Introduction
Many employers are facing difficult times because of the recent lockdown and ongoing restrictions. The list of employers announcing job losses is growing on a daily basis and the numbers are significant; Rolls Royce (9,000), BBC, Royal Mail, BP (10,000), Centrica (5,000) Bentley, Aston Martin Lagonda, BA (12,000), Virgin Atlantic, EasyJet, (4,500) Ryanair, P&O, JCB, Ovo Energy, Johnson Mattey, Bombadier, The Restaurant Group, Clarks, Oasis and Warehouse, JLR, Travis Perkins.
The downturn in business is also affecting many small and medium sized businesses and managing dismissals is neither pleasant nor straight forward. This guidance note should help lift the legal fog and enable you to approach a redundancy exercise with more confidence.
Should you require time saving and legally compliant template letters for each stage of your redundancy process then please contact Dan Jones (02920 020402 or dan.jones@dhjlegal.com).
Redundancy situation
A redundancy situation will exist where:
- an entire business shuts down
- a part of the business shuts down
- employers need no people or fewer people to do work of a particular kind.
Unfair dismissal
Employees with two years’ service have the right not to be unfairly dismissed.
Dismissal or selection for redundancy on certain prescribed grounds is deemed automatically unfair and employees do not need a qualifying period of employment. These include redundancy selection connected to pregnancy or childbirth and whistleblowing.
If redundancy dismissals are unfair, employees will normally be entitled to:
- unfair dismissal basic awards (cancelled out by the amount of any statutory redundancy payment received).
- an unfair dismissal compensatory award, to compensate for financial loss arising from the unfair loss of their job.
- occasionally, a tribunal will make an order for an employee’s reinstatement or re-engagement. This does not happen too often.
Dismissing fairly for redundancy
In order for redundancy dismissals to be fair, employers must establish that redundancy is the real reason for the dismissal and that they have acted reasonably.
Acting reasonably
Employers will normally act reasonably, and a dismissal will therefore be fair, if they:
- warn and consult employees, or their representative(s), about the proposed redundancy and the reasons for the proposal.
- adopt a fair basis on which to select for redundancy. Employers must identify appropriate pools from which to select potentially redundant employees and must select against proper criteria.
- consider suitable alternative employment. Employer must search for and, if available, offer suitable alternative employment within their organisation.
Consultation
Consultation will only be meaningful if it happens at a formative stage rather than when final decisions have already been made. Employers should therefore consult about ‘proposed redundancies’.
Consultation involves giving employee representatives, and/or affected employees, fair and proper opportunity to understand why redundancies have been proposed and to express its/their views. Adequate information is required, along with adequate time to respond. Employers need to consider employee responses properly and genuinely. Employers are not obliged to adopt any or all the views that are expressed.
Collective consultation
Where employers propose to dismiss as redundant 20 or more employees at one establishment within a 90-day period, they will have to engage in collective consultation with a trade union or (if no union is recognised) elected employee representatives.
There are complex collective redundancy provisions that can have important commercial consequences. Employers need to provide prescriptive information to specific representatives (and to elect representatives in certain circumstances). Consultation then needs to take place with minimum time periods applying depending on the scale of the redundancies proposed. 45 days before the first dismissal takes effect where 100 or more redundancies are proposed and 30 days where fewer than 100 redundancies are proposed.
There is a potentially significant sanction of up to 90 days’ gross actual pay for each affected employee where the obligations are breached.
Collective consultation must cover whether there is any way of:
- avoiding the dismissals.
- reducing the number of employees to be dismissed.
- mitigating the consequences of the dismissals.
As well as providing information to representatives, employers are also required to provide similar information to The Insolvency Services. Failure without good cause can result in prosecution and a fine.
Individual consultation
Collective consultation does not eliminate the need to consult with individual employees, but it may, depending on the circumstances, make the employer obligations less onerous.
Where there is a requirement to collectively consult, employee representatives will usually want to be involved in consultation about selection criteria but not the application of the criteria to individual employees. In these circumstances the consultation with individual employees will usually start once they have been provisionally selected.
Where there is no collective consultation, because there are fewer than 20 redundancy dismissals in a 90-day period, consultation with individuals will commence as soon as the proposed redundancies are announced.
Individual consultation should allow employees to:
- explain their own personal situation,
- put forward any suggestions to avoid their redundancy,
- comment on their assessments, especially when the assessment of them involves criteria that involve subjective assessment,
- consider alternative employment that may exist.
Where there has been no consultation about redundancy with either employee representatives or the employees, dismissals will normally be unfair.
It is advisable to provide employees with their selection scores, the break point for selection (what they would have needed to score to be safe) and, if asked, to explain why they were scored lower than colleagues. Employees should be provided with a reasonable opportunity to challenge their assessment.
There are no prescribed timescales within which individual consultation should take place, but the shorter the consultation, the more likely it is that the quality of consultation may be called into question.
Employers should remember to include employees on long-term sick leave or maternity leave (or other type of family leave) in the redundancy consultation process. They should be kept informed of the position, receiving the same information in writing as other employees, as well as being actively involved in the consultation process
There is no legal right to be accompanied at redundancy consultation meetings, but it is good practice.
Selection
Fair selection involves the fair application of objective selection criteria to the group of employees from which it will select those who are to be made redundant (the pool).
