An Employers Guide to Redundancy

When making staff redundancies, it is important you follow the right process. This guide takes you through that process, ensuring you avoid mistakes.

Making staff redundant is a difficult, unpleasant and emotional part of a business owners’ responsibilities. However, there are many situations, not to mention the current pandemic, where many changes that affect your staff are necessary for business survival.

This guide will cover the following:

  • The definition of Redundancy
  • Ways to avoid redundancies
  • Selection pools
  • Selection criteria
  • The redundancy consultation process
  • Seeking suitable alternative employment for redundant employees
  • The right of appeal
  • The Redundancy Payment
  • Assisting Redundant Employees

The Definition of Redundancy – what is a redundancy?

Redundancy is a form of dismissal and carried out correctly, it is a fair reason for dismissal. Not followed correctly and employers may face a claim for unfair dismissal.

Redundancy is necessary when an employer needs to reduce the size of its workforce. Common reasons may be

  • The employer has ceased (or intends to cease) continuing the business,
  • The requirements for employees to perform work of a specific type decreases or stops, 
  • The business is moving to another location that is too far for staff to travel to,
  • New technology has made the job unnecessary,
  • A cost cutting exercise to reduce staff numbers.

Do not attempt to disguise and engineer any other reason, for example poor performance or bad attitude, as a redundancy.

Tribunals do not normally go behind an employer’s decision (the business reason) to make redundancies, but they do look at the accuracy and fairness of the process.

Remember it is a role you are making redundant. It is not a redundancy where you make someone redundant and very soon afterwards recruit someone else into the same role.

A change to a contract of employment, for example change of hours or pay, is also not a redundancy. However, you are still required to follow a fair consultation process.

Ways to avoid redundancies

Throughout the planning phase and during consultation, businesses should always look at ways to avoid or prevent redundancies.

This makes good business sense. It will prevent the loss of employee experience, knowledge and employees with client connections.  It also saves on recruitment costs down the road when work picks up and additional staff are required.

Here are some ways to consider: –

  • Natural wastage – not replacing staff when they leave,
  • Recruitment freezes – ceasing all recruitment if you know future redundancies are inevitable,
  • Withdrawing job offers already made,
  • Pay freezes or reduction in pay,
  • Salary deferrals – where you ask staff to defer some pay for a period of time, then pay them back the deferred amount later on.
  • Reducing working hours,
  • Lay off and Short-time working – asking staff not to come to work or only work part hours,
  • Stopping or reducing overtime (except for key overtime),
  • Asking for redundancy volunteers,
  • Retraining staff to work in other areas of the business,
  • Redeployment of employees – moving at risk employees to other vacancies in the business,
  • Offering periods of absence, such as sabbaticals, unpaid leave or unpaid statutory parental leave. The benefit to staff is that they remain employed but with no pay.
  • Don’t review the contracts of contractors.

Before deciding on how and which way to avoid redundancies, check your policies and staff contracts of employments. 

Selection Pools

A selection pool is a clearly defined group within which those who are to be made redundant will be selected.

Sometimes the selection pool is obvious. For example, if a business is closing down, the selection pool will be everyone.

When identifying a selection pool, the following should be taken into account:

  • Those who work for a company (if the company is closing)
  • Those undertaking the same or similar work
  • Those working in the same department or area of work
  • Those at a particular location

There will be times when the selection pool is one person. For example, where the role is specific and only 1 person carries out that role.

When considering how narrow or wide the selection pool should be, you need to consider:

  • The destabilisation to the workforce,
  • Potentially losing your best employees by announcing redundancies and including them (sometimes unnecessarily) in the selection pool. They may look at employment elsewhere that appears more stable.
  • An overly large selection pool also creates more work and increases the risk of more errors.

The important thing is you need to be able to justify your decision of your choice of pool. Have an audit trial which clearly shows your considerations. The audit trial should be contemporaneous notes which can be via email, meeting notes or a diary entry. KEEP GOOD CLEAR NOTES THROUGH THE PROCESS.

Think about what area of the business you are changing and who needs to be included within the pool. This will be staff who carry out the same or similar work and have interchangeable skills.

Selection Criteria

Having identified the “pool” for selection, where you have more than 1 person in the pool, you must consider the selection criteria.

Tribunals have made it clear that employers should seek to establish selection criteria that do not depend solely on the subjective opinion of the person who is selecting employees for redundancy. Criteria must be able to be checked objectively against such things as attendance records and efficiency at the job.

The selection criteria will be dependent on the employer’s needs going forwards.

  • Commonly used selection criteria

Last in, first out (LIFO) – be cautious about using this as the sole criteria, as it has the potential to discriminate against younger employees who are more likely than older employees to have shorter service.

Skills & Knowledge – ensure that such skills can be assessed objectively and avoid difficult-to-measure tests.

Attendance – consider the period over which attendance is reviewed and the reasons for absence. To avoid the risk of discrimination claims, you should exclude any absences due to pregnancy and for a disability-related reason.

Disciplinary records – one way of doing this is to award points in relation to the seriousness of the warning. Again, you should consider the period over which disciplinary records are to be assessed. It is good practice to take into account only unexpired warnings.

  • Discriminatory selection criteria

Be careful to avoid selection criteria which will discriminate on the grounds of race, sex, disability, religion or belief, sexual orientation, pregnancy and maternity, marriage and civil partnership, gender reassignment, or age. Failure to do so could potentially face discrimination claims as well as claims for unfair dismissal.

You also need to be careful not to discriminate against part-time or fixed-term employees.

