How To Run a Redundancy Procedure
Running a fair redundancy procedure can be intimidating and costly for employers.
We’ll offer a practical summary of how to follow a fair process, discuss how to avoid legal pitfalls to reduce the risk of employment tribunal claims, and give you steps for the best approach possible.
No employer wants to undertake redundancy procedures, but when it’s a must, we’re here to offer guidance and serve as a signpost for advice. Keep reading to learn more.
What Is Redundancy?
Redundancy is a dismissal for the purposes of employment law. You must follow a fair dismissal process for it to be considered a fair dismissal.
For a redundancy to be a fair dismissal, you must demonstrate that redundancy is the genuine reason for dismissal. You may face unfair dismissal claims if employers don’t follow a fair process.
Employers may find themselves actually needing to follow disciplinary proceedings, but are reluctant to do so, and instead opt for redundancy. We don’t advise this route, as it can lead to many problems. Redundancies should only be made when genuine.
There is a statutory definition of redundancy in the Employment Rights Act 1996, which sets out three potential scenarios for a redundancy situation.
- Business closure — the entire business shuts down, and staff is no longer required
- Workplace closure — multiple sites or offices close and the staff at those locations are no longer required
- Reduction — a reduction in the requirement to carry out a specific kind of work and staff are no longer required (for example, outsourcing IT support)
If you’re going to get any type of advice, whether legal or otherwise, do so before you start the redundancies process.
What Do Employers Need to Show to Demonstrate a Genuine Redundancy Situation?
Employers should ensure they comply with policy standards to showcase a genuine redundancy situation.
You must show you no longer have a need for all the staff you currently employ, so as a result, you’re reducing the headcount or number of staff.
Financial problems in a business aren’t required to make redundancies. But of course, when the economy is turbulent, redundancies may have to be made.
If you’re looking at your business overall with the aim to make efficiencies and incur cost savings, so the company runs more efficiently, this can be a genuine redundancy situation. For example, instances of automation, moving online, or outsourcing could fall under this umbrella.
What Are Alternatives to Redundancy?
When considering making redundancies in your business, as a matter of good practice, you should consider ways of avoiding compulsory redundancy altogether. Some options include;
- Temporary stoppages,
- Reducing hours,
- Reducing remuneration,
- Voluntary redundancies.
Your staff may be more accepting of any of the above options than facing the reality of people being made redundant.
What Is the Fair Process Employers Must Follow for Redundancies?
As mentioned, you must follow a fair process when making redundancies, which is a potentially fair statutory reason for dismissal.
Claims of unfair dismissal brought by a redundant employee would go before an employment tribunal to decide whether a redundancy for dismissal is fair. The tribunal would weigh whether the employer’s decision and reason to dismiss falls within the realm of reasonable responses from a reasonable employer in those circumstances and line of business.
Note the word reasonable, as reasonableness is key when making any redundancy decision.
Even when there is a genuine redundancy situation, failure to follow a fair procedure will typically render a dismissal ‘unfair’ in an employment tribunal.
While there’s no prescribed way to carry out redundancy, an employment tribunal would expect to see fair dismissals involve the following stages.
- Warning of Redundancies Coming
- Collective Consultation
- Fair basis for selection (including determining the pool for selection and the criteria to be applied)
- Individual Consultation
- Consideration of Alternative Employment
- Opportunity to Appeal
Warning of Redundancies & Collective Consultation Period
A redundancy consultation process aims to minimise the risk of breach of contract, unfair dismissal, and discrimination claims. It’s also about minimising any adverse impact on your business and maintaining a good relationship with staff, regardless of whether they’re selected for redundancy.
You’ll undertake a collective consultation with the entire pool of staff and individual consultations.
Certain statutory collective consultative obligations apply if you dismiss more than 20 employees in 90 days. You must consult trade union representatives or elective employee representatives before redundancies are made. If you need more advice about this topic, please get in touch or refer to this short article.
The article focuses on when redundancies are being made for fewer than 20 redundancies. Employers dismissing less than 20 staff in 90 days don’t have to follow the collective consultant procedure and can consult individually with the affected staff members.
The warning and collective consultation process would typically involve having a staff meeting to;
- Inform the entire staff that redundancies will be happening,
- Report the reasons for redundancy,
- Explain who’s in the pool of employees at risk and the number of employees you expect to dismiss,
- What the consultation period is going to be,
- When the staff can expect the redundancies to take place,
- What the selection process is going to be,
- The right to appeal,
- Opportunities for redeployment,
- That there will be individual consultation meetings following in the future.
- Give the opportunity for staff to ask questions.
Immediately following the first staff meeting, you’d send letters to the individual employees in the pool for selection, informing them their role is at risk of redundancy and outlining in writing the process that will be followed. Optionally, you can also invite volunteers for voluntary redundancy.
After your collective consultation, you can complete your selection process, which we cover below.
