Let’s talk about redundancy
2023 has started with an undercurrent of recession swirling around the business world. Businesses are feeling the strain of the economic climate. With the cost of everything from energy to essential supplies going up, companies are trying to make budgets stretch and with many noticing a slump in enquiries and orders for some time, redundancies seem almost inevitable.
While this may be the last thing most business owners wish to do, thinking about making redundancies, at least, can be an unfortunate necessity. For many it can feel like a lonely path, fraught with pitfalls and worries. At Arbor Law, we have a team of specialists on hand to help. We asked them for their advice on how to handle the difficult task of making staff redundant.
When can I make employees redundant?
If you:
you may have a genuine redundancy situation, which may enable you dismiss employees on grounds of redundancy.
What process do you need to follow to make people redundant?
When carrying out redundancies there are a number of steps that you must take in order to avoid tribunal claims, particularly where employees have (or will have) accrued 2 years’ service and have the right not to be unfairly dismissed.
These include ensuring the method for selecting employees for redundancy are objective and fair, consulting with employees before the decision is made to carry out redundancies and following a fair procedure. You must also consider whether there are any suitable alternative vacancies.
It is crucial to consult with employees whilst the proposal to make their roles redundant is still at a formative stage, and not a foregone conclusion.
How do you select people for redundancy?
It is essential that, before making any employees redundant, you establish a “pool” of employees from whom you will select the employees to be made redundant.
In order to identify the right ‘pool’, look at groups of employees doing the same type of work as those who will be selected (for example, administrative assistants). Unless an employee carries out a unique role, you will always need to select a pool, and should ensure that all employees who do similar or interchangeable work are included in the pool.
You then need to determine the selection criteria you will use in selecting people for redundancy from the pool. These criteria must be objective and be verifiable by reference to data such as:
The safest method is to use a combination of criteria applied equally to each employee being considered. By far the best criteria are skill and knowledge, experience, and performance and ability.
If the employee carries out a unique role and is therefore the only employee logically who is at risk of redundancy, then you may dispense with the selection criteria.
Note that employees on maternity leave have special protection and we recommend seeking specialist legal advice.
What does a redundancy consultation process involve?
If you think there are likely to be less than 20 redundancies, then a fair individual redundancy consultation process is likely to require:
The above steps are a summary only and there are many factors that must be addressed at each state. Additional meetings or steps may be required depending on the circumstances.
What are my obligations around offering alternative employment?
Before proceeding with the redundancies, you must consider whether there are other jobs available. This includes considering alternative employment in any associated companies, and roles with both higher or lower status or pay. You are not required to create alternative employment where no vacancies exist, but you have to have considered the possibility alternative employment.
You must offer the proposed employees a 4-week trial period in the new job; if the employee decides the new role is not for them, their employment will terminate on grounds of redundancy.
If an employee unreasonably refuses an offer of suitable alternative employment they will lose their right to a statutory redundancy payment.
How do you manage large-scale redundancies?
If you think there are likely to be 20 or more employees made redundant within any 90 day period, there are ‘collective consultation’ rules that need to be followed.
These include:
Once the collective consultation process is complete, you still need to follow an individual consultation process with each employee provisionally selected for redundancy.
What kind of notice do you need to give? And how much do you need to pay employees?
Redundant employees must be given the greater of their notice entitlement under their employment contract, or statutory minimum notice.
You should ensure that employees either serve their full notice period or are paid in lieu of notice.
Employees with 2 or more years’ service will also be entitled to a tax-free statutory redundancy payment.
Employees must also be paid in respect of any accrued but untaken holiday.
What about voluntary redundancy / redundancy packages?
It can be beneficial to offer voluntary redundancy, as it reduces the number of disaffected employees and therefore the risk of claims.
As an incentive to encourage volunteers, you should offer an enhanced redundancy package over and above the statutory redundancy payment and notice pay.
Employees must not be pressured into taking voluntary redundancy. You should also make clear that not all applications for voluntary redundancy will be accepted, because there may be strategic reasons for not wanting to lose particular employees.
What about taxes relating to these payments?
The first £30,000 of any enhanced redundancy payment (inclusive of statutory redundancy pay) may usually be paid tax free.
Payments in respect of notice pay, holiday pay, unpaid wages and any company benefits like bonuses must be subject tax and national insurance in the usual way.
It is not permissible to include notice pay in an enhanced redundancy payment to avoid paying tax on the notice pay.
What are the risks?
If you fail to pay an employee’s statutory redundancy payment, they may present a claim to the employment tribunal.
If you fail to follow a fair redundancy procedure, or the redundancy is otherwise unfair, the employee may also claim unfair dismissal.
If their selection for redundancy is discriminatory (e.g. because they were on maternity leave or they were selected for a poor attendance record but their absences were related to a disability), they may bring a claim for discrimination.
How we can help
We can offer you comprehensive redundancy legal advice here at Arbor Law. We have a team of senior lawyers with a wealth of experience, ready to support you every step of the way and ensure redundancies are carried out lawfully and with respect and support for all concerned.
Get in touch with us if you would like to discuss how we work with our business clients when it comes to the redundancy process. If you would like a full checklist on how to handle the redundancy process, contact fiona.morgan@arbor.law.