In this article we outline the main considerations that employers need to be aware of when dealing with this aspect of the redundancy process.
The Legal Background To Redundancy
Redundancy occurs when an employer no longer requires employees to do a specific type of work or there is a reduced need for a type of work, or when an employer no longer requires employees to work in a certain location.
As redundancy is a form of dismissal, it must be conducted fairly to protect against claims of unfair dismissal from employees with at least 2 years’ service.
This means:
- The reason for dismissal must truly be redundancy, as this is a fair reason for dismissal; and,
- A fair and reasonable redundancy process must be followed.
A fair redundancy process involves:
- A reasonable consultation process;
- A reasonable pool of employees;
- Application of a fair selection criteria to the pooled employees;
- Consideration of suitable alternative employment.
The focus here will be on the second step of establishing a reasonable pool of employees at risk of redundancy.
Pooling
A redundancy pool is formed of employees who are at risk of redundancy, and the employer will use the pool to select which employees will be made redundant.
It is ultimately up to the employer to decide which employees should be included in the pool, but it is not always an easy decision.
It is essential that considerable thought is put into the choice of pool so that in the event of a claim the employer can demonstrate that they have followed a reasonable process and made an informed business decision.
The choice of pool must be ‘within the range of reasonable responses’ as usually there will be several fair pooling options and the employer must decide according to business need.
This just means that another reasonable employer would also choose the selected redundancy pool in the same circumstances.
As identifying a redundancy pool is a commercial decision, tribunals tend not to question an employer’s pool choice unless it is clearly discriminatory or completely unreasonable.
For example, if it is made up of only female employees.
When determining the redundancy pool, employers must think about some important issues that will be outlined in detail below:
- Contractual rules;
- Size;
- Reason for redundancy.
Contractual Rules
Before initiating the redundancy process, you should check whether there are any specific rules on pooling in any of the organisation’s employment documentation.
If any collective agreements are in place, you should check the terms of such agreements as you will need to comply with any redundancy rules they contain.
If you recognise a trade union, you should discuss your choice of pool with the relevant trade union representatives.
Size
Employers and employees have different opinions on the size of redundancy pools.
Naturally, employees want the pool to be as large as possible since the bigger it is, the lesser the chance that they will be selected for redundancy.
In contrast, employers usually prefer a smaller redundancy pool as it will be easier to manage and cause less disruption to the business.
Ideally, an employer will strike the right balance in creating a pool that is large enough that employees think it is fair but not too large that the employer risks losing their best employees that they wish to retain.
If a pool is unnecessarily large, the employer risks an inconsistent approach being applied by different managers and it may create difficulties further down the line.
Some employers opt to use a rather narrow pool or simply consult the individuals at risk of redundancy, essentially avoiding the pool stage altogether.
This is a risky approach in terms of unfair dismissal claims, but pooling is ultimately an issue of commercial judgment.
Employers must decide for themselves whether the negative effect on employee morale and disruption caused by extending the pool outweighs the risk and associated costs of claims.
Pool Of One
Employers may be tempted to create a redundancy pool of one or a pool of the same size as the number of redundancies, to make the redundancy selection process easier.
However, we would generally advise against doing because it can suggest that the redundancy is targeted at an individual or group of employees rather than a specific job role.
In certain circumstances, such as when a standalone role is at risk, it will be reasonable for a redundancy pool to consist of a single employee.
A pool of one may also be reasonable where the work of each employee in the same job role is unique to them, for example if clients are personally assigned and only the clients of one employee have been lost.
If you want to use a redundancy pool of one, it is important that you have carefully considered this choice and will be able to provide evidence supporting your decision in the event of a tribunal claim.
Reason For Redundancy
When determining an appropriate redundancy pool, you should be clear on the reason for redundancy.
Are you proposing redundancy due to a reduction in need for a particular type of work or a reduction in work in a particular location?
Role-Based
If a redundancy is role-based, you must consider the work that employees do before you select the redundancy pool.
This not only involves looking at the job title and duties of each employee in their employment contract but also what jobs they actually do on a day-to-day basis.
In less skilled work, employees often have interchangeable skills that enable them to do the work of different job roles.
Therefore, employees with interchangeable skills that carry out similar work to employees in the role at risk of redundancy will also need to be included in the pool even if their role is not directly at risk.
This approach does not apply to higher skilled work where there are clear differences between the different divisions of each job role, with the requirement for different qualifications and experience.
For example, all the engineers of an organisation would not be pooled together, as the work of a chemical engineer would be considerably different to a civil engineer.
Issues may arise where the redundancy is related to a very specific type of work which only forms part of certain employees’ duties and the remainder of their time is spent doing other work.
In this case, it would not be appropriate to only pool those employees who spend some of their time doing that particular work.
For the pool to be reasonable, the employer would need to include all employees in the relevant department.
In short, if you are creating a pool for a role-based redundancy, you should include all employees with interchangeable skills or roles if:
- employees in similar roles have previously done the work involved in the role at risk;
- the employees working in the role or area at risk are also working in other areas or departments.
Site-Based
If a redundancy is site-based, it would be reasonable to only pool employees who work at the site being closed if there are no other sites located nearby.
If another site is located within a reasonable distance and it would be easy for employees at the closing site to transfer, then employees at both sites should be pooled, particularly if their skills are interchangeable.
If there is a close and collaborative relationship between two sites and one is being closed, then a fair redundancy pool may require employees at both sites to be included, particularly if employees at the closing site have previously worked at the other site.
Redundancy Selection: Pools Summary
When establishing a redundancy pool, you should:
- Select your primary pool based on the reason behind the proposed redundancy – the specific job role/type of work or geographical location being cut.
- Consider whether the pool should be extended to include employees with interchangeable skills or employees in a nearby site.
- Keep a record of your decision-making process so that you will be able to justify your chosen pool in the event of a claim.
