With warnings of a potential recession, some employers may be making difficult decisions about making staff redundant. Sophie Georgiou and Sarah Rushton outline the key elements in a fair and legal redundancy process.
A number of major UK employers have announced they are making staff redundant in recent months, including Ford and Tesco. In the tech sector there have been announcements of thousands of job losses at big names such as Meta, Twitter and PayPal. An analysis by law firm GQ Littler in December 2022 revealed that planned redundancies in the UK increased by 15% in August to October 2022.
Redundancy is when an employer reduces their workforce because a job or jobs are no longer needed. Many factors may lead a business to consider making staff redundant. It could be that an organisation needs to cut costs, or is considering restructuring for efficiency.
Making staff redundant
Before embarking on a redundancy process, however, employers should check there is a redundancy situation recognised by UK law. There are only three, which can broadly be summarised as follows:
- the employer closes its business down;
- a particular workplace is closed; or
- a reduced need for employees to do a particular kind of work.
A redundancy situation recognised by legislation is a potentially fair reason for making someone redundant. This is a particularly important consideration when it comes to employees with more than two years’ service, as such employees are eligible to bring an unfair dismissal claim.
A dismissal will not be unfair if an employer can show it had a potentially fair reason for dismissal and that it followed a fair process in relation to that reason.
What should the redundancy process look like?
What a redundancy procedure will look like will depend on how many employees are being made redundant, as there are differences between individual and collective redundancy. Individual consultation requirements should be observed in all cases, but depending on the number of proposed redundancies, an employer may also have collective consultation obligations.
What is collective redundancy?
If an employer is proposing to make 20 or more staff redundant at one establishment in a 90-day period, collective consultation obligations apply. Whilst they may sound onerous to a business, failure to collectively consult where required could lead to employment tribunal claims for a protective award of up to 90 days’ gross pay per eligible employee.
To collectively consult, your business will need ‘appropriate representatives’. If an independent trade union is recognised for the purposes of collective bargaining, an employer must consult that trade union’s representatives.
If there is a recognised trade union, an employer may choose to consult either employee representatives specifically elected by the affected employees for consultation on the redundancy proposal, or a pre-existing standing body of elected or appointed representatives. Many businesses choose the former, and the election of such representatives comes with further statutory rules.
Consultation starts with providing written information to employee representatives. This should include:
- the reasons for the proposed dismissals;
- the numbers and description of employees under threat;
- the total number of employees in each group employed by the employer at the establishment in question;
- the proposed method of selecting the employees who may be dismissed;
- the method proposed for carrying out the dismissals
- the proposed method of calculating any redundancy pay in excess of statutory redundancy pay; and
- certain information about the employer’s use of agency workers.
The employee representatives then meet with the employer to discuss, with a view to reaching agreement on avoiding the proposed dismissals, reducing them, or mitigating the consequences. Although these discussions often resemble a negotiation, there is no requirement for an employer to agree to the representatives’ proposals.
Making staff redundant: timeline
Collective consultation must take place in good time and in any event begin:
- 45 days before the first dismissal takes effect where the employer is proposing to dismiss 100 or more employees at one establishment in a 90-day period,
- 30 days before the first dismissal takes effect where the employer is proposing to dismiss 20 to 99 employees at one establishment in a 90-day period.
An employer must also inform the Secretary of State of the proposed redundancies using Form HR1 within the same time limits described above. Failure to provide this notification is a criminal offence.
Handling individual redundancy consultations
Making someone redundant will be unfair unless an employer follows a fair redundancy process. This will normally entail meeting with all of the affected employees as a group and warning them that they are at risk of redundancy; choosing objective selection criteria and an appropriate pool where there is a group of staff at risk and holding a consultation meeting with individuals provisionally selected to discuss these criteria.
This meeting should give the employee the opportunity to challenge their selection, offer suggestions about ways to avoid redundancy and alternative positions to consider, if appropriate. Where the redundancy has been confirmed, the employee should have the ability to appeal.
How is redundancy pay calculated?
Employees whose redundancy is confirmed will be entitled to contractual payments (like notice and holiday pay) and statutory redundancy pay (SRP) calculated in accordance with a statutory formula, help with which can be accessed at the government’s SRP calculator.
What are the risks of making staff redundant?
A redundancy dismissal will usually be unfair if an employer fails to take the correct procedural steps, even if there is a redundancy situation.
One of the key cases in this area is Polkey v. A E Dayton Services Ltd, which held that “the employer will normally not act reasonably unless he warns and consults any employees affected or their representative, adopts a fair basis on which to select for redundancy and takes such steps as may be reasonable to avoid or minimise redundancy by redeployment within his own organisation”.
Employers should also take care to avoid using potentially discriminatory selection criteria in a redundancy process. Selection criteria that discriminate (directly or indirectly) on the grounds of a person’s age, race, sex, marital status or civil partnership, maternity or pregnancy, disability, sexual orientation, religion or belief, gender reassignment, or on grounds of fixed-term or part-time status, risk an unfair and discriminatory dismissal.
Employment tribunal claims for unfair dismissal and discrimination can prove costly to your business, taking up valuable time and carrying reputational risk, so it’s crucial not to make mistakes.