How to follow the rules around redundancy

Amid the ongoing economic uncertainty, it’s perhaps no surprise that our employment team receives a large number of enquiries about redundancy. So what is the right way to go about it? And why is it so important to stick to the rules? To help give you a grounding in the basics, here’s an overview of the correct path to follow – and some of the pitfalls that can impact a business if you don’t take the right steps

Redundancy is an act of dismissal appropriate when a business is required to reduce its workforce and should not be confused with discipline, conduct or capability, which deal with problems with an employee and/or performance.

For a redundancy to be fair and genuine, it must be demonstrated that work of a particular kind has significantly diminished or ceased and that there is a fair reason for redundancy.

Examples of this could be:

When a business or department closes, relocates or closes a branch
When work of a particular kind has reduced or ended
If work of an employee is completed by others
If the company has restructured
If the business is under financial difficulty.

Redundancy should be a last resort and it is important that all reasonable steps are taken to secure the employment of your employees. Such steps would be:

Evaluate the use of overtime and expenses
Implement a company-wide pay freeze
Reduce working hours
Consider alternate roles for affected employees, i.e. is there an option of redeployment?
Implement a hiring freeze unless justified by business practice, i.e. a business-critical role for which there is no alternative
Establish if your business has a short-term working policy and if implementing it would be appropriate.

A business can start the redundancy process when all reasonable attempts to avoid job losses have failed – but remember, ALWAYS seek professional guidance before taking action.

It’s important the redundancy procedure is fair and genuine

The redundancy process

When a business has established a clear business reason for redundancy and has established that there is no reasonable means to maintain the workforce as it is, the next key steps are communication, selection, consultation and notification.

Communication

Employees should know that redundancy is an option the business is considering and should be informed of business difficulties as soon as possible. They should understand the reasons for business difficulty and the steps the company is taking to avoid redundancy.

When required, affected employees should be invited to attend a formal meeting where it is confirmed that redundancies will occur, and that they are ‘at risk’ of redundancy. This is supported by formal paperwork and an invite to consultation.

Selection

The reason for redundancy is tied to the role rather than the people who carry this out, with the selection pool made up of the people from that specific department, location or function.

Selection should be fair and unbiased and based on work rather than the person. It is important that the correct decision is made for the right reasons.

One way of doing this is to create a selection matrix. This is when you take aspects of employment and performance and assign a score accordingly.

Such aspects to consider would be:

Attendance, excluding absences related to disability, pregnancy or maternity
Timekeeping
Conduct
Disciplinary history
Skills and qualifications
Experience and training
Quality of work.

These are easily quantifiable and can be demonstrated/evidenced through company and personnel records. This can then be used as a comparison between employees.

Refrain from over-complicating the selection matrix – it should be easily understood and explained, consistent, fair and supported.

Selection matrices are also confidential and one employee should not be made aware of other employees’ scores.

“During a formal process, an employee will be notified if they are no longer at risk of redundancy, or that they will be made redundant”

Consultation

Consultation is a vital part of the redundancy process and can take place individually or as part of a group, i.e. collective consultation.

Consultation involves an employer informing the employee of the:

Reason for redundancy
Number of proposed redundancies/job types
Number of employees affected
Method of selection
An individual’s selection matrix score
Procedure for redundancy
How payments are calculated.

An employee will also be allowed an opportunity to ask questions, suggest alternative employment arrangements and volunteer for redundancy.

The consultation period should last 45 days minimum when 100 or more redundancies are expected, and 30 days for 20 or more redundancies.

There is no set consultation period for less than 20 impacted employees, however the timeframe should be reasonable.

Notification

During a formal process, an employee will be notified if they are no longer at risk of redundancy, or that they will be made redundant.

If made redundant, the specifics of their redundancy will be detailed and confirmed in writing. An opportunity to appeal should also be provided.

No notifications should take place until consultation has been completed.

What is an employee entitled to during redundancy?

All employees will be entitled to notice pay, which is determined by the length of time a person is employed with your business.

When employed between one month and two years, an employee is entitled to one week’s notice pay. When employed for two years or more, an employee is entitled to one week’s notice per full year of service, up to and including 12 years.

An employee will accrue holiday days up until the employment termination date, i.e. the last day of notice. Any untaken days accrued until the termination date should be paid in the last payslip.

A business can recoup holiday days used but not accrued during the last payslip if the employee is suitably informed and accepts this will take place. Any deductions to final wage should not bring an employee’s pay below the National Minimum or Living Wage.

If employed for more than two years, an employee is entitled to redundancy pay. The SJIB has a calculation matrix for this, which can be found by scanning the QR code on this page or going to bit.ly/sjib-matrix

Redundancy payment amounts are based on years of service and the employee’s age. Statutory redundancy is capped at 20 weeks’ pay, a maximum of £700 per week and a maximum basic award of £21,000.

When redundancy goes wrong

It used to be accepted that an employee could be ‘paid off’ if they didn’t perform properly, had a poor attitude or didn’t get along with their employer. This is no longer the case.

“Legal action can be avoided when the process is conducted effectively, completely and for all those involved”

Legal action following redundancy tends to fall into two categories – failure to provide and failure to follow. Legal action can be avoided when the process is conducted effectively, completely and for all those involved.

Wrongful dismissal

Cases of unfair dismissal can be costly for businesses

This occurs when the statutory provisions – notice, holidays and redundancy pay – and conditions of contract are not provided.

Failure to provide this can lead to employment tribunal or civil court action and a damages reward in favour of the employee to an upper limit of £25,000 plus legal fees.

Statutory provisions and conditions of contract are rights from day one of employment.

Unfair dismissal and constructive dismissal

Claims made by employees with service over two years relate to the process followed during dismissal. These claims relate to:

No fair reason for dismissal
No fair procedure followed
The circumstances deem the dismissal unfair.

Compensation and awards can vary depending on the reason for the claim to employment tribunal but can be significant.

The Equality Act

Under the Equality Act 2010, the protected characteristics are age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation.

People with protected characteristics can be involved in the redundancy process, however the impact of their protected status has no bearing on selection and decision. A person cannot be dismissed due to their protected characteristics – this would be classed as discrimination.