Restructures and Redundancy Q&A

Q1: What is a redundancy?

Redundancy is defined in s139(1) of the Employment Rights At 1996 as the closure of a business or workplace, or the diminished requirement for employees to do work of a particular kind. Restructures and redundancy can take place for a number of reasons, such as a recession, economic pressures, efficiency savings and relocation. The concept of bumping and making significant change to an employee’s terms and conditions of employment may also amount to a redundancy.

Q2: Can a dismissal for redundancy be unfair?

Yes. If it is argued the real reason for dismissal is not redundancy, the Employment Tribunal may consider the facts behind the employer’s purported redundancy situation and whether it could have been avoided. Similarly the reason for selecting an employee for redundancy will be scrutinised. If successful, an employee could be awarded up to 12 months’ net salary in compensation, in addition to their redundancy and notice payments.

Q3: How can an employer dismiss fairly for redundancy?

There are two key requirements. Firstly the employer must be able to demonstrate redundancy was the real reason for the dismissal. Secondly they must show they acted reasonably in all the circumstances in treating redundancy as the reason for dismissal. Essentially, this means businesses must follow a fair process, namely warning and consulting affected employees, adopting a fair method to select those for redundancy, as well as considering suitable alternative employment for those who would be made redundant.

Q4: How are employees selected for redundancy?

Undertaking a fair selection process involves the use of objective selection criteria. The employer has discretion about how this pool is created, as there no fixed rules. Employers generally keep the pool fairly narrow, whereas employees will want the pool much wider. Sometimes this will result in a pool of one if there is only one redundancy. Relevant factors for employers include an employee’s performance, length of service and disciplinary records.

Q5: What obligations are there to look for new alternative employment?

Employers must give consideration as to whether any suitable alternative employment exists within its organisation before deciding to dismiss. There is no obligation on employers to create new positions, but sufficient information should be provided about any suitable opportunities. Employers are also permitted to undertake a competitive interview process before making an offer of employment, especially if more than one person applies for the same role.

Q6: Is there an obligation to accept alternative employment?

Employees are entitled to a trial period, which at the end are entitled to reject the alternative employment and still be considered as dismissed due to redundancy. If an employee unreasonably refuses to accept alternative employment, they can be treated as dismissed, but may not have an entitlement to a statutory redundancy payment. The ability to refuse alternative employment depends on whether the position is suitable, such as the job itself, hours of work, place of work, salary and benefits. If it is reasonable to reject the offer of alternative employment, the employee will be entitled to a statutory redundancy payment if they are subsequently dismissed.

Q7: How could a restructure work as an alternative to redundancy?

A number of options are available for employers if they are looking to avoid making redundancies. These include reducing the number of employees through voluntary redundancy, freezing recruitment and referring new employees joining the business. Similarly unpaid leave, holidays and lay-offs could be explored, as well as short-time working, part-time and flexible working. There are also financial considerations, such as freezing or reducing salaries, delaying any salary increases or bonus payments.

Q8: How does voluntary redundancies and early retirement work?

If may be case that an employer seeks volunteers to accept a voluntary redundancy package before commencing a formal redundancy or restructuring exercise. Similarly some individuals may wish to take early retirement. It is usual in these situations to offer them a Settlement Agreement, in which the Company makes a financial contribution to the employee over and above their statutory and contractual entitlements upon redundancy. However employers must be cautious that a voluntary redundancy exercise does not discriminate.

Q9: What should the business be doing in advance of a restructure or redundancy exercise?

Planning is crucial, as well as setting up a clear procedure to follow. Redundancies and restructures that are rushed through are more likely to be unfair and result in a claim in the Employment Tribunal. Employers should familiarise themselves with their legal obligations, ensure sufficient support is available to all those involved in the process, particularly line managers and ensure templates and documents are drafted in readiness.

Q10: What payments are owed to someone who has been made redundant?

