Legal Q&A: Dealing with mass redundancies

The British car industry is on its knees and is faced with even more large-scale job losses amid a shift of production to Eastern Europe.

Similarly, with some of the UK’s financial services firms and other businesses closing their UK call centres to move the work to India, employers are increasingly faced with the task of making mass redundancies. But deciding who goes and who stays can be a legal minefield.

Q Who can claim a statutory redundancy payment?

A Any employee who has two years’ continuous service may qualify for a statutory redundancy payment. Note however that, following the introduction of the Employment Equality (Age) Regulations 2006, the upper and lower age thresholds have been removed.

Q What is alternative employment?

A Employers are expected to make all reasonable efforts to locate alternative employment for an employee, either within the existing organisation, or within any group of associated companies. A failure to do so may render any dismissal unfair. However, you will not be expected to create a role that does not already exist. An offer of suitable employment that is unreasonably refused may affect the employees’ entitlement to receive redundancy payment.

Q How can we act reasonably?

A Although redundancy is a fair reason to dismiss an employee, there are established standards of fairness, such as considering whether the employee can be redeployed in an alternative role.

The 2003 case where The Accident Group insurance company dismissed more than 2,400 employees via text message could be considered an unreasonable act.

Q Who should we consult?

A Common failures arising from mass redundancies surround the consultation and selection stages – there may be a delay in beginning collective consultation, or it may be found to be deficient for various reasons, for example. This can be a costly mistake, as employment tribunals may order a protective award to each employee of up to 13 weeks’ pay. As this is punitive rather than compensatory, the amount awarded will very much depend on the seriousness of the employer’s failure.

If you are proposing to make a large-scale redundancy of 20 or more employees within a period of 90 days or less, you must consult with representatives of the affected employees on the proposals and also notify the Department of Trade and Industry (HR1 form).

Consultation must begin in good time, and at least 30 days before the first dismissal takes effect. However, if you are planning to make 100 or more redundancies over a 90-day period, then you must consult for at least 90 days before any dismissal takes effect.

Q What should we consult about?

A The consultation process must begin by giving the trade union or employee representatives a list of mandatory information, much of which will be part of the information on the HR1 form.

However, consultation must cover ways of:

  • avoiding dismissals
  • reducing the numbers of employees to be dismissed
  • mitigating the consequences of the dismissals.

Last year, in Alexander and Anor v Bridgen Enterprises (2006), the Employment Appeal Tribunal clarified that, during the individual consultation stages, an explanation should be given as to why the employer is contemplating dismissing the employee.

Q What selection criteria should we use?

A Any selection criterion must be chosen carefully to ensure it is non-discriminatory and contains a significant degree of objectivity. It would be risky to rely solely on the subjective judgement of one or more people.

Traditionally, employers used the ‘last in first out’ rule as a means of selection. However, this approach now runs the risk of being indirectly discriminatory on the basis of sex and age. It is therefore better to focus on the appropriate skills and competencies of the role.

Employers will need to prepare carefully when implementing large-scale redundancies. The law surrounding redundancy can be complex, so setting out a flexible timetable and identifying the legal requirements at an early stage is essential. This includes providing information on why the employer considers that there is a redundancy situation, and why individual employees are being selected. A copy of the selection criteria should always be given to the employee, so they can properly engage in the consultation process.

Providing employees with specialist advice and counselling to enable them to deal with the psychological aspects of their redundancies can help reduce the risk of employment-related grievance claims.

By Philip Pepper, associate, Weightmans

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