Redundancy – Employer FAQS
The Coronavirus Job Retention Scheme is due to end at the end of this month, and at the time of writing is not expected to be extended (though there are discussions about doing so in respect of the industries worst affected by Covid-19. From 1 October 2021, anyone currently on furlough will either need to return to work or faces possible redundancy.
The legal requirements in respect of redundancy have not changed during the pandemic, and the difficulties for businesses in responding to the pandemic (including sudden changes to government guidance) is not itself a reasonable excuse for an employer failing to comply with its duties regarding redundancy consultation and fair selection.
So what should employers considering redundancies bear in mind? Below are some of the most common questions that come up when I am asked to advise on redundancies:
Can I use redundancy as an excuse to get rid of Employee X?
The full answer will depend on the circumstances. Redundancy requires either the closure (or intended closure) of the business or a particular workplace, or a reduced need for the particular kind of work performed by the employee. In short, redundancy means getting rid of the role, rather the individual. The selected individual is then the casualty of the role being made redundant.
If an employer wants to remove an employee because of their performance, attitude, misconduct, etc, but the role is still needed and the dismissed person will be replaced, redundancy is not the best way forward; the employer should consider whether a performance management process or misconduct hearing would be appropriate.
If an employee has less than two complete years’ service it may be acceptable to dismiss them without following any procedure, as they cannot claim unfair dismissal. However, such action could be considered discriminatory and so legal advice should be taken before proceeding on that basis.
There are also a number of considerations before selecting an individual for redundancy. Pre-selecting someone for ulterior motives may result in an unfair selection, which could mean an unfair dismissal claim.
What will a redundant employee be entitled to receive on termination?
An employee who is made redundant should be paid the standard final entitlements applicable to any termination, that is notice pay and pay in lieu of accrued untaken holiday.
In addition, employees with at least two complete years’ service will generally be entitled to statutory redundancy pay (SRP), the amount of which is determined by their age, length of service and salary, but is subject to a cap. Currently the maximum sum is £16,320. SRP is not taxable.
If an employee has a contractual right to enhanced redundancy pay, then the contractual calculation would need to apply. This would include SRP, and the additional element may also be paid free from tax up to a combined maximum of £30,000.
SRP is not paid if an employee has been offer suitable alternative work and has unreasonably refused that offer.
What happens if I get the redundancy process wrong?
An employee dismissed on the grounds (or purported grounds) of redundancy will be eligible to bring an unfair dismissal claim if they had completed two complete years’ service at the date of termination.
A redundancy dismissal will generally be an unfair dismissal if it was not genuinely for the reason of redundancy (i.e. the employee’s role is still being performed), or if the selection criteria were unfair, or if a fair consultation procedure was not followed.
There are two elements to unfair dismissal awards – the basic award, and the compensatory award. The basic award is calculated in the same way as statutory redundancy pay, and if this has already been paid to the employee then no basic award will be payable. The compensatory award considers the losses the employee has suffered as a result of the unfair dismissal, and so could mean a sum equivalent to their salary and benefits for the period they were out of work or, if they have found alternative work, the difference in their pay packages. The compensatory award is currently capped at the lower of 52 weeks’ gross pay or £89,493.
If the redundancy dismissal is deemed to have been discriminatory, the cap on compensation does not apply and further head of loss (such as injury to feelings) may also be claimed.
Failing to notify the Redundancy Payments Service (RPS) within the correct timeframes where 20 or more employees will be dismissed can result in an unlimited fine (see further below).
Is there a particular procedure or timeframe I need to follow?
If there are fewer than 20 employees are intended to be made redundant within 90 days of each other, there are no prescribed requirements, but the employer must act fairly and conduct a reasonable consultation. A consultation lasting one or two days is unlikely to be fair, but equally the process should not be dragged out.
If there are 20 or more employees being made redundant in that period, a statutory collective consultation process will need to be followed with prescriptive timeframes and procedures. The timeframes vary if 100 or more redundancies will occur. In either case, the employer will need to notify the RPS either 30 days (if fewer than 100 dismissal) or 45 days (if 100 dismissal or more) before the first redundancy. The consultation period must also last a minimum period (30 days or 45 days respectively).
Can I offer voluntary redundancy to just Employee X?
One way to avoid having to undertake a full consultation and selection process is to offer employees the opportunity to accept voluntary redundancy, i.e. electing to leave in return for a severance package, usually more favourable than if they are selected for compulsory redundancy.