Employees with more than 2 years’ continuous service are entitled to a tax free statutory redundancy payment. This is calculated on the employee’s age, length of service and salary. You can calculate a statutory redundancy payment using the Government’s online calculator: www.gov.uk/calculate-your-redundancy-pay/y. Employees are also entitled to notice pay, either by working their notice period or receiving a payment in lieu of notice, as well as a payment for accrued untaken holiday entitlement.

Q11: Should I enhance redundancy payments?

It is important to consider at the outset whether there is a contractual right for an employee to receive an enhanced payment. This can occur either expressly through the contract of employment or other such contractual document, or impliedly through custom and practice, where historically enhanced payments have been made when faced with similar circumstances.

Q12: In the absence of a contractual obligation, why else might I want to consider making an enhanced redundancy payment?

Employers make such payments sometimes as a simple gesture of goodwill. However more commonly an enhanced payment is made in order to encourage an employee to enter into a settlement agreement. What this means is that once signed in accordance with the legal requirements of the process, an employee cannot subsequently bring any legal claims against the employer. It also allows the employer to bypass an otherwise time consuming redundancy process. The detail of this process is outside the scope of this publication.

Q13: Are there other options available to an employer?

Yes, you may want to consider short time working or a short-term lay off. These options are generally only useful where the reduction in work is temporary. Additionally you are required to have written into your contract of employments the right to instigate these processes. In the absence of a contractual provision it may be possible to agree with affected employee’s a variation to their contractual terms to allow for these options on the basis that either or are likely to be preferable to redundancy.

Q14: What is short time working and short-term lay off?

Short-time working is where an employee’s hours of work and in turn salary are temporarily reduced to allow an employer to better manage a downturn in work without losing valued employees.

Short-term layoff is where an employer lays off an employee on zero salary. As per the title, this should only be used for limited periods. An employee on short-term layoff can claim a statutory payment known as guaranteed pay, the current rate of which is £29.00 per day, which is payable for 5 days in any 3 month period.

Q15: Is an employee who has been selected for redundancy entitled to time off to seek alternative employment?

Yes, provided the employee has been served with notice of redundancy, and at the expiration of that notice they have 2 year’s service, all qualifying employees are entitled to a reasonable amount of paid time off to seek alternative work or attend relevant training.

Q16: What constitutes reasonable in this context?

There is no strict definition of this and it will vary on a case by case basis. For example the employee could be in an extremely specialist role whereby alternative employment is not available locally so more time is required to attend interviews.

Q17: What is collective consultation?

This is a statutory form of consultation that is required when larger numbers of employees at one business site are at-risk of redundancy.

It applies in the following circumstances;

1. Where 20 or more employees at one establishment are proposed to be made redundant in a 90 day period. There is a requirement to collectively consult for 30 days before the first dismissal takes place.
2. Where 100 or more employees at one establishment are proposed to be made redundant in a 90 day period. In this circumstance there is a requirement to collectively consult for 45 days before the first dismissal takes place.

Q18: How does collective consultation differ from standard consultation?

There are two main elements that distinguish this form of consultation;

1. The requirement for a minimum consultation period as set out above.
2. The requirement for the election of employee representatives, or the involvement where recognised of trade union representatives.

Consultation will take place directly with the elected representatives who will represent certain groups of employees.

Q19: Are there penalties for failure to comply with these provisions?

In the first instance, failing to comply with the collective consultation provisions is likely to lead to a successful unfair dismissal claim.

In addition to that, if you fail to comply with these requirements, all affected employees can bring a claim for a protective award. The maximum award in this respect is 90 days’ pay (13 weeks if in relation to a TUPE transfer). The starting point for an employment tribunal when considering such an award is the maximum sum, unless it can be persuaded that there is good reason why the maximum award should not be paid.

Therefore it is extremely important to ensure compliance with this process.

This article was put together by Employment Partner Darryll Thomas and Employment Solicitor Chris Amys. 

If you have any employment or HR concerns, please do not hesitate to contact Sally Morris on 01905 610410 or at sally.morris@mfgsolicitors.com