25th April 2017
Employment Law and Redundancy
This briefing covers the definition of redundancy, an employee’s rights in a redundancy situation, what constitutes a fair redundancy consultation, suitable alternative employment, collective consultations, redundancy pay, and unfair dismissals by reason of redundancy.
The Employer’s Freedom to Change Their Business
Businesses have many reasons for changing the way they operate. They could include moving location, replacing staff with new technology, economic pressures that require a business closure or a reduction in staff numbers, moving into new markets or internal reorganisations.
The law won’t interfere with an employer’s freedom to make such business decisions and the employer will not be required to justify their reasons for making redundancies. Providing a tribunal is satisfied that the redundancy is the genuine reason for any dismissals of employees, it will not look behind the facts to see how the redundancies arose.
A Genuine Redundancy Situation
That said, the employer must ensure they have a genuine redundancy situation before dismissing for redundancy. That means the employer must be able to show that the redundancy is for one of the three reasons set out in Section 139 of the Employment Rights Act 1996. Broadly speaking, these are:
- Business closure (that is the closure of the business altogether).
- Workplace closure (that is the closure of one of several sites or relocation to a new site).
- A reduced need of the business for employees to do work of a particular kind.
Employers must not use a “sham” redundancy situation to dismiss a poor performing, sick or disruptive employee or the dismissal will be unfair. Instead it may be possible to fairly dismiss these employees by reason of capability or misconduct.
Selection for Redundancy
The employer should begin the selection process by identifying the group of employees at risk of redundancy, known as the redundancy selection pool. The employer will then need to apply suitable selection criteria to decide which of the employees in the pool will be retained and which will be provisionally selected for redundancy. The selection criteria should be objective, rather than subjective, otherwise any redundancies that follow are likely to be unfair. Objective selection criteria may include:
- Length of service
- Skills, qualifications and training
- Attendance record
- Time keeping
- Disciplinary record
Redundancy selection criteria that discriminate on the grounds of sex (including pregnancy), fixed term of part-time status, race, age, disability, sexual orientation, religion or belief should not be used.
Employers may attach different weighting to each criteria reflecting their relative importance. However, the employer will need to be able to justify such weighting as fair in the circumstances. The selection criteria must be applied in a fair way, by an appropriate manager, or managers, with reference to accurate and up to date information and documentation.
Once the employer has provisionally selected the employees to place in the redundancy pool, the employer should consult properly with each employee before making a final decision on whether to make them redundant. This will usually mean the employer will hold several meetings with the employee to discuss the situation in more detail. The types of issues that may be discussed at these meetings include:
- Suggestions as to ways that the redundancy can be avoided.
- Considering any alternative employment positions that may exist.
- Discussing the basis for the selection in terms of the selection pool.
- Discussing the selection criteria and the way in which the employee was scored.
- Giving the employee the opportunity to provide any further information that may influence the employer’s final decision.
- Any other matters or concerns the employee may have.
At the end of the consultation period the employer will confirm whether it is making the employee redundant or whether an alternative to redundancy has been found. In some cases, the consultation period will be extended to give time to explore any further potential alternatives to redundancy.
If the employer fails to adequately consult with the employee, or fails to offer them the right to appeal the decision to dismiss them for redundancy, the employee may have a claim for unfair dismissal depending on the circumstances.
If the employer is considering making 20 or more employees redundant within a 90 day period, it will also have a duty to undertake “collective consultation” with representatives of affected employees, rather than just meeting with the employee on an individual basis. The representatives will be either elected employee representatives or trade union representatives.
If the collective consultation requirements apply, the employer will also need to begin the consultation process at least 30 days before any dismissals take effect (or 45 days if the employer is contemplating dismissing 100 or more employees) and notify the Department for Business, Energy and Insdustrial Strategy that it is contemplating making large scale redundancies. If the employer does not comply with the collective redundancy requirements, the employee representatives can apply to the Employment Tribunal who can order the employer to pay compensation for up to 90 days’ pay to each employee affected.
During the consultation period and at any time before the employee’s dismissal takes effect, the employer is obliged to consider any suitable alternative vacancies that may become available in the business or in the associated companies. Any employee on maternity leave or additional paternity leave has the right to be offered any suitable alternative employment first. However, if an employer has more than one potentially redundant employee interested in an alternative role, it can undertake a competitive interview process to decide who to offer the role to.
Statutory Trial Period
Employees can accept an alternative role on a 4 week statutory trial basis to decide whether it is suitable for them. If they decide during or at the end of the trial period that the role is not actually suitable, the employee can accept redundancy and they will not lose their right to a statutory redundancy payment. However, if an employee unreasonably rejects an offer of suitable alternative employment, