Morgan Russell Solicitors

Potential Redundancies (less than 20 Employees)

1. INTRODUCTION

This advice note focuses on dealing with redundancies of less than 20 employees. The purpose of this advice note is to set out in brief the legal framework within which you must work.  This only provides a basic framework and you should take specific legal advice when dealing with a particular matter. None of the details relevant to your particular matter are taken into account in this note.

Given the severity of the economic downturn I make no apology for setting out below, what may be obvious and well known, 10 basic but important points to bear in mind about redundancy:

  1. Redundancy is about the work requirements of the employer not about the performance of any individual employee(s).

  2. The fact that an employee is dismissed by reason of redundancy does not prevent him or her bringing a tribunal claim for unfair dismissal.

  3. In general, statutory redundancy pay is calculated in the same way as the basic award component of unfair dismissal compensation. Redundancy pay is set off against unfair dismissal basic award if the dismissal is subsequently found to have been unfair (so, as a general rule, they cancel each other out).

  4. A minimum of two years continuous employment is required for a person to be entitled to statutory redundancy pay (it is one year for unfair dismissal claims).

  5. A maximum amount of a week's pay which can be taken into account in calculating statutory redundancy pay is £380.

  6. Maximum statutory redundancy pay for an individual is £11,400, achievable only by an employee aged over 61 with 20 years’ continuous service.  Maximum unfair dismissal compensation is generally £76,700 although in some cases there is no statutory limit.

  7. Age discrimination - age limits for entitlement to redundancy pay have been removed.

  8. A fair procedure must be observed when dismissing by reason of redundancy.

  9. An employee being dismissed by reason of redundancy is entitled to notice.

  10. Special consultation rules apply if 20 or more employees are to be dismissed at one establishment within a 90-day period and employment tribunals can award very substantial "protective awards" if these consultation rules are not followed. 
2. IDENTIFY YOUR WORKFORCE

Knowing your workforce’s employment status is essential.  Employees with more than one year’s service have the right not to be unfairly dismissed and employees with more than two years’ service have the right to receive a statutory redundancy payment on a redundancy dismissal as well as reasonable paid time off to attend interviews, etc.  True self-employed sub-contractors have no such rights and so you need only terminate the engagement with them in accordance with the terms of the relevant contract.  Then there is the hybrid “worker” category - those who are self-employed but provide services personally.  They do not have unfair dismissal rights but are entitled to holiday pay. 

It is essential that you are confident in your staff’s classification as employment tribunals continue to be littered with cases by workers alleging employment status in order to bring claims for unfair dismissal and redundancy payments. 

3. WRONGFUL DISMISSAL

Wrongful dismissal is a dismissal in breach of contract.  To avoid a wrongful dismissal claim you must ensure that all contractual rights are observed or compensation paid in lieu of damages. A claim for wrongful dismissal is usually primarily a claim for pay and benefits during the notice period.  You should ensure, therefore, that the first stage of the redundancy process includes a review of all individual employee contracts - notice periods in the contract should be noted (having regard to the statutory minimum notice period).

The statutory minimum notice period is such period as is reasonable and not less than one week’s notice for each year of service after two years with a maximum of 12 weeks’ notice. Where a contract provides for less than the statutory minimum, the statutory minimum applies.

4. UNFAIR DISMISSAL

All employees with over one year’s continuous service with an employer have a right not to be unfairly dismissed.  To avoid a successful claim for unfair dismissal, an employer must have a fair reason for dismissing. The potentially fair reasons include termination for redundancy and “for some other substantial reason” (which includes reorganisation). 

5. IS THERE A GENUINE REDUNDANCY SITUATION?

The term redundancy has a specific meaning in law, namely that there is either:

(1)       A closure of the business;

(2)       A closure of the place of business;

(3)       A reduction in the requirement for employees to do work of a particular kind. 

It may be there isn’t a true redundancy situation, in which case you will have to consider whether there is another lawful reason to dismiss (capability, legality, etc) and follow a fair procedure in relation to employees in carrying out that dismissal.  A typical example would be if you decided to re-organise your business to try and stave off the worst effects of the downturn.  Any dismissals flowing from this situation would be for “some other substantial reason” and could be fair dismissals providing that a fair procedure is adopted. 

6. HOW MANY REDUNDANCIES ARE LIKELY?

The key numbers to remember are 20 and 100.  If it is proposed that 20 or more will be made redundant in a 30-day period, then there are additional statutory obligations.  Firstly, the Secretary of State must be formally notified and, secondly, a collective consultation process must be carried out (for at least 30 days before the first dismissal where 20 to 99 employees are likely to be made redundant and for at least 90 days if 100 or more are likely to be made redundant) as well as individual consultation. 

For redundancies of less than 20, you must still follow dismissal procedures, including consultation with individuals. 

7.  THE REDUNDANCY PROCEDURE

In order to avoid a successful claim for unfair dismissal, you must prove that one of the fair reasons (such as redundancy) is the reason for dismissal. You must also follow a fair procedure.  The elements of a fair procedure are: -

(i)            Proper consideration of ways in which redundancy can be avoided;

(ii)           Consultation with employees (or employee representatives and trade unions where appropriate);

(iii)          Advance warning;

(v)           Fair selection;

(vi)          Consideration of the availability of alternative employment.

Remember, a poorly handled redundancy can amount to an unfair dismissal. 

Also remember, that before you formally embark on any redundancy process, you should have considered whether there are any ways to avoid redundancies in the first place (for example, short time working or embargoes on using agency staff).  This is a continuing obligation and should be considered throughout the process. 

Check whether your Company has adopted a contractual redundancy procedure which it should follow in any process. Alternatively, you may have adopted a collective agreement’s terms on redundancy arrangements. 

8. THE ACAS CODE

The mandatory statutory procedures for disciplinary and grievance situations have been repealed, and replaced by the ACAS Code on disciplinary and grievance procedures.  Although the new Code does not strictly apply in redundancy situations, it is still best practice to follow the procedure set out below given that redundancy is a dismissal, and we strongly advise you to do so in order to avoid claims for unfair dismissal.  Please note however that this procedure does not apply in collective redundancy situations.

Step One – Statement of Grounds and Invitation

The Manager must:

  1. Set out in writing the employee’s alleged conduct or characteristics, or other circumstances, which lead him to contemplate dismissing or taking disciplinary action against the employee (“the Statement”);

  2. Send a copy of the Statement to the employee;

  3. Inform the employee of the basis of the Statement and ground or grounds given in it;

  4. Invite the employee to attend a meeting to discuss the matter;

  5. Inform the employee that he has the right to be accompanied to the meeting by a work colleague or union representative;

  6. Give the employee a reasonable opportunity to consider his response to the Statement before the meeting.

Step Two – Meeting

  1. The meeting must take place before action is taken, except in the case where the disciplinary action consists of suspension;

  2. The employee must be allowed to make representations during the meeting;

  3. The manager must not pre-judge the outcome of the meeting;

  4. After the meeting, the manager must inform the employee of the decision and notify him of the right to appeal against the decision if he is not satisfied with it.

Step Three – Appeal

  1. If the employee informs the employer of his wish to appeal, the manager must arrange for someone appropriately more senior to hear the appeal, preferably a manager who has not been party to the original meeting.

  2. The manager must ensure that the employee is invited to attend another meeting;

  3. Again the employee has the right to be accompanied by a work colleague or union representative and has the right to make representations;

  4. After the meeting the manager must ensure that the employee is informed of the decision and make it clear that the procedure has been completed.

General requirements

In addition to the stages outlined above, the following general requirements should be followed throughout the process:-

  1. Each step and action under the procedures must be taken without unreasonable delay.

  2. The timing and location of meetings must be reasonable.

  3. Meetings must be conducted in a manner, which enables both employer and employee to explain their cases.

  4. In the case of appeal meetings which are not the first meeting, the employer should, as far as is reasonably practicable, be represented by a more senior manager than attended the first meeting.

  5. The employee can choose to be accompanied to any meeting by either a colleague or a trade union representative.
9. AVOIDING REDUNDANCIES

The first stage to be followed in dealing with potential redundancies is looking at ways to avoid redundancies. 

You have an obligation to consider all your options in order to avoid redundancies. 

  • Restrictions on recruitment;
  • Voluntary early retirement/voluntary severance;
  • Re-training and transfer to other work;
  • Short time working, job-sharing schemes;
  • Reduction in overtime e.g. using the “banked hours system”, as discussed for print workers;
  • Wage cuts.

In addition, you may consider other ways of reducing overheads not directly related to staff, e.g. giving up part of your accommodation. 

