Laying off staff as the recession bites

The latest CIPD/KPMG Labour Market Outlook survey predicts 59% of UK organisations plan to make redundancies in the next three months. The redundancy process has always been a minefield for employers and getting it wrong can prove costly. What are the main pitfalls and how can they best be avoided?

Breaking bad news is never easy, but employers often leave themselves open to claims from the outset by handling the announcement badly. Peter Vreede, principal at consultancy Redundancy Assist, explains: “Too many redundancy plans seem to be rushed and put together overnight. It’s not surprising they are subsequently found wholly lacking when scrutinised, setting the stage for legal challenges when brought to employment lawyers and, ultimately, employment tribunals.

“On the day a company announces its intentions, the strength of the plan will be evident to all. Employees will measure the success of the downsizing exercise on how well initial communications are handled. Everyone will have questions they want answered before they go home.”

All managers should be fully briefed and trained to answer potentially difficult questions and the company should compile a carefully worded statement for the local press, advises Vreede.

Selection criteria

Employers must devise a fair and transparent assessment process to work out which people to let go, and be prepared to justify this at an employment tribunal.

But Rebecca Lake, an employment solicitor at Davenport Lyons, says organisations often use subjective methods, such as poor performance, to select staff for redundancy.

“Companies should add some objective criteria into the mix such as attendance, disciplinary record and length of service. If using subjective criteria, try to collate evidence to support any score awarded, such as appraisals or staff and client feedback,” she says.

As an employer, you must have clear and objective evidence to back up any record of poor performance. Asking two managers to individually score any employees in question is a way of obtaining an objective viewpoint, advises Lake.

Don’t forget those on leave

Overlooking any members of staff who may be on maternity leave or on secondment could also be a cause for concern, according to Anne Pritam, employment partner at Stephenson Harwood. 

“When informing and consulting employees about possible redundancies, don’t forget to include employees on maternity leave, long term sickness absence or other leave. They should be invited to be included in discussions and meetings, and they also count towards total numbers to assess whether the redundancy programme falls within the collective consultation obligations,” she says.

“Women on maternity leave also have certain priority rights if there is any suitable alternative employment available within an organisation – whether you are looking at large or small scale redundancies – and could bring claims for discrimination and unfair dismissal if these rights are overlooked,” Pritam adds.

As well as contacting employees on leave, you’ll need to make sure that you let everyone in different parts of the business know what is going on – even if it doesn’t affect them directly.

“Remember that employees may be considered to be at a single ‘establishment’ even if they work at different sites, so if your programme of redundancies covers more than one site with just a handful of employees at each, that may still amount to a collective redundancy, if you propose to dismiss 20 or more staff in total,” says Lake. “The question is not just geographical, but organisational.”

Follow correct consultation procedures

Failing to follow the right processes and procedure is a common mistake when it comes to making staff redundant and is a major cause of complaint for employees. If you are proposing to make 20 or more staff redundant, it is essential to follow a thorough collective consultation procedure to avoid any claims for unfair dismissal or paying out a protective award.

“The procedure that needs to be adopted by the employer is determined by the number of employees likely to be made redundant,” Lake advises.

“If the number could reach 20 or more at one site within a 90-day period, employers must follow the statutory collective consultation procedure. Key requirements include the election of employee representatives and notifying the projected redundancies to DBERR (the Department for Business, Enterprise and Regulatory Reform) 30 or 90 days before any redundancies are made [depending on numbers].”

Failure to follow these rules will mean that each affected employee could apply to the Employment Tribunal for up to 90 days’ gross pay, in addition to any unfair dismissal claims.

“If contemplating making 19 or fewer employees redundant at one site within a 90-day period, employers must adopt the three-step statutory dismissal procedure [basically a statement of the reasons for action and a formal meeting the meeting itself and an appeal mechanism]. Failure to do so may result in an automatic basic award of four weeks’ capped pay and an uplift of 10% – 50% on the compensatory award.”

Pritam says it’s very important to be honest with employees and communicate the reasons for the redundancies. “Bear in mind that consultation with employees should be with a view to reaching agreement and that employees are entitled to be consulted about the reason for the redundancies, not just the fact that they are happening,” she explains. 

“Although it is likely management and staff will not reach agreement, if you appear to consult with a wholly closed mind that may well make your consultation invalid and you could be exposed to claims for protective awards of up to 90 days’ pay per employee.”

Calling for volunteers

Employers often ask for employees to consider taking voluntary redundancy without making sure that they have weighed up all the options available to them and the penalties that the company could incur.

Michael Ball, employment partner at Halliwells, explains: “If the employer has called for volunteers in an attempt to avoid the duty to consult, the employment tribunal is unlikely to find that the terminations have been mutually agreed. This would lead to the employer potentially being liable for payment of a protective award in respect of all the employees who leave.”

He adds: “To avoid falling into the trap, it is important to include voluntary redundancies when calculating the total number of dismissals to assess if collective consultation obligations are triggered, as well as the appropriate period for consultation.”

Disregarding appeal hearings

Vreede says that employers need to be very careful about avoiding appeals from angry staff. “Too often companies are in a hurry to get the horrid business of redundancy selection behind them so that any feelings of guilt can be assuaged and they can move on,” he says.

“However, employees who appeal against their selection have interesting insights into the selection process and often call foul with good reason. This opportunity – the appeal – allows the employee to get their thoughts in front of a different person, usually more senior, to reappraise the selection. The selection result may not change, but this is the last opportunity for the company to show it cares and ensure the process has been fair and reasonable.”

Not pursuing an appeal diligently can lead directly to employment tribunals where searching questions will be asked and costs awarded, Vreede adds.

Dos and don’ts of redundancy

  • Be honest with staff about the proposals and, where possible, let everyone in the company know exactly what is going on
  • Be objective about selecting which employees will be made redundant rather than using the exercise as an excuse to get rid of poor performers
  • Make sure all managers are thoroughly briefed on what approach to take when it comes to answering difficult questions
  • Don’t forget to inform employees on maternity and sick leave
  • Don’t forget to include staff who volunteer to take redundancy in the final headcount
  • Don’t ignore employees who want to appeal against being selected: hear what they have to say before finalising the decision.

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