees in question cannot be identified from the information.

 

Consider and consult on alternative employment

The employer should take reasonable steps to find the selected employees alternative employment within the organisation (or the group, if it is part of a group) and should consult with them about it.

Alternative employment is also relevant to the employee’s entitlement to a statutory redundancy payment: if the employee unreasonably refuses an offer of suitable alternative employment made within the requisite time period, they will lose their entitlement .

The precise scope of the duty on the employer to find alternative employment is not strictly defined, but it is clear that all reasonable steps should be taken. With modern communications such as email, even in a large group of companies, enquiries of the relevant person in each of those group companies as to the available vacancies should be possible. A key point of note here are that suitable alternative posts can include an offer of a demoted post. The obligation to offer alternative employment where a new role becomes available continues until the expiry of the employee’s notice period.

Finally, don’t forget to contact those on maternity leave and absent due to ill health with internal opportunities.

 

Redundancy Dismissal Meeting

As with any dismissal, once the decision to make an employee redundant has been reached, that employee should be invited to attend a dismissal meeting to discuss the rationale in more detail and the various payments that the employee is entitled to.  The employee is entitled to be accompanied as such a meeting. The decision taken at the meeting should then be followed up and confirmed in writing.

 

Conduct an appeal

 It will very rarely be fair to make an employee redundant without offering them the opportunity to appeal the employer’s decision. If there is an agreed redundancy procedure as part of a collective agreement, check this as it is likely to include an appeal process. It would be wrong for an employment tribunal to find a dismissal unfair only because of a failure to provide the employee with an appeal hearing. However, the absence of an internal appeal is always a relevant factor to consider when looking at the overall fairness test.

Sometimes the overall circumstances of the case will mean that the absence of an internal appeal in a redundancy dismissal case does in fact render a dismissal unfair. Nonetheless, it’s good practice to allow an employee an opportunity to appeal a dismissal for redundancy.

 

Calculating the payment

The redundancy payment itself is calculated by taking into account the employee’s age and length of service (up to a maximum of 20 years’ service).  The statutory cap then needs to be applied – currently at £643 per week.

The maximum statutory redundancy payment is therefore currently £19,290 (until this April).  Of course, enhanced payments can be also be made. The employee is also entitled to notice (either to be worked or paid in lieu) and outstanding holiday entitlement, if due.

 

Voluntary Redundancy

 Although a voluntary redundancy may look like a consensual termination, an employee who volunteers for redundancy is routinely to be regarded as dismissed for redundancy.  It’s therefore often useful to consider a Settlement Agreement in such circumstances.

 

Pregnancy and Maternity

We also just want to remind you of a change to the law in April.  Employers have an obligation to offer suitable alternative employment, where a vacancy exists, to a parent who is on maternity leave if their job is at risk of redundancy.  Essentially, those employees have to go to the front of the queue. The current protection is limited to the duration of the maternity leave but from 6 April of this year, it is to increase to cover pregnancy and the period of 18 months from birth (or adoption placement).

 

A Quick word about Collective Consultation…

As we mentioned above, it applies where:

• an employer is proposing to dismiss as redundant 20 or more employees within any period of 90 days or less, ie where there is a statutory obligation to consult
• there is no statutory obligation to consult collectively, but the employer otherwise needs to consult with employee representatives, because:
  • there is an agreement to do so under the Information and Consultation Regulations or a European works council agreement
  • it is considered prudent to consult with existing employee representatives as part of a fair procedure and for good industrial relations, eg where a collective agreement with a recognised trade union is in place in relation to the business affected by the redundancies.

We recommend that you contact us for more information if it may be relevant to your business, but, essentially, everything we have discussed today would apply, together with additional requirements to liaise with employee reps etc.

 

In conclusion…

Getting the redundancy process right can not only minimise legal and financial risk but can also allow you to recalibrate your business, equipping it for future success.