Before you look at pools for selection for redundancies, you should satisfy yourself that the company has considered all other options.  It may choose not to proceed with those options but it must show that it has looked at these issues objectively. It should raise with the employees at a first meeting what options have been considered thus far, any further options it wishes to now consider (e.g., voluntary redundancies - and also ask them for any suggestions). 

10.  IDENTIFY THE POOL FOR REDUNDANCY

Identifying the pool for redundancy means considering those whose positions are “at risk”.  For example:

  • Are there groups doing similar work?
  • Are any employees’ jobs interchangeable? 
  • Are there any unique roles which are no longer required? 
11. ESTABLISH SELECTION CRITERIA

Next you will need to formulate selection criteria.  This means putting together a set of objective criteria by which you can score individual candidates (with either those with the lowest or highest scores avoiding redundancy). 

Selection criteria must be non-discriminatory so should avoid rewarding/penalising individuals for issues such as absence on maternity grounds, long term sickness. 

12. VOLUNTARY REDUNDANCIES

An alternative to selecting for redundancy is to ask for volunteers.  However, you should carefully manage requests by setting terms which will govern any such voluntary redundancies.  This should prevent you losing more staff than you need to make redundant or staff with skills that you need to retain.    

13. A FOCUS ON VOLUNTARY SEVERANCE

This could be done without an enhancement but more usually, employees are offered a voluntary redundancy programme with an enhanced severance package.  You should take particular account of the following issues:-

(a)        You must identify any specific skills areas which the company requires in order to move forward.  The company needs to ensure that if it accepts voluntary redundancies, it does not then leave itself with a shortage of skills in a particular area.

(b)       The company must balance point (a) above with the fact that it must not and must not be seen to pre-judge the subsequent criteria and selections by what I term “reverse cherry picking”, that is by accepting some voluntary redundancies and not others and thus showing that the company had pre-judged those who will be selected for redundancy.

(c)        The company must either, pre the announcement of the offer of voluntary redundancies, make a decision that it will accept any requests for voluntary redundancy or, it should take a clear and objective view on that skills base – and thus those employees, where it requires a “core retention”.   Consider limiting the total number of voluntary redundancies that will be accepted.  In doing so you will need to look at what retention you need of certain skills in certain departmental areas.  Only once you have identified your “core” requirements will you be able to look at what voluntary requests for redundancies can be accepted and thus be able to notify the employees on what basis you will accept those voluntary redundancies.

(d)       Please be aware that calculation of any enhanced redundancy payments must be on the same basis as statutory redundancy payments in order to avoid potential claims under the Age Discrimination Act. If you use a different formula it is likely to lead to direct or indirect age discrimination which you will have to objectively justify to avoid a successful claim. If you use the formula you will not need to justify even if it does discriminate.

14. THE “AT RISK” POOLS AND SELECTION CRITERIA

Identify the “pool of labour” from which employees who will be at risk of redundancy are to be selected:-

(a)        This process will only be seen through to a conclusion if insufficient voluntary redundancies take place.  This is part of the selection process that will be particularly well scrutinised.  The purpose of “pools” of employees is to ensure that any employees selected for redundancy are selected by a fair comparison with employees who carry out the same or very similar tasks. Some employees may be in a pool on their own.  You should have a complete list identifying all departments in which all of the employees can be clearly allocated.

(b)        The crucial point in identifying the pools is that an objective decision has to be made.  If all of the roles within the pools are inter-changeable and the employees have similar skills within those pools then I would advise you to look at them all in one group.  If, however, those roles are not inter-changeable and you need certain employees with certain skills, then I would split any initial pools down further.

(c)        Next, identify the proposed selection criteria.

(d)        Please also note that you can weight the skills in accordance with the importance they have to your organisation.  For example, you may weigh one skill as twice as important as another and use a point system to show ability against skills.   For example, where 5 are highly skilled and 1 is the lowest skilled.  (You can then perhaps weigh item 1 as twice as important as item 2 and 3 is half as important and then multiply the points accordingly).  Please note that you need to take care not to discriminate here.  I mention specifically your obligations under the Disability Discrimination Act.  You can include “absence levels” as part of the process, giving low scores for high absence SAVE THAT if an employee has a high absence level due to a disability, you may have to disregard that score for him.  I also raise that if you are relying on written records, you need to ensure their accuracy (e.g. levels of absence, qualifications, etc). If you do not have adequate records please discuss this further with me. Do not rely on them. You may well be subject to a succesful challenge of unfair dismissal if you cannot show on what evidence you reached your conclusions.

