Tackling redundancy pitfalls

Large-scale job cuts are on the cards after the Government’s spending review. Handle them with care or it will cost you dearly, writes Daniel Thomas.

With the dust settling on October’s Comprehensive Spending Review (CSR), employers across both the public and private sectors are preparing to wield the axe.

As many as 725,000 public-sector jobs are expected to be lost in the next five years as part of the Government’s austerity drive, while 500,000 are set to go in those private-sector businesses that depend on government contracts.

Trade unions have called for “coordinated action” in response to the cuts, in a message that appears to be filtering down to employees. In a Chartered Institute of Personnel and Development survey of 2,000 public-sector workers, conducted ahead of the CSR, half said they would consider strike action in the face of pay cuts or changes to their pensions.

The scale of the cuts, against this backdrop of opposition, will create a number of legal challenges for employers, says Ian Tomlinson-Roe, HR services partner at professional services firm PricewaterhouseCoopers: “The large-scale downsizing programmes present significant problems for public-sector employers who have little experience of managing mass redundancy,” he says.

Top 10 redundancy pitfalls

  1. Defining the pool for redundancies incorrectly.
  2. Not offering suitable alternative employment.
  3. Absence of a genuine redundancy situation.
  4. Failure to carry out a fair selection procedure.
  5. Failure to consult properly on collective redundancies.
  6. Failure to inform and consult on an individual basis.
  7. Failing to consider alternatives to redundancy.
  8. Not training managers in how to carry out the redundancy exercise.
  9. Not accounting for the extra costs and resources involved.
  10. Failing to account for the wider effects of the redundancy exercise.

“Any failures to understand or work in the complex framework of contractual obligations, statutory requirements and union agreements will almost certainly lead to legal challenges. These challenges will prevent downsizing programmes being delivered on time and on budget.”

Informing staff

Keeping employees informed about proposed redundancies is vitally important to avoid falling foul of the Trade Union and Labour Relations (Consolidation) Act 1992, which requires employers with more than 19 staff to inform and consult relevant union or employee representatives about their proposals before they are implemented.

Consultation must be undertaken “with a view to reaching agreement” and consequently with an open mind. Once collective consultation has concluded, employers should consult with the individual employees before confirming any dismissal. Even where there is no duty to consult collectively, a redundancy dismissal will normally be unfair under the Employment Rights Act 1996 if there has been no or inadequate consultation with individuals.

The European Court of Justice’s ruling in Junk v Wolfgang Khnel effectively guarantees a period of 30 or 90 days’ (depending on numbers) consultation for employees affected by a collective redundancy exercise before they can be given notice of termination of  employment.

Nick Squire, employment partner at law firm Freshfields, warns that failure to consult properly is a “serious matter” as it will render the employer liable to pay affected employees a protective award of up to 90 days’ pay for each employee. “This is potentially up to a quarter of payroll costs,” he says.

“The tribunal will start from a position that the compensation should be close to the 90-day limit.”

Communication

The criticism faced by mobile phone giant Everything Everywhere in October this year, when it emerged that workers were informed of their looming redundancy in public via a “traffic light” colour-code system, highlighted the complexities of handling staff cuts.

Squire says communication is key: “It is clear from case law that consultation has to be meaningful and not just an announcement.

“Proper account needs to be given to employee representation. It’s not a legal requirement to negotiate but it’s becoming closer to that.”

Employee rights to be kept informed were further strengthened in 2005 with the introduction of the Information and Consultation of Employees Regulations. The rules give staff the right to request an information and consultation agreement from their employer, as long as at least 10% of employees have signed up.

The agreement means that staff must be informed about the business’s economic situation, employment prospects and decisions likely to lead to “substantial changes in work organisation or contractual relations”.

There are also a number of legal pitfalls that employers need to negotiate when assessing for redundancy, warns Squire. “What you do has to be fair and objectively justifiable,” he says.

“You have to think carefully about the factors you consider in who stays and who goes. It cannot be subjective – the selection criteria cannot be discriminatory, directly or indirectly.”

Particular care must be taken if any employees who suffer from a disability are potentially affected, warns Joanne Owens, partner at law firm Fox Williams.

“Not only have the rights of disabled workers improved as a result of the introduction of the Equality Act, but developments in case law in the area of an employer’s duty to make ‘reasonable adjustments’ is ever expanding,” she says.

Owens points to Southampton City College v Randall, where the Employment Appeal Tribunal stated that the employer should have considered devising a new position to allow for the employee’s disability.

Interim injunction

While employees have plenty of legal protection in redundancy scenarios, employers can also go down the legal route in the event of strike action, as illustrated by firms such as British Airways, Network Rail and London Underground this year. The key remedy available to an employer is to apply to the High Court for an interim injunction to restrain the industrial action from beginning or continuing. If the action has occurred, an employer may also claim damages against the union, subject to a cap, which is calculated in relation to the total size of the union’s membership, although this remedy is infrequently used.

Depending on the circumstances, particularly whether the action is official or unofficial, an employer may be able to dismiss an employee without fear of an unfair dismissal complaint.

And while BA was unsuccessful in its attempts to prevent strike action by the Unite union because of a technical breach in balloting procedure, Squire says employers should still consider the legal option when strikes are threatened.

“Many employers will look at the legal aspects very carefully,” he says. “It can have a significant strategic impact as the union will have to reballot, which creates a delay and more expense from their end.”

But Tomlinson-Roe stresses that employers should try to manage the union relationship so that any dispute does not escalate into strike action: “Employers need to think carefully how they manage relationships with unions and respond to potential strike action.”

“Despite the bravado, most unions are keen to work with employers to jointly develop solutions. Cooperation will prove a more positive route for all,” he says.

 

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