Redundancy - a guide

WHAT’S NEEDED FOR A FAIR REDUNDANCY?

  • One of the biggest areas of unfair dismissal claims relates to dismissals on the ground of redundancy with a common complaint from employees being that they felt they were unfairly selected, the situation was poorly managed and they were not provided with enough information during the process.
  • Some of these complaints can be easily avoided or at least minimised by following the steps set out in this guide. There are four hallmarks to a fair redundancy, which a tribunal judge will look for when considering a claim for unfair dismissal: 
    • Is it a genuine redundancy?
    • Has there been adequate and meaningful consultation?
    • Was the selection for redundancy fair?
    • Has alternative employment been considered?

IS IT A GENUINE REDUNDANCY?

  • The definition of ‘redundancy’ can be found in the Employment Rights Act 1996 and is quite a wide concept covering three types of situation, the closure of a business, the relocation of a business or place of work and a reduced need for employees to carry out work of a ‘particular kind’.
  • A closure of the business would also include a change in the nature of the business, for example, if a business were going to cease trading as a fast food takeaway and re-open as a restaurant.
    • As regards a diminishing need for employees doing ‘work of a particular kind’ this covers three scenarios: 
    • where the amount of work has reduced leaving employees surplus to requirements
    • where there is no reduction in work but fewer employees are required to do it, for example, due to the introduction of new technology/automation, and
    • a reorganisation/restructure which results in a more efficient use of labour
  • The expiry and non-renewal of a fixed-term contract is also treated as a redundancy and the employee will be entitled to a redundancy payment providing they have the necessary two-year qualifying service.

HAS THERE BEEN ADEQUATE AND MEANINGFUL CONSULTATION?

  • Consultation is a key ingredient to a fair redundancy and you will not be taken to act reasonably unless you warn and consult any affected employees before dismissing.
  • The buzz words for consultation are ‘adequate’ and ‘meaningful’. Individual consultation is fundamental and should allow for a meaningful exchange of dialogue. Case law and best practice establish that as a first step the employee(s) should be placed at risk of redundancy and informed of the redundancy proposals and given enough information to be able to understand the reasons for the proposals and to make representations.
  • Details of the proposed selection criteria should be given to the employee and he/she should be given an opportunity to comment on the proposed selection criteria before they are applied.
  • Once the criteria have been applied the employee should be given a copy of his/her scores and the opportunity to challenge them. However, although an employee at risk may ask, they are not entitled to see the scores of any other employees in the redundancy pool.
  • The consultation period should also be used as an opportunity to consider the availability of alternative employment that might avoid the need to make the employee redundant.
  • There is no minimum or maximum period for how long individual consultation should last. It should last as long as is necessary. Where there is only one employee at risk and the employee has very little, if any, feedback or representations to make, the consultation period can be fairly short and there is no need artificially to prolong the consultation.
  • The right to be accompanied does not extend to redundancy consultation meetings and the right would only come into effect at the final meeting where the employee is being informed whether their employment will be terminated for redundancy. However, it is good employee relations practice and advisable to allow the employee to be accompanied by a work colleague or trade union representative during the consultation meetings.
  • It is also strongly advisable to keep a good, detailed record of the consultation meetings and ensure that the employee signs and dates them at the time.

Collective consultation

  • Where 20 or more employees are being made redundant at one establishment over a period of 90 days or less, you must engage in collective consultation. This involves informing and consulting with appropriate employee representatives.
  • In the long-running Woolworth’s litigation, the European Court of Justice (ECJ), decided that the requirement for collective consultation is triggered when the employer proposes 20 or more redundancies at one establishment, not across the entire undertaking. The term ‘establishment’ is the unit to which the employees made redundant are assigned to carry out their duties. The ECJ concluded that the dismissals effected in each establishment should be considered separately.
  • The duty to consult extends to any employees who may be affected by the proposed dismissals or by measures taken in connection with those dismissals and not just those that you are proposing to dismiss.
  • Where you are proposing to dismiss 100 or more employees, consultation must begin at least 45 days before the first dismissal takes effect. Where there are from 20 to 99 employees the consultation period is 30 days.
  • You must also notify the Secretary of State (in practice the Department of BEIS) on form HR1.
  • It is important to note that the duty to consult collectively does not mean that there is no need for individual consultation, which remains just as important in defending any unfair dismissal claim.

WAS THERE A FAIR SELECTION PROCESS?