(e)        It is unlawful to discriminate on grounds of age. You should generally not use the LIFO criteria therefore (particularly in isolation) as it may be discriminatory.

15. THE CONSULTATION PROCESS

As far as timing is concerned, as explained, provided you are not contemplating making 20 or more employees redundant, you are not obliged to enter into a collective consultation process.  Your obligation, however, is “to consult” with individuals and must be “proper” consultation. The period must therefore be reasonable – As a rule of thumb I tend to say never less than 14 days and very often longer more. 

The first step is to organise your redundancy consultation meetings.  I recommend that you hold at least three consultation meetings (more if you are in collective consultation).

I recommend that you have a first meeting to ask for views on the pools and the selection criteria and seek the employee views on possible ways a redundancy situation may be avoided. 

The next step is to “score” employees using the selection criteria.

Throughout the process it is useful if two managers are involved, separately to score. This will help to ensure objectivity (and make it harder to challenge).  Ideally I would suggest each manager carries out a comparison separately.  A comparison of your “selection criteria” should be made and, if different, agreement reached on an appropriate way forward.  When looking at skills and points allocation, again, comparisons should be made and averages should be taken of the scores.

The second consultation meeting usually is to tell the employees that they have been selected and have thus been identified as “at risk”.  You will discuss the employee’s selection and considers possible suitable alternative employment.  Searches for suitable alternative employment should be widened to any other companies within your company’s group. 

Consider the following housekeeping issues:

  • Employees should be offered the right to be accompanied at any such meeting by a work colleague or trade union official (or such other person as designated by any policy or collective agreement);
  • Do remember to consult with those who are on long term sick leave and/or maternity leave.  Often, they can be forgotten and this is ripe territory for discrimination claims;
  • Have a note taker to take written notes and ask the employee to sign a copy to confirm receipt and acceptance of what was said during the meeting.

The third meeting will usually be to explore any further issues and may be to confirm outcome.

Confirm dismissal in writing

If there is genuinely no suitable alternative employment and there is no other way of avoiding the redundancy, it will be necessary to meet with the employee and then confirm dismissal in writing.  Remember, an employee will have the right to appeal against any such dismissal and should be notified of this in this letter.  Housekeeping issues such as the return of company property should also be dealt with.  

Some employers find it helpful to put together an information sheet dealing with any practical issues. 

16. FINANCIAL ENTITLEMENTS

1.            Notice 

Employees should be allowed to work their notice (use garden leave rights if appropriate).  If this is not possible, either pay in lieu of notice (depending on the terms of their contract- this will be taxable) or pay a sum equivalent to the notice period as compensation for the termination of their employment (such payments can be paid tax free up to £30,000).  This will prevent claims for wrongful dismissal/and or unlawful deduction of wages. 

2.         Statutory Redundancy

Employees with more than two years’ service have the right to receive a statutory redundancy payment. 

3.         Contractual redundancy payment

Your Company may be contractually obliged to make more generous payments.  Remember now that under age discrimination legislation, any enhanced payments should follow the format of the statutory scheme to avoid being age discriminatory. 

You should seek specific advice if your Company has no formal scheme but has a history of paying in excess of the statutory scheme on redundancy. 

17. THE CONSEQUENCES OF GETTING IT WRONG

In a nutshell, the consequences can be dire for any business. 

1.         Unfair Dismissal Compensation

A failure to follow a fair procedure as set out above can render a dismissal unfair.  If an employee brings a successful claim for unfair dismissal they can be awarded a basic award (calculated according to age, length of service and a week’s pay which is capped).  They can then be awarded a compensatory award which compensates past and future loss on a “just and equitable” basis up to the then  current maximum  cap

2.         Protective Award

A failure to comply with the collective consultation requirements on a mass redundancy, can result in liability for a “protective award” which can be for up to 90 days actual gross pay.  

3.         Discrimination Compensation

Compensation in discrimination cases can be unlimited.

18. PRIVILEGE, WITHOUT PREJUDICE DISCUSSIONS AND COMPROMISE AGREEMENTS

Sometimes, time or other constraints may mean that you do not want to follow the consultation process to its natural conclusion.  This can be done at a cost and with some risks. Please speak to an adviser if you wish to go down this route.

