In my newspaper and magazine articles over the last year I have often looked at the issues surrounding employing staff and the formalities that have to be respected. One year on with the economic landscape looking much poorer, what do employers need to do if they want to reduce headcount and cut costs? According to a report published by the CBI last month 65,000 jobs in manufacturing are likely to be lost in the next six months. What are the issues involved in making employees redundant?
What is redundancy?
It is defined by s.139 of the Employment Rights Act 1996 which (to paraphrase) states that a person shall be deemed to have been dismissed for reason of redundancy if the dismissal is wholly or mainly due to the employer deciding to either cease or intend to cease that particular type of business or carry on that type of work either at that location or completely.
In other words if Acacia Biscuits Ltd decide they only need 20 people packing biscuits on the production line rather than the 30 doing it at the moment, that is capable of being a redundancy situation. The legal issue that is most likely to arise is how the employer decides which people to select for redundancy and herein lies the biggest danger for employers. However, if they decide instead that they are going to cease production altogether in this country and relocate to, say, Poland, with all staff in the UK being made redundant, there will not be many issues on selection arising. Furthermore, if they decide to stop making biscuits altogether and concentrate on making cakes instead, all the biscuit workers will probably be redundant.
How does an employer select those to be made redundant?
The employer needs to use an objective system for selecting employees for redundancy. In my example above, the ten employees are all doing the same role and the employer will have to choose carefully in order to avoid claims from individuals that they have been unfairly selected. “Last In First Out” was once used as a selection tool but is no longer favoured because it may give rise to claims under Age Discrimination legislation. HR departments often draw up selection matrices that cover factors like attendance (but care is needed here as well to avoid potential difficulties under the Disability Discrimination act), targets achieved, gradings on annual appraisals and so on and award points for each factor. The employees who score lowest (or highest as appropriate) are the ones then placed at risk of redundancy.
Does the employer need to consult his employees?
In short, yes if more than 20 people are going to be made redundant at one “establishment” within a 90 day period (there is no definition of what constitutes an “establishment”, but it is commonly interpreted as meaning one place of business, although it doesn’t have to be). In that situation at least 30 days must pass before the dismissals commence. The purpose of consultation is to see if the need for redundancy can be avoided, probably be redeploying into another role. With whom he consults and for how long will depend on how many people are involved and whether there is a Union representing the employees. If there is a recognised Union involved then the employer is under a duty to consult with the Union representatives. Consultation should be a genuine two-way process and, since the case of UK Coal Mining Ltd v NUM & British Association of Colliery Management in 2007, the employer is required to consult on the business case for the redundancies to see if job losses can be avoided. If an employer fails to consult when required to do so, an Employment Tribunal can make a “Protective Award” in favour of the employee, which can be one or three months’ salary, depending on the numbers involved. Furthermore, the employee may also have a claim for unfair dismissal and a failure on the part of the employer to follow the statutory disciplinary and dismissal procedures laid down by the (soon to be repealed) Employment Act 2002 (Dispute Resolution) Regulations 2004 renders a dismissal automatically unfair.
An employee with more than one year’s continuous employment experience can apply to an Employment Tribunal if he feels he has been unfairly dismissed. An employee needs two years continuous employment in order to be eligible for a statutory redundancy payment (which is £330 per complete year of service at the moment for employees aged 21-41 and £495 for those above 41). An employee dismissed for redundancy is also entitled to receive their notice pay in accordance with their contract of employment or statute. If an employer gets the redundancy process wrong then an employee may be able to sue for unfair dismissal (maximum compensation award possible = £63,000 plus a basic award) and, depending on the circumstances, also claim that their selection for redundancy was based on discriminatory grounds, for which there is no maximum award. Because it can be very costly to get it wrong, a prudent employer will require those people selected for redundancy to sign a compromise agreement (in return for receiving an enhanced redundancy package) waiving their right to sue for unfair dismissal.
If you need further advice please call me on 0207 464 8433 or email me at email@example.com
This article will appear in the December edition of “Business 2 Business Life” magazine