Redundancy: the dos and the don’ts

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Despite living in better economic times – even with Brexit in the background – there are still some sectors, including transport, where the risk of redundancy exists. Chloe Themistocleous explains

Despite growth in the coach and bus sector, there are firms that are making staff redundant for a number of reasons and not all follow the procedures to the letter.

Drivers made redundant in August 2017 following the liquidation of a North Yorkshire coach company – Utopia – were lucky that rival First York offered a helping hand; they were urged to contact First York to apply for vacancies.

It appears that the drivers weren’t told that they had been made redundant, instead they heard the news from the company’s Twitter post. [wlm_nonmember][…]

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[/wlm_nonmember] [wlm_ismember]

And consider too the widely reported November 2017 case of Somerset-based Nippy Bus.

Managing Director Sydney Hardy shut down the firm without notice and told staff, even including his own daughter, “I cannot work with you a moment longer,” and that he wanted to “pursue my dream of not having to work here.” The sudden closure left 27 drivers out of work.

What actually constitutes a redundancy situation?
As an employer, when making redundancies it is important to get it right, as failing to do so could result in unfair dismissal claims being made and succeeding, meaning the employer must pay compensation.

In order to fairly dismiss an employee, an employer must have a fair reason to dismiss, follow a fair procedure and the decision to dismiss, when considering all the circumstances, must be reasonable.

Redundancy is one of five potentially fair reasons an employer can give to dismiss an employee.

Employers must be careful though, as they are required to prove there is a genuine redundancy situation in order to rely upon this reason in the event that they are defending an Employment Tribunal claim.

A genuine redundancy situation can arise where a business has closed altogether, one of a business’s sites has closed or relocated, or where the business’s requirement to undertake certain work has reduced. For example, a bus company that lost a school run contract.

Alternatively, a firm that required employees to maintain paper records may no longer require any of those employees if it moves to a paper-free computer system.

If an employer relies upon redundancy as the fair reason for dismissal and there is not a genuine redundancy situation, it is highly likely that an Employment Tribunal claim of unfair dismissal against it would succeed.

How can you dismiss for redundancy fairly?
Provided there is a genuine redundancy situation, there are three key tasks employers must do to ensure they dismiss fairly.

Firstly, they must warn and consult employees or their representatives about the proposed redundancy.

They must adopt a fair basis to select employees for redundancy; and thirdly, they must consider suitable alternative employment in order to avoid having to make redundancies.

Warning and consulting
Employers should approach affected employees at an early stage, prior to a formal decision being made, to inform them about possible redundancies and give employees the opportunity to suggest ways in which redundancies could be avoided.

This is commonly done by holding a meeting for all those employees affected or by making an announcement.

When making small scale redundancies of under 20 people at one site, best practice is to then meet with employees on a one-to-one basis to discuss how the redundancy process will affect them personally.

If an employer is proposing to make large-scale redundancies – 20 or more employees within a 90-day period – the employer will have to undertake collective consultation with the appointed trade union or, if no union is recognised, the body of elected employee representatives.

Fairly select
Fair selection depends on the nature of the redundancies being made.

If someone is in a unique role or an entire team of employees undertaking a certain role that is no longer required are dismissed, selection is less of an issue as that unique individual or all of the team will be selected – there is no need to select who will be saved from redundancy at the expense of someone else.

However, where teams are being reduced in size or employees’ skills are interchangeable, businesses must take care to ensure they fairly select employees for dismissal.

The first step is usually to identify a pool of employees at risk of redundancy.

For example, a shop selling wooden furniture employs people to make furniture in a workshop attached to the shop and others to sell the furniture in the shop.

It decides to open an online store due to a downturn in business and they no longer require half the sales people, so all of the sales people would be placed in the pool of employees at risk of redundancy.

The employees who made the furniture, however, would not be placed in the ‘at risk’ pool of employees as their job is different and is still required to the same degree.

Here the business must have a fair and reasonable way to select which half of the sales people are retained and which are made redundant. In order to be reasonable, the redundancy selection criteria should be objective and capable of independent verification.

This means that the criteria should be measurable, rather than just being based on personal opinion. Potentially fair selection criteria include:

  • Measurable performance such as sales figures;
  • Relevant qualifications for the job;
  • Recent appraisal scores;
  • Length of service;
  • Attendance records; and
  • Disciplinary records.

Selection on purely subjective grounds is likely to be unfair. This is to ensure that an employee is not selected by a manager due to personal animosity.

It also helps avoid unfair reasons or discriminatory reasons, such as the employee being pregnant, old, disabled or a whistle-blower creeping into the process.

Examples of criteria that are too vague, imprecise or subjective include whether an employee is liked by their colleagues and whether they are perceived as a hard worker.

Finally, the amount employees in the ‘at risk’ group are each paid is not generally a fair selection criterion in the eyes of the law.

Once an employee has been provisionally selected for redundancy, the employer must consider if there are any other jobs that the employee could do to avoid being made redundant.

Of course, the employer does not have to create a new job for the employee, but the employee should be offered reasonable alternatives that are available.

This can include reasonable alternatives available in group companies also. Trials in roles can be undertaken by employees to see if a role is suitable.

If a suitable role is unreasonably refused by an employee, they can lose their right to a redundancy payment.

If redundancy cannot be avoided and an employee is dismissed, it is important to remember to offer the employee a right of appeal.

Sometimes redundancy is handled by a company’s administrators. If that is the case, the administrators essentially step into the company’s shoes and should follow the same process as outlined above.

If putting employees that are currently on maternity leave at risk of redundancy, it is important for employers to remember that they have a right to be saved from redundancy first by being given alternative employment before any employees at risk who are not on maternity leave.

What is the cost of redundancy to the employer?
An employee facing redundancy should be given notice of their dismissal (whether it is worked or paid in lieu) as per their contract of employment.

Alternatively, they must be paid the statutory minimum where there is no contract, or whether the contract is silent or does not meet the statutory minimum notice periods required.

Employees with two years’ service are also entitled to a redundancy payment.

There are statutory minimum redundancy payments that must be paid, but sometimes employee’s contracts stipulate a higher rate of redundancy pay.

Statutory redundancy payments are calculated by considering the employee’s age, the number of each full years of service and their weekly pay up to a maximum of £508 per week.

If a redundancy payment is not paid where it’s due, an employee can issue proceedings in the Employment Tribunal.

And if the employee believes their dismissal is unfair they can also issue proceedings for unfair dismissal, seeking compensation to cover salary losses up to a maximum of a year’s gross pay or £83,682 – whichever is lower.

If an employer is making large-scale redundancies and fails to collectively consult with trade unions or elected bodies properly, employees can also make a claim for up to 90 days’ pay for a failure to consult, referred to as a ‘protective award’.

When faced with redundancy, employees will need to take proactive steps to look for a new opportunity – visiting the job centre, recruitment agencies, looking at study courses, rewriting their CV, filling out application forms and attending job interviews.

Employers need to remember that the law allows employees reasonable time off during working hours to look for a new job or make arrangements for training for future opportunities.

This applies to those who have been given notice of redundancy and who have worked for the company for at least two continuous years by the date their notice expires.

Clearly, it can therefore be very costly if mistakes are made when making redundancies and companies that do not have experienced HR advisors to manage the process should seek independent advice.

Any redundancy process is going to be traumatic. And it’s important for an employer to realise the redundancy process doesn’t finish when a decision has been made.

Employees made redundant may need support in searching for alternative work, and those who have been offered alternative work within the organisation may need training and support to ensure a smooth transition.