A Guide on Redundancy for employers
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Redundancy is a form of dismissal
There are certain rights that an employer will have to follow to ensure that the redundancy is conducted in a fair and informative way. Redundancy payment claims will only relate to employees with more than 2 years of continuous service.
Types of Redundancy
There are three ways a Company can make employee redundant. A valid redundancy to end an individuals’ employment will need to be due to one of the following:
Place of work Redundancy
Place of work redundancy relates to a relocation situation. Meaning, the businesses is no longer operating in the usual place of work. An employee’s place of work will either be a single location because they have never worked for the Company elsewhere. This will be the case regardless of any mobility clauses in the contract. Alternatively, if they have worked in various business premises/locations, it will need to be based on fact. This will be determined by looking at the terms in the contract of employment.
A job redundancy applies to situations where employees are made redundant because the job no longer exists in the business. This is usually because of a change in business strategy, or the company no longer exists.
Employee redundancy relates to there being a surplus of workers in the business for a specific, role, and the business needs to reduce their headcount. Very often, this is the basis of a ‘sham-redundancy’, whereby an employee is made redundant because they are no longer needed, but then another individual is employed to carry out the same duties. In the interest of doubt, a ‘sham-redundancy’ could leave an employer exposed to a costly employment tribunal claim.
Resources to help your business
Free Redundancy Checklist and Procedure Guide
The Redundancy Process
A small business owner may be tempted to handle redundancy situations informally. However, it is advisable to follow a formal process to ensure that steps are not missed or mishandled as this could expose your company to a redundancy claim. Your company will benefit from the following;
- Have a fair selection criteria in place;
- Be aware of the duty to consult employees;
- Determine whether a statutory minimum redundancy payment will be made, or an alternative calculation;
- To minimise the number of redundancies, consider the requirement for casual workers or those that are self-employed.
By following a formal procedure, the process is more likely to run smoothly. It will also benefit the employees with any uncertainties they may have. If you are looking to make an employee redundant, you should make your employee aware of the following;
- A statement addressing job security and how the company has tried to minimise redundancies;
- General guidance on the selection criteria;
- Detail of suitable alternatives, or relocation possibilities;
- Information about how the redundancy payment will be calculated.
The Selection Criteria
The criteria will need to be fair and will have to be applied to all employees. Redundancy decisions cannot be made based on any protected characteristic stated in the Equality Act 2010, for example, age or disability. It also cannot be based on ‘last in first out’ scenario. Criteria Examples
- Attendance and timekeeping;
- Any disciplinary issues;
- Skills and/or experience;
Legal Requirement to Consult
If the company is making employees redundant, it is necessary to have a consultation period to discuss the reasons for redundancy and the alternatives. If the number of employees is 20 or more, there are rules relating to the time-period for collective redundancies. While there are no specific time limits for how long the consultation period between employee/representatives should last, the number of redundancies determines the minimum time-period required:
- For 20 – 99 employees; 90 days or less;
- For 100+ employees; over 90 days.
Employers must consult with the appropriate representatives who will be affected by the redundancy process. Failure to consult members of staff may lead to a claim against the company.
If the redundancy is due to no longer needing certain employees or place of work has changed, another position may need to be offered. While the alternative offer does not need to be an identical it does have to be valid and a reasonable equivalent to the old job when comparing the pay, status, and hours etc.
Employee’s Right to Refuse the Offer
Even if the employee has accepted the offer, there is still a trial period. Therefore, within 4 weeks they are entitled to try a new position and then hand in their notice. The fact that the individual has engaged in a trial period will strengthen their claim that the new offer was not suitable and are entitled to a redundancy payment.
Statutory Minimum Payment
The statutory minimum redundancy pay is based on an employee’s age during their employment against their gross weekly wage amount (however, this is capped at £508). The company can pay an individual more than this amount, but if it is less than the statutory minimum an ex-employee could potentially bring a claim against the company.
Resources to help your business
Free Employment Law & HR Manual
- Establish a redundancy policy for the company;
- Inform employees about what to expect during the process;
- Use a fair selection criteria;
- Consult the employees that are being made redundant;
- Consider suitable alternative roles;
- Be aware of the 4 week trial period for the employee to accept and then refuse the alternative job;
- Ensure that at least the statutory minimum redundancy payment is made to employees.
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About the author
James is on the Business Development & Account Management team at Neathouse Partners and regularly posts articles surrounding issues in HR & Employment Law, including case law & legislation updates. If you have a particular issue you would like addressed, feel free to drop James an email, and he will be happy to offer his assistance.
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