As the offer of voluntary redundancy is not a requirement, and is usually made on a without prejudice basis, there is no obligation to offer it to all employees who may otherwise be at risk of redundancy. However, offering to one employee but not another comes with risks, including possible discrimination claims – for example, only offering voluntary redundancy to employees under a particular age would be discriminatory.
It can often be preferable to offer voluntary redundancy to all affected employees, but state that only a fixed number of applications will be accepted. Setting clear parameters and being clear that the employer has absolute discretion to reject an application for voluntary redundancy will assist greatly; this can help to avoid losing the better performing and higher skilled employees. It is not necessary to set selection criteria for voluntary redundancy prior to receiving applications, though this can help with avoiding discrimination claims.
Keeping a clear paper trail and setting out the intention of the process from early on will also help if the matter ever comes before a tribunal. Any accepted voluntary redundancy should be agreed by way of a settlement agreement, in respect of which the employee must take independent legal advice.
Employee X is pregnant/on maternity leave. Can she be made redundant?
There is no prohibition on making employees who are pregnant or on maternity leave redundant. However, these employees have some enhanced rights, and aspects of the consultation and/or their selection for redundancy can give rise to discrimination claims.
Any suitable alternative roles within the employer’s business must be offered to any at risk employees on maternity leave before being offered to their colleagues. However, if no such alternatives exist, the employee is to be consulted in the same way as their colleagues. Difficulties may arise where the employee is unable to engage fairly in the consultation, perhaps due to childcare issues, and the employer should take reasonable steps to get the employee to engage (such as offering consultation by telephone or video conferencing or even in writing), but as long as the employer has taken reasonable steps to engage in a fair consultation this should be sufficient.
Can I place only Employee X at risk of redundancy if they do the same job as others?
If an employee’s duties are the same as or otherwise interchangeable with those of other employees, those employees should be included in the pool for selection. A fair selection process utilising fair redundancy criteria would then be needed to determine who should be made redundant.
Whilst it is possible for employees to be put into a “pool of one”, i.e. considered for selection on their own, an employer may ultimately need to justify that decision on the basis that the employee’s role was sufficiently unique and not interchangeable with others. Pools of one can often appear to be a targeted attack on the relevant employee, unless they accept that their role is unique, and tribunals will generally pay closer attention to the construction of the pool in these circumstances. Those roles that require similar skills may need to be brought into the pool.
Employers should also demonstrate that they gave proper thought to the construction of the pool, including considering any objection by the employee. Employers should keep notes of how they came to determine the pool before the process started, as well as notes of any discussion about the construction of the pool with the employee. It is not generally enough to show later on that the construction of the pool was correct if consideration was not given at the time of consultation, so having a contemporaneous note of how the pool was determined will generally provide employers with a defence to this element of an unfair dismissal claim.
Can I decide which selection criteria to use?
Employers are generally given a good amount of discretion in determining the selection criteria, unless this has already been determined in established contractual redundancy procedures. The consultation process allows the employees to challenge the selection criteria, and there should be reasonable consultation about the criteria, but tribunals will tend to accept the criteria selected as long as such consultation has taken place and the criteria are not potentially discriminatory.
Criteria should, as far as possible, also be both objective and measurable. This can be of great assistance in defending a subsequent claim, as the criteria will be based on established facts (such as sales records or length of service) rather than on the personal opinion of the assessor.
Criteria should also be applied in a way that is not discriminatory, for example accounting for periods of sickness absence or maternity leave when assessing periods of performance. Thought should be given to whether certain criteria may be indirectly discriminatory, and whether this can be justified. For example, a common criteria used is length of service (or “last in, first out”), which disproportionately prejudices younger employees as they simply have not been able to work for the same length of time as their older colleagues. However, it may be possible to objectively justify this on the basis that it is a criteria intended to reward loyalty. It is recommended however that it not be the only criteria used.
Criteria can generally be weighted as employers see fit, and the tribunals will allow employers a great deal of discretion in this regard, again subject to this being reasonable and not discriminatory. For example, an employer may put greater weight on sales records than length of service, and so create a scoring matrix for which the scores in respect of length of service earn a maximum of five points but the scores in respect of sales can earn 20 points. It is recommended that employers have a note of how they came to determine the weighting prior to conducting the consultation in order to best protect themselves against claims of unfair dismissal or discrimination.
Do I have to offer Employee X one of our vacant roles?
