It is imperative that a company makes sure that its redundancy process is fair. If not, they leave themselves at risk of expensive, unfair dismissal claims which can further impact on existing financial pressures, which of course is the last thing a Company needs if they are trying to save costs.
To ensure that a genuine redundancy situation exists, it must be proved that an employee’s job no longer exists; in the words of the legislation, the job role must have ‘ceased or diminished’. It is also important to be aware that it is the job role that is at risk, not the employee.
Failure to employ a fair process of selection can result in the wrong personnel being placed at risk of redundancy and dismissed, with the result being a considerable claim for compensation.Perhaps the most important thing to get right in the process is the selection criteria; if this is not carefully considered, businesses can end up retaining the wrong personnel and losing the personnel that are best placed to help the business move forward.
If more than one employee is highlighted for redundancy and they all have over two years of continuous service, they must be taken through a formal redundancy process; if you do not, this could result in a claim for unfair dismissal.
Part of a fair process should include a scoring system which details the areas that staff will be measured against.
Employees affected should be issued with an “at risk” notice followed by a three-stage consultation where a pool of any available positions within the company must be made open to them and, should they accept a new role, they have four weeks to try it out.
Minutes of all consultation meetings should be taken in order to evidence that the correct procedure has been followed. Well-kept, up-to-date personnel files would be of benefit to support the scoring and selection process and essential for proving to a Tribunal that any process was fair in the event of a claim being made. It would be prudent to ensure that you have a comprehensive redundancy procedure in place.
You should attempt to make preliminary plans of when and how the redundancies should be done. No pre-determination should be made about which employees are going to be made redundant at an early stage. All alternatives such as layoffs and short-time working should be considered to avoid redundancies being made.At this stage, you should also select in which areas of the business the redundancies will need to take place and decide which employees will need to be pooled for redundancy. It is crucial that an objective criterion is used to determine which employees should be in the redundancy pool, and no employee is discriminated against unfairly.
You should inform employees who may be at risk of redundancy as soon as possible. Good communication is key throughout this process to ensure open discussions with employees, which will, in turn, ensure that employees remain motivated throughout, as they will feel you are trying to protect their well-being.
The consultation process will vary depending on the number of employees you intend to make redundant.
Employers should consult with recognised trade unions or employee representatives if there is no recognised trade union. Similarly to small-scale redundancies, employers should ensure that the consultation process is meaningful.
You must also consider alternative job roles for employees. If there are any suitable alternative vacancies, this should be offered to the employees in the pool. If an employee rejects a suitable alternative job offer, then they may forfeit their right to a redundancy payment.If there is a suitable alternative job, a new contract of employment must be offered before the old contract comes to an end. The new job must start immediately or within 4 weeks of the old job ending.If once consultations have concluded, and there are no suitable alternative roles, you must decide which employees are to be made redundant and begin the process of sending dismissal notices. No dismissal notices can be sent until consultation has been concluded.Some employees will be eligible for a statutory redundancy payment. To be eligible, an employee must have been continuously employed for two years, not have unreasonably refused any alternative employment, and been dismissed due to redundancy.
If an employer does not consider attempting to reduce the number of redundancies necessary by terminating any contractors or agency workers, then it may be queried how genuine the redundancy situation is. It could give employees the right to claim unfair dismissal unless it can be proven the contractors or agency workers have a specific skill set that employees don’t have, and they are needed for genuine business reasons.
If an employee has been made redundant, and they have been continuously employed for 2 years, then they will be entitled to a statutory redundancy payment. The payment will be calculated based upon:
Statutory redundancy pay is calculated as follows:
As redundancy is a form of dismissal, an employee will still be entitled to either their contractual or statutory notice period of dismissal.
Employees will also be entitled to reasonable paid time off work to look for a new job, provided that they have at least 2 years continuous service.
If the redundancy payment is up to £30,000, it will not be subjected to tax and NI. Anything over £30,000 will attract tax at the appropriate rate.