  • Automatically unfair reasons

A redundancy will be automatically unfair if you select on the basis of (not limited to):

  • as a shop or betting worker, refusal to do Sunday work
  • being part-time worker
  • being a fixed-term worker.

In such circumstances, an employee does not need 2 years’ service to bring a complaint of unfair dismissal.

  • Practical tips on selection for redundancy
    • have more than one person involved in the selection process, to reduce the risk of perceived bias or discrimination. Each can carry out their own assessment and then compare and discuss.
    • Use a matrix with scoring, for example 1 to 10, or weighting to each criteria
    • Agree on the ‘break point’, i.e. the point at which those above are safe and those below are made redundant.

The Redundancy Consultation Process

The law requires that you carry out meaningful consultation before confirming redundancies.  Failure to do so is likely to result in the dismissal being unfair.

You should consult on:

  • The business reason for the proposed redundancy
  • The number of redundancies and area
  • The total number of staff affected
  • The selection criteria
  • How redundancy pay is calculated.

The consultation process will differ depending upon how many you are consulting with and if you are using selection criteria. For example, you are carrying out individual consultations or alternatively, you are consulting with 20 or more affected staff. It will also differ if you are using selection criteria to determine those within the selection pool who are being made redundant.

The consultation process should allow affected staff to ask questions, make comment and offer alternative ways to avoid the redundancy.

Throughout the process, you should consider suitable alternative roles within the company for those selected for redundancy.

You should hold at least 2 consultation meetings; sometimes this may extend to 3 or 4 depending upon the number of questions and comments the individual has.

You should allow a reasonable period of time in between meetings for the affected staff to consider the information you have given them and raise questions and comments.

There is no statutory right to be accompanied to redundancy meetings, however, it is considered good practice to allow a companion to be present. Typically, this could be a work colleague or trade union representative, however, you may wish to consider other requests – with the exception of legal representatives.

Seeking suitable alternative employment for redundant employees

During the redundancy consultation process and prior to dismissal, employers must consider offering suitable alternative work to employees being made redundant.  Employers should start considering what alternative work might be available as soon as it becomes clear that redundancies may be necessary.

Allow employees to decide what alternative work they would be interested in. Do not withhold information about potential vacancies on the basis that the employee might not be suitable. Let the employee decide if they are interested.  However, if it is very clear that the employee will be unable to perform the role, then there is no requirement to offer it. For example, you would not be required to offer an Office Manager a role as a qualified Accountant (unless they hold Accountancy qualifications).

In some cases, at risk employees may have to compete for available vacancies with other candidates.

If employees unreasonably refuse suitable alternative work, they may lose their entitlement to a statutory redundancy payment, although be cautious about taking this approach.

Employees can have a four-week trial period in a new role. If the employer and employee then agree that the role is not a suitable alternative, the employee reverts to being redundant.

Ensure that where suitable alternative work is available, it is offered to employees on maternity leave, adoption leave or shared parental leave, who would otherwise be made redundant.

If alternative work is not currently available, consider whether or not it is likely to become available soon after the projected date of the redundancies.

The Right of appeal

There is no statutory right to appeal against a redundancy dismissal, however, it is considered good practice for employees with over 2 years’ service.  If there are any issues, it allows both employer and employee to discuss and resolve them.  The legal recourse after an internal appeal is submission of a claim to a tribunal, therefore dealing with any issues internally can prevent this.

Where there is more than 1 member of staff involved, once a dismissal is confirmed, the remaining staff can be informed their jobs are staff. There has to be finality of the process. Where other employees are involved it is unfair to re-open their redundancy process (when they have been told their jobs are secure) if an appeal is allowed. 

Therefore, it is good practice to allow redundant employees to raise any serious failure in the process and for the employer to be able to rectify that.

The Redundancy Payment

An employee is entitled to a statutory redundancy payment if they:

  • are an employee
  • have been continuously employed for more than two years
  • have been dismissed and
  • were dismissed by reason of redundancy.

There are 2 types of redundancy payment: statutory and contractual.

Statutory Redundancy Payment – the amount and details are as set out in legislation.

Contractual Redundancy Payment – this will be an enhanced payment over and above statutory and will be as set out in the contract of employment.

Statutory Redundancy Payment

Currently (as at July 2020), this is set out as follows:

  • one and a half weeks’ pay for each year of employment in which the employee was aged 41 or over.
  • one week’s pay for each year of employment in which the employee was aged between 22 and 40; and
  • half a week’s pay for each year of employment in which the employee was aged 21 and under.

The weekly pay is capped at £538 (reviewed every April), and the maximum statutory redundancy payment is £16,140.

Gov UK provide a good redundancy calculator which can be found here

Assisting Redundant Employees

Providing assistance to redundant employees helps employers save costs and complete the redundancy procedure with less interruption to business, by portraying a good image to redundant employees, retained employees, clients and the general public.

Although providing assistance to redundant employees can attract costs, employers should bear in mind the effects of redundancy on employees and provide assistance where possible.

Employers can consider extending the statutory time-off provision to all employees who have been given notice of dismissal by reason of redundancy, regardless of their length of service.

Employers may wish to consider providing in-house assistance, or alternatively finding external support.  There are a number of specialist outplacement providers available.

Support may include:

  • dealing with practice and emotional issues around losing their job
  • assessment of their skills, experience and knowledge
  • identifying future job search
  • help with drafting their CV
  • help with writing job applications
  • interview skill techniques
  • presenting themselves.

If you need help with managing redundancies, Hill HR can help. Please contact us via the ‘Contact Us’ or via 01905 885456.