Fair Basis for Selection
Before you start the redundancies process, you need to work out how many redundancies you’re going to make, how you’ll structure redundancy pools for selection, how you’ll choose your selection criteria, and how you’ll apply the selection criteria to the affected roles.
Spending a lot of time preparing is paramount to ensure the first consultation meeting goes smoothly. That’s why getting early advice is essential — to ensure nothing goes awry in the middle or end of the process.
The selection pool is the group of employees from which the employees made redundant will be selected. It’s up to employers to decide how to determine the pool, and employment tribunals will not usually go behind how employers reach those decisions.
There are ways to narrow the selection pools down, such as;
- Consider groups of employees doing the same or similar work,
- Consider where jobs/skills are interchangeable,
- Pool of one, or a single pool.
Provided you can select a pool that’s within the range of reasonable responses open to an employer in your circumstances to adopt, it shouldn’t be open to challenge in the employment tribunal.
Once you’ve determined your selection pool, you’ll need to determine your selection criteria.
Your selection criteria should be objective and measurable. However, it’s recognised that not all aspects of employee performance or value lend themselves to objective measurement. There’s usually an element of subjectivity, so you’ll not be confined to criteria capable of objective measurement.
You’ll also need to decide on a scoring system and determine what weight is applied to certain criteria. Standard criteria that may be used are;
- Standard of work or performance,
- Qualification or experience, employee’s attendance record (should be accurate and not include absences related to disability, pregnancy, or maternity because that’s possibly discriminatory)
- Disciplinary record attendance
As you can see, some of the items in this list are more objective than others. It’ll be important to consider how you’re measuring, so it’s as objective as possible. And again, you may also decide to give higher weight to certain criteria.
But be cautious of any sort of indirect discrimination. For example, it was common for employers to make redundancy selections based on ‘last in, first out’ employees. But this approach isn’t ideal as it’s potentially discriminatory against younger staff who may have a shorter notice period and also against women who take more career breaks.
You must apply all criteria you’ve selected consistently to all staff. It’s useful to provide a clear matrix for staff to show how you’ve scored them against the criteria.
To reiterate, you can carry out your selection process after you’ve had your initial staff meeting announcing redundancies (as outlined above) by scoring each employee in the pool against selection criteria and completing your selection assessment forms.
Once you’ve completed your selection criteria, you should invite the lowest-scoring employees to individual consultation meetings and discuss their provisional selection for redundancy, along with any alternatives to redundancy.
At this point, you can inform the highest-scoring employees that they’re provisionally not selected for redundancy, but reiterate it’s provisional.
From this point, you’d have first consultation meetings with individuals where you’ve discussed that they’ve been provisionally selected for redundancy and the reasons why they’re selected. In the first consultation, you’d want to;
- Ask whether they have any comments on the redundancy consultation process or their selection,
- Discuss any options there may be for voluntary redundancy,
- Redeployment and alternative employment,
- And, what the compensation will be for their redundancy.
You’d want to consider any further suggestions they have to avoid redundancy, and at the end of the meeting, explain you’ll take the opportunity to explore their comments and suggestions.
It’s essential that redundancy consultations are genuine consultations where you listen to your employee’s ideas and suggestions. Consultations aren’t exercises where you’re just ticking boxes.
If you do choose to offer an employee who’s about to be made redundant alternative employment, that alternative employment must be suitable. You’d want to look at it objectively and consider;
- Tasks the employee currently performs in their current role,
- And location.
Suitable alternative employment would be the same in terms of status, salary, and responsibility.
If the new suitable employment is accepted, the employee loses their right to a statutory redundancy payment.
However, if they’re offered suitable employment, and reject the position, they will continue to be made redundant and may also lose the right to a statutory redundancy payment.
If the job you’re offering as suitable alternative employment differs from the employee’s current job, you must offer a trial period of four weeks. This is a statutory requirement, and either party, the employer or employee, can give notice if it’s not working out. If this happens, employees are entitled to the statutory redundancy payment.
Women on maternity leave at the time of being made redundant are a special category. If there is a suitable alternative role, you must give preference — it must be offered to an employee on maternity leave. And you must give preference to an employee on maternity leave over other employees if there are limited vacancies. Women on maternity leave can’t be asked to interview for alternative roles; they must be offered, as of right.
After considering any comments received from provisionally selected employees at the first consultation, you should invite selected employees to a second individual consultation.
In the second meeting, you should;
- Summarise the redundancy consultation process undertaken so far,
- Explain how you’ve considered comments raised by them on their provisional selection,
- Explain why they weren’t considered suitable for any other vacancies or other discussed potential vacancies with them,
- And, if appropriate, confirm there’s no alternative, and they’re being made redundant.
Some employers may opt to have a third final consultation to;
- Discuss termination,
- And cover termination arrangements.
You’d follow up the final meeting with a letter confirming their dismissal and outlining what the appeal process is going to be. Informing them of their right to appeal is important, as an employment tribunal expects to see the right of appeal being broached.