Alternatively, you may be authorised to pay more generous compensation than would otherwise be payable under the statutory redundancy scheme and, in return, your organisation wants to be released from any potential claims the employee may have.  Under a Compromise Agreement the employee waives his right to bring a claim against the company.  An employee can only enter into a compromise agreement having received legal advice from an independent solicitor.  You would therefore normally contribute between £250 to £750 plus VAT towards the employee taking such advice.  If you do wish to go down this route, you should seek specific advice. 

All draft documentation which is solely for the advice of your lawyers should be marked “for the sole attention of [Morgan Russell]” so that in the event of subsequent litigation it will clearly be identifiable as privileged.

Deciding the right point at which to raise the possibility of additional payment or options  that vary from the employees contractual entitlement depends on how the consultation progresses.

The only way to ensure that no employee can bring a later claim for unfair dismissal is by each of them entering into a compromise agreement.  You, therefore, may decide to offer enhanced severance packages subject to the employee signing a compromise agreement.  The downside of this is that employees do have to independently consult a lawyer and it is usual for the employer to pay lawyers fees.  The agreement would be on a full and final settlement basis save for the employees right to bring any personal injury claim (subject to an undertaking that they are not aware of any at the date of termination) and accrued pension rights (if any).  The employee, no doubt, would also be looking for a reference and if the company does give references I would suggest an undertaking from the company to prepare a fair and reasonable one.

19. REDUNDANCY - THE 5 GOLDEN RULES AND 10 SUBTLETIES!

GOLDEN RULES

  1. Follow a fair procedure of real and meaningful consultation, fair selection and a genuine search for alternative employment;

  2. Follow the dismissal procedure set out above for less than 20 redundancies and the collective consultation requirements for more than 20 redundancies;

  3. Consider all the “possibilities” and don’t prejudge the outcome of any meeting;

  4. Ensure your paperwork can warrant the scrutiny of a tribunal – keep accurate records;

  5. Finally, seek specialist employment advice as far in advance as possible of any potential redundancies. 

10 SUBTLETIES

Here are a further 10 less basic points about redundancy dismissal to bear in mind:

  1. It is a criminal offence for an employer to fail to give written details of calculation of a redundancy payment to a redundant employee.

  2. An employee may be able to claim the equivalent of statutory redundancy pay from the State if his employer fails to pay it.

  3. If an employee is made redundant without being told why he was selected, it is likely that an employment tribunal would find the dismissal was unfair dismissal for that reason alone.

  4. It is a breach of the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000  to select employees for redundancy by virtue of their status as part time workers, unless justifiable on objective grounds.

  5. Until October 2006 statutory redundancy pay due to an employee would be reduced or extinguished if he or she was entitled to an occupational pension starting within the 90 weeks after the redundancy. This is no longer so.

  6. If a woman's job becomes redundant while she is on maternity leave she will be treated as  automatically unfairly dismissed if the employer had a suitable available vacancy but failed to offer it to her.  A "small employer exception" to this rule was ended in April 2007.

  7. Civil servants are not eligible for statutory redundancy pay but their terms of service usually give them equivalent or better rights by contract.  Local Authority staff and other public sector employees, who are not civil servants, are eligible for statutory redundancy pay under normal rules.

  8. In deciding whether selection of an individual for redundancy was unfair (so that the employee concerned can claim unfair dismissal) an employment tribunal must not substitute its own view for that of the employer as to what was reasonable either in respect of redundancy selection criteria or implementation of the criteria. Rather the tribunal must consider the wider question of whether the selection was one that a reasonable employer acting reasonably could have made.

  9. Where a business is closing and 20 or more employees at one establishment are being made redundant, the employer's statutory obligation to consult extends to consulting about reasons for the closure.  Only in the rare situation where there is to be closure but redundancies could be avoided will consultation over the closure decision itself not be needed.

  10. If an employer provides enhanced redundancy pay (i.e. an amount greater than that calculated in accordance with the statutory formula) it is unlawful age discrimination to pay all those being made redundant an amount calculated solely by reference to length of service or to pay them a flat amount regardless of age unless this can be objectively justified.  Instead, the enhanced redundancy pay must be calculated by applying the different multipliers which apply for different age groups where the statutory minimum is being paid. 

 

The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.
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