  • Case law establishes that you are required to develop a fair basis upon which to select employees for redundancy.
  • The first step in doing so is to identify the pool from which employees will be selected. Generally, the pool should include all employees carrying out the same or similar role or where the roles are interchangeable. In Capita Ltd v Byard [http://www.employmentcasesupdate.co.uk/site.aspx?i=ed11567] the EAT upheld a tribunal’s finding that a selection pool of just one employee was unfair where other employees were doing similar work. The EAT provided some useful guidance on redundancy pools: 
    • It is not for the tribunal to decide whether they would have thought it fairer to act in a different way - the question is whether the approach taken by the employer in selecting the pool lay within the ‘band of reasonable responses’
    • It is primarily for the employer to determine how the pool should be defined and it will be difficult for the employee to challenge where the employer has genuinely applied his mind to the issue of the selection pool
    • Even if the employer has genuinely applied his mind to the issue, although difficult, it will not be impossible for the employee to challenge it
  • Once the selection pool has been decided the next step is to develop the criteria by which those in the pool will be selected. If there is only one person in the pool then it’s fairly straightforward and no selection criteria will be required.
  • Otherwise, the criteria should be as objective as possible and where possible verifiable by reference to data such as attendance records, disciplinary records and PDRs/appraisals etc. with discount being made for any disability or maternity-related absences.
  • In one tribunal case where the sole criteria used by an employer was the retention of employees, who in the manager’s opinion, would ‘keep the company viable’, this was ruled by the tribunal to be entirely subjective and unreasonable resulting in a finding of unfair dismissal.
  • In another tribunal case, selection on the basis of ‘commitment’ was ruled too subjective unless such criterion could be ‘closely defined and measurable by agreed benchmarks’.
  • However, the tribunals in a number of recent cases have made it clear that you will have some flexibility when considering whether a person is suitable for a role, and if appropriate, it could involve the use of subjective selection criteria and interviews.
  • Overall, the message to take away from these cases is that first and foremost, the selection criteria should be as objective as possible but that the use of some subjectivity in the process, such as the combination of an interview, would be perfectly acceptable.
  • In applying any criteria, including conducting an interview with the employee at risk, it would be advisable to ensure that someone who knows the employee and his/her abilities, such as their line manager, is involved along with a second person, such as HR, to act as a moderator.

HAS ALTERNATIVE EMPLOYMENT BEEN CONSIDERED?

  • Consideration of alternative employment for an employee selected for redundancy is an important part of a fair and reasonable redundancy process.
  • The main principle is that you should do what you can, so far as reasonable, to make the employee aware of alternative employment.
  • In Allen v Manchester College the EAT ruled that given the size of the college and diversity of skills, it was reasonable for the employer to provide those at risk with vacancy lists but the employer did not have to actively seek employment for them.
  • However, the situation with employees made redundant whilst on maternity leave is slightly different and you need to be wary of this. The Maternity & Parental Leave Regulations 1999 (reg. 10), impose an obligation on you to take positive steps to find alternative employment which is more onerous that just giving a list of vacancies to an employee on maternity leave. There is also an obligation to offer suitable alternative employment without competitive interview.

BUMPING

  • There is no obligation on you to ‘bump’ an employee from his/her role to make room for another employee displaced by redundancy.
  • However, in some circumstances the failure to consider ‘bumping’ may fall outside of the ‘band of reasonable responses’ and lead to a finding of unfair dismissal.
  • It is important therefore that you can at least show that you considered and addressed your mind to the issue of ‘bumping’ and whether it would be appropriate in the particular circumstances.

ENHANCED REDUNDANCY SCHEMES

  • Where you regularly make enhanced redundancy payments, employees may be able to argue that a right to that payment has been implied into their contract by custom and practice’. The key question is what has been ‘evinced’ to the employee, either through writing or actions.
  • The EAT has given the following guidance and points to consider in determining whether an enhanced redundancy scheme has become contractual: 
    • Has the policy been drawn to employees’ attention?
    • Has the policy been followed without exception over a substantial period?
    • How many occasions has it been followed?
    • Have enhanced payments been made automatically or negotiated?
    • Do employees have a reasonable expectation to enhanced payments?

SOME GOLDEN RULES

  • Set out all statutory redundancy payments in writing to the employee. Failure to do so is a criminal offence!
  • Remember if you pay in lieu, you must calculate the statutory redundancy payment as if you had given statutory notice and his might increase the payment.
  • Always keep clear records of all decisions, i.e. pooling, selection criteria, consultation, and decision on whether to bump or not, interview notes, including board minutes regarding redundancy proposals etc.

Even if a tribunal concludes there has been a defect in the procedure it may still conclude that the employee would have been made redundant anyway and so reduce compensation or not make any compensation at all – this is well known as a ‘Polkey’ reduction and so all is not lost even if you do make a mistake!