Identifying the pool
Before selecting an employee or employees for dismissal on grounds of redundancy, an employer must decide on a reasonable and logical pool of employees for redundancy selection.
It may be fair to narrow a pool to just one employee in certain circumstances, but if there are other employees who carry out the same or similar types of work or who have interchangeable skills, then employers should consider including those employees in the pool in order to avoid unfairness.
Factors that are likely to be relevant to the issue of fairness when defining the pool are:
- the type of work that is reducing or disappearing.
- whether employees do similar work (also at other locations), or if not
- whether employees’ jobs and skills are interchangeable (more likely for lower skilled jobs).
There may be occasions where a tribunal may consider that an employer should consider ‘bumping’ an employee, who is not at risk of redundancy, out of their job in favour of an at risk employee. These cases will be fact specific.
Selection criteria
As well as considering the reasonableness of the selection pool, tribunals will consider whether the selection criteria used by employers are reasonable.
Criteria should be measurable and capable of independent verification. If selection is based on the subjective opinion of one assessor the dismissal is likely to be unfair because it enables personal animosity or discriminatory bias to be exploited. Two assessors are advisable wherever possible, and where criteria used requires a degree of subjectivity it is important that the criteria are applied in an objective manner.
Where possible, the criteria should be measured or supported by reference to HR records covering criteria such as performance and attendance. Where records do not exist or are not consistently applied to all employees in the pool,. or applied by different managers with different approaches, the employer will have to do its best to measure employees. It is then even more important for there to be more than one manager involved in the process and for there to be evidence of the reasoning applied.
Unfairness is likely to arise where there is inconsistency in the application of the criteria, either because of bad faith or incompetence.
Special care needs to be taken when using attendance as part of the selection process. Periods of absence should be discounted where they introduce the risk of discrimination. These include absences for family friendly leave such as maternity or adoption or where employee absence relates to disability.
Alternative employment
Employers are required to make reasonable efforts to look for any suitable alternative employment within its business and, in certain circumstances within a group of companies. The search for alternative employment should continue up until an employee’s dismissal takes effect.
Employers should provide employees with sufficient information about any vacancies so that they are able to take an informed view as to whether the position is suitable for them and they should not assume, perhaps because a vacant role would involve reduced status or salary, that an employee would not be interested.
When choosing between more than one ‘at risk’ employee, employers are not expected to adopt the same rigorous approach as when selecting for redundancy. Employers are entitled (subject to avoiding discrimination) to appoint the candidate it considered to be best for the job, even if the basis for the decision is based on a subjective view, as long as selection is undertaken in good faith.
Potentially redundant employees who are on maternity (or adoption or shared parental) leave, have an automatic right to be offered any suitable vacancies. Thereafter, employers will need to arrange for other potentially redundant employees to be considered for vacancies. It is advisable for employers to limit applications for vacant roles to potentially redundant employees rather than opening vacancies across a whole business or externally.
Where suitable alternative employment is offered, it should be subject to a trial period, if the terms of the new employment differ in any respect from the employee’s existing terms. The trial period gives employers the opportunity to try out an employee in the new alternative employment and gives the employee the opportunity to try out the new employment for themselves.
A statutory trial period starts when an employee’s employment under their old contract ends and it lasts for four weeks. If, for whatever reason, employees or employers terminate (or gives notice to terminate) employment during a trial period, the employees will be treated, for redundancy pay purposes, as having been dismissed by reason of redundancy on the date on which their original employment contract ended.
If employees refuse a trial period or terminate a trial period then they will not be entitled to redundancy payments if their refusal or termination is unreasonable. If employers refuse or terminate a trial early then the fairness of the dismissal will depend on the suitability of the alternative employment.
Statutory trial periods may be extended for longer than four weeks, but only for the purposes of retraining employees in the alternative employment. Extensions need to be agreed in writing before a trial commences, state when the retraining will finish and identify the terms of employment that will apply after the retraining has finished.
Miscellaneous issues
Voluntary redundancies
There is no legal obligation on employers to consider offering voluntary redundancies, but it is sensible to do so. It can avoid the need to make compulsory redundancies and reduce the risk of litigation. It can also help maintain employee morale.
If employers call for volunteers then they should make it clear that they reserve the right not to accept all applications for voluntary redundancy, particularly if there are more applications than the proposed number of redundancies or they consider that it is in the long-term interests of the business to retain certain employees.
Appeals
Offering an employee an appeal against dismissal for redundancy is considered good practice. There is, however, no rule that a dismissal for redundancy will automatically be regarded as unfair without an appeal procedure. The test remains that of fairness overall and failing to offer the employee a right of appeal is not necessarily fatal to fairness in every case, but it may affect fairness depending on the facts..
Time off to seek alternative employment
An employee who is given notice of dismissal by reason of redundancy has a right to take a reasonable amount of time off with pay (40% of a week’s pay) during working hours to seek alternative employment or to arrange training for future employment, provided they will have two years’ continuous service at the termination date.
Demonstrating legal compliance
You may be required to demonstrate the fairness and procedural compliance of the dismissals. Contemporaneous notes of all telephone calls and meetings are extremely useful, as are well drafted letters that will punctuate each stage of the process.
We can help by providing template letters for you to use. Give Dan Jones a call or drop him an email (02920 020402 dan.jones@dhjlegal.com)
This briefing note should not be relied on as legal advice. This information relates to the UK only. Please contact DHJ Legal for advice on your specific circumstances.
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