Employees at risk of redundancy have the right to be offered suitable alternative employment where possible. This means that employers should make reasonable efforts to search for alternatives throughout the redundancy consultation period, and the simplest method is to provide a list of internal vacancies to the attention of the affected employees initially and provide an updated list or details of new vacancies as they arise. This should generally include all vacancies, regardless of whether the individual is in fact suitable for each role. This is primarily to avoid the employer making an assumption that the employee would not accept a role with a reduced status or salary, but can also allow the employee to consider roles that may simply require some retraining.
Save in respect of employees on maternity leave (as mentioned above), it will be for the employer to decide whether to offer a vacancy. If two or more employees apply for the same role, a fair competitive interview process is permitted to allow the employer to appoint the candidate it deems best for the job. Where one person applies for a role, the offer may be refused if there are reasonable grounds on which to state that the employee is not suitable (e.g. the absence of a necessary qualification).
If an employee accepts an offer of alternative employment, and the terms of the new employment differ from the employee’s existing terms, the new role will be subject to a statutory trial period lasting four consecutive weeks (though this may be extended by a further two weeks by agreement if the employee requires retraining). If the statutory trial period is successful, no redundancy took place and there is no right to statutory redundancy pay. If however the trial period is ultimately unsuccessful, the redundancy can still be effective and the employee will be deemed to be dismissed on the date that the original contract ended for the purposes of calculating statutory redundancy pay.
Can I recruit again shortly after making someone redundant?
There is no prohibition on appointing a new recruit following a redundancy exercise. However, if the new role is the same or similar to the recently redundant role, this will run the risk of undermining the case that there was a genuine redundancy, and so could render the redundancy dismissal unfair. If the situation at the time of dismissal was genuinely one giving rise to a redundancy, then what followed afterwards is not usually relevant. Providing evidence that the change in circumstances arose only after the termination had already taken place will help to defend against any claim.
Employees are generally only permitted to bring an unfair dismissal claim within three months of their termination date (the “limitation period”), though this can be extended by up to six weeks if the employee engages with Acas Early Conciliation. However, employers should not assume that simply because a claim has not been raised within that timeframe that they may recruit into the previously redundant role; there have been cases in which the tribunal has agreed to an extension of the deadline where the dismissed employee has subsequently discovered, after their limitation period has expired, that their redundant role has been filled.
Where there has been a change of circumstances, such that the redundant role needs to be refilled, there is no obligation to offer the role to the dismissed employee if their employment has already ended. This differs from the situation in which they are still serving out their notice period, including on garden leave, in which case the role would have to be opened up to them. Failing to offer a dismissed employee the opportunity to return to the role may open up other risks, such as discrimination, particularly if this is already part of the dismissed employee’s case regarding the dismissal.
Do I have to consider making a junior employee redundant to accommodate a senior employee willing to take the junior role?
In certain redundancy situations, it may be appropriate for the employer to consider moving a potentially redundant employee into an alternative role that is currently filled by another employee. This then results in the latter being at risk of redundancy. This is known as “bumping”, as the other person who was not initially at risk is “bumped” out of their role.
Failing to consider bumping, particularly if it is raised as an issue by a potentially redundant employee during consultation, could potentially render the dismissal unfair. However, it is not necessary for the employee to raise it in consultation for it to be an issue further down the line, so it would be sensible for employers to consider bumping at the outset, even if to ultimately dismiss it as an option, and keep a note of the fact that this has been done and the reasons for deciding bumping is not appropriate. This can then be revisited in consultation if necessary, for example if circumstances change or if the employee directly raises it.
A “bumped” employee may well consider that the practice is incredibly unfair – after all, their role is not the one disappearing. But it is an acceptable basis in law to make the employee redundant.
Do I have to provide a right of appeal?
Unlike terminations on grounds of performance or misconduct, terminations on grounds of redundancy do not carry an automatic right of appeal. It is therefore lawful to terminate employment on grounds of redundancy without expressly providing the employee with the opportunity to appeal.
That is not to say appeals are not permitted. It can be sensible to provide a right of appeal, particularly where there is a pool of one, as it may assist in evidencing that a fair procedure was followed. It may also provide an opportunity to correct any issues that may ultimately render the termination unfair, or to answer questions raised by the employee and so hopefully head off any potential tribunal claim.
However, prior to offering a right of appeal, thought should be given to whether there could be a potential knock-on effect if, on appeal, the redundancy is rescinded – someone who was previously told they were safe could now find themselves dismissed, which could create more problems. For this reason it may be appropriate not to allow a right of appeal and have absolute finality in the decision.
This article was prepared by Matthew Cranton, Employment & Immigration Partner. Matthew has significant experience in advising both employers and employees through redundancy consultations processes and in respect of claims for unfair dismissal.
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