In your considerations, you must consider alternative employment for employees being made redundant, which is a requirement of a fair redundancy process. You’re required to;
- Consider alternative employment that employees can do,
- Take reasonable steps to find alternative employment,
- Bring any and all vacancies elsewhere in the business to the attention of the affected employee, even if they don’t seem suitable.
When an employer confirms dismissal by reason of redundancy, the employee must be given the right to appeal the decision.
Employers can time limit the appeal. For example, you can say any appeal must be received within seven days, fourteen days, or twenty-eight days — whatever you think is appropriate.
If an employee appeals, you must have an appeal meeting to hear their grounds of appeal. Employees typically dispute the application of selection criteria or how pools have been organised.
You may have to rehear them and consider whether the selection criteria or pools have been fairly applied. After the appeal meeting, consider if the employee will be reinstated or if the dismissal stands. You must then give the employee written notification of the appeal decision within a reasonable time.
Employees with Less Than Two Years of Service
It’s important to note that employees who’ve been employed for less than two years don’t have standing to make a claim for ordinary unfair dismissal. They’re not entitled to a statutory redundancy payment either.
There’s not the same requirement to follow a fair procedure for staff who’ve been employed for less than two years, but dismissing such employees isn’t risk-free.
There are several automatically unfair reasons for dismissal where there’s no qualifying period required. For example;
- Dismissal connected to pregnancy or childbirth,
- Dismissal for raising health and safety activities,
- Dismissal for asserting a statutory right or whistleblowing,
- Dismissal for discrimination.
While there’s no statutory legal requirement to follow a formal dismissal process for an employee with less than two years of service, you should look at this in a risk-based way and consider whether it might be sensible to follow one anyway, particularly where there might be a risk of a claim for which no qualifying period is required.
When considering redundancies, employers will determine usually follow two trajectories.
- Determine who needs to be made redundant, dismiss any employees with less than two years of service, see who’s left, and follow a procedure for the rest.
- Follow the whole procedure for all employees, regardless of time in service.
While it can increase costs, it’s usually best to follow the same process for all employees to mitigate risk.
Costs and Redundancy Payments
A key question for employers is how much a redundancy consultation exercise costs. We cover some of the key points to consider when factoring in cost.
You must estimate how long the consultation process will take, during which the employees will continue to be paid. Non-contentious processes typically take two weeks from the initial meeting with employees to affect dismissals, longer if appeals are brought.
Most employees have contractual notice periods, which they’ll need to be paid in lieu of or work those notice periods.
There’s also statutory notice where employees who’ve been employed for more than two years get a week’s notice for each complete year of employment, up to 12 weeks. Employees with longer periods of employment may get a longer period of notice they should be paid for, which will be outlined in their contract.
Redundancy Payment Costs
Broadly, that’s employees with at least two years of qualifying service and any enhanced redundancy payment costs you intend to offer in enhanced redundancy payments
Any legal costs incurred for seeking advice.
How Much is a Statutory Redundancy Payment?
There is a good government calculator you can use to get started.
A statutory redundancy payment is dependent on age and length of service. Employees are entitled to;
- 1½ weeks’ pay for each complete year of employment in which the employee was not below the age of 41,
- 1 week’s pay for each complete year of employment between the ages of 22 and 40 inclusive,
- ½ a week’s pay for each complete year of employment in which the employee was under the age of 22.
- Statutory cap of a week’s pay at £571 (from 6 April 2022), and a maximum of 20 years of employment
Enhanced Redundancy Payments
Enhanced redundancy payments may also be an option for certain employees. These payments are commonly offered in exchange for taking voluntary redundancy.
While uncommon, employers should also check their staff policies to see if they have a redundancy policy that provides for enhanced redundancy payments or if there are contractual provisions for enhanced redundancy payments.
If you’re considering enhanced redundancy payments, you need to decide on the proposed package and whether employees will be required to enter into a settlement agreement.
Employees who enter into a settlement agreement waive their rights to bring claims against the firm in court or in the employment tribunal to receive an enhanced termination payment. They must also obtain independent legal advice. Employers are obliged to meet the reasonable cost of this expense, which is typically between £350 to £500 +VAT. Very high senior roles may be a much higher cost.
If you decide to offer enhanced redundancy payments, getting employees to opt into a settlement agreement is preferable as it mitigates the risk of claims.
You must also discuss the prospective proposed terms of a settlement agreement. Conversations should be had a ‘without prejudice’ basis, which basically means off the record. This includes all written correspondence being marked ‘without prejudice, subject to contract.’
Need Support Running a Redundancy Procedure? Helix Law Can Help.
Making employees redundant is a stressful and cumbersome time for everyone involved. But managing a fair redundancy procedure is possible.
If you need to make staff redundant, it’s essential to seek legal advice before planning your selection pool and starting consultations. Our team has helped many employers smoothly manage redundancy procedures to help business owners avoid unforeseen costs and complications down the road. Get in touch for expert legal advice today.