A guide to making redundancies.
Unfortunately, making redundancies is something that most employers will have to do at some stage. We’ve written a guide to making redundancies that aims to help employers navigate what can be a very emotional and complicated process. If you would like any further advice on making redundancies or restructuring please do call us or email email@example.com.
3.1 An overview of redundancies
Redundancy is one of the potentially fair reasons for dismissal. However, in order to avoid claims for unfair dismissal, you will need to demonstrate the following:-
- That the employee was principally dismissed due to a genuine redundancy and no other reason – i.e. due to poor performance.
- That you have entered into an appropriate consultation period. This will vary depending on the numbers involved
- That those you select for redundancy are selected fairly – i.e. that you have not selected one employee over another on the basis on whether you like him or her
It is vital that a redundancy procedure is followed in order to ensure that the Company is protected from any claims. As a redundancy is a form of dismissal, any employee who has 103 or more weeks service could, in theory, bring a claim of unfair dismissal. In some instances, even employees with less than 103 weeks service could bring a claim if notice periods are not dealt with correctly or if certain exceptions apply.
Prior to Making Redundancies
In order to both demonstrate a fair process and to minimise the amount of compulsory redundancies required, there are some alternatives that a Company can consider. These include recruitment freezes, reducing the overheads for non-employees by restricting work given to casual workers, agency staff and contractors and removing overtime.
Alternatives to Compulsory Redundancies
No employer likes making compulsory redundancies, however there are some options that can be exercised before they get to this stage. These include:-
- Short Term Working
- Lay Offs
- Renegotiating Terms and Conditions of Employment – for instance reducing salary/holidays/sick pay
- Terminating Employment Contracts using Settlement Agreements
- Voluntary Redundancy
These options will be looked at in more detail further on in this series of articles.
Genuine Redundancy Situation
An employer will not be asked to justify its reasons for making redundancies, however they will need to show that it is a genuine redundancy situation.
A genuine redundancy may arise where there is a cessation or a reduction in work. This could be due to external economic issues such as recessions or due to advancements in technology. It may also occur where there is an internal restructure – for instance removing a layer of management or where a business is closed down entirely.
Employers must ensure that any staff selected for redundancy are done so fairly. If an employee is the only employee working in a particular role or if a whole department is closing down then this becomes easier. This is because there is no need to differentiate between employees if there are no jobs.
There are a couple of options open to employers in this regard:
- Apply a Selection Criteria
- In certain circumstances, interviews
Employers have to follow very specific rules around consultation when making redundancies. These are summarised below and considered in more detail later on in this course.
20-99 in a 90 day period
100+ in a 90 day period
If an Employment Tribunal finds that an employer has not correctly informed and consulted with staff, it may make an award to each affected employee of up to 90 days pay per employee (for 20 + employees). The employer may be also receive a fine if it does not notify the Secretary of State of the redundancies and technically, it is a criminal offence.
Redundancy Pay & Notice
Once the decision has been made to make an employee redundant, they will be entitled to redundancy pay. The amount they will be entitled to will be determined by their age, length of service and also their weekly gross salary, subject to some statutory caps. Employers must also pay attention to their employees’ contracts of employment as these may provide for enhanced redundancy pay. Any statutory redundancy payment will be tax free, however if an enhanced rate is paid, part of this may be subject to tax.
In addition to redundancy pay, employees will also be entitled to notice. The amount of notice will be determined either by the contract of employment or the statutory position of 1 week’s notice for every full year of service, up to a maximum of 12, whichever is the greater amount.
Employers may be able to choose to pay their employees in lieu of notice or place them on garden leave but they should make sure that their contracts allow them to do so or alternatively agree with the employee this course of action.
Finally, an employee may also be entitled to other payments such as accrued holidays or accrued bonus/commission payments.
Where an employer is unable to honour a redundancy payment, the employee may apply to the Secretary of State for a redundancy payment out of the National Insurance Fund. The employee may also claim certain other payments from the Fund and these will be explored elsewhere in the course.
Time off for Job Hunting or Arranging Training
Any employee who has been given notice of dismissal by reason of redundancy is entitled to reasonable time off during working hours to look for a new job or to arrange training for any future employment. This time off is paid, and is usually up to a maximum 40% of a normal week’s pay.
Ready to discuss your own approach to employment law?
If you would like to discuss your employment law options as an employer, please do not hesitate to get in touch. We offer an initial free, no obligation discussion.