Collective redundancy: a quick guide

Rachel
C Smith offers some insight into the complex issues surrounding collective redundancy.

The Trade Union and
Labour Relations (Consolidation) Act 1992 lays down the statutory procedure for
consultation and notification of employees and provides a framework for action.

But collective
redundancies can become confused when transferring the rules from the
legislative paper and into action.

To help you negotiate
your way around the difficulties this typical, but imaginary, example may to help
to give you a sense of best practice.

The
scenario

·    An
employer, ABC Ltd, is about to embark on a restructuring exercise that will
make 120 employees redundant.
·    On 1 June,
2002 ABC told the DTI that it intends to do this by 16 September, 2002.

·    Collective
consultation has already commenced.  

·    On 10 June
a manager from a division currently unaffected by the restructuring programme
informs HR that he would like to make 10 people redundant by 1 August, 2002 – a
month earlier than the planned 120 redundancies.

·    On 14
June, ABC’s site in Liverpool, informs HR that it intends to make 45
redundancies by 1 September.

The
issues

Although
typical, this scenario raises issues on large scale restructuring such as
rolling notifications, collective consultation and merging the statutory
timetable into the commercial one. In particular, the following questions arise:

· Are any new notifications needed?
· Is ABC at risk of a
possible breach of section 193 of the Trade Union and Labour Relations
(Consolidation) Act 1992?

· What, if anything, can HR do to satisfy
management in relation to the proposed timings of all three redundancy
exercises?

The
law

Sections 188 and 193
of the Trade Union and Labour Relations (Consolidation) Act 1992 lay down the
statutory consultation and notification requirements for a collective
redundancy.

In
essence, these require the following actions to be taken:
· An employer who is planning
more than 20 or more than 100 redundancies has to consult collectively for 30
or 90 days respectively and provide written notification to the DTI of the
proposed number of redundancies.  

· As with the requirements for collective
consultation, the notification must be sent 30 or 90 days before the first
proposed dismissal takes effect, depending on the numbers proposed.

· A failure to adhere to the collective
consultation obligations can result in employees claiming a protective award of
90 days actual pay per affected employee.

· Perhaps more significantly, a failure to notify
the DTI is an offence and makes a company and, in certain circumstances, its
directors, managers or officers liable to a fine not exceeding £5,000.

Notification
problems

Given
the severity of the consequences for failure to consult and notify, it is
important that employers do not deliberately, or inadvertently, breach the
statutory requirements. That said, during the past 18 months, it has not been
unusual for circumstances such as those set out above to arise.

In a
recent survey conducted by Allen & Overy’s specialist employment law group
(WoRC), 52 per cent of respondents said they had notified redundancies to the
DTI.

This
figure is unsurprising given the current economic climate and the fact that
most respondents were organisations with more than 500 employees.

Of those
who did not notify, the overwhelming reason was that they were making less than
20 employees redundant and therefore the obligation to notify did not arise.
However, 14 per cent indicated that they did not notify the DTI for other
reasons.

This
suggests that confusion over the statutory definition is a real issue and a
percentage of employers are not notifying the DTI because they are assuming the
legal obligation is not triggered.  

One
explanation for the non-notification could be that a rolling redundancy
programme is taking place, which starts off with less than 20 employees so no
obligation to notify arises, but then increases to beyond 20 within a 90 day
period.

Another
reason for non-notification is that there is an increasing trend for employers
to look for voluntary redundancies, which do not count towards the notification
thresholds.

Actions

The issues
raised by the fictional scenario above should be dealt with in the following
way:

· The
additional ten proposed redundancies fall within an existing notification
period. Although they were not known about on 1st June, they have come to light
within a short time thereafter.
· This means that these
redundancies will also be caught by the existing notification and need to be
added to the 120 redundancies. HR should, therefore, contact the DTI and amend
the existing notification to cover 130 employees.
· For the purposes of
section 193, the Liverpool site will constitute a separate establishment. This
means that a separate 30-day notification in respect of the 45 redundancies can
be provided to the DTI. This will not have an impact on the timings under the
current notification.

· In respect of the additional 10 redundancies,
ABC is at risk of breaching the statutory requirements if the redundancies take
place on 1 August, 2002 for the reasons explained in (a) above.

· HR’s hands are tied in respect of the additional
10 redundancies and there is nothing they can do to allow management to fulfil
its proposed timetable for 1 August without falling foul of the statutory
requirements. However, the manager will not be able to make his 10 employees
redundant before 90 days have expired from the date of the initial
notification.

· In relation to the redundancies at the
Liverpool site, HR can ensure the timetable is met and needs to action the
notification as soon as possible and at least by 1 July, 2002.

Rachel C
Smith is a senior associate in the employment, pensions and incentives
department of international law firm Allen & Overy.  She is a member of WoRC, Allen & Overy’s
specialist employment law group .
www.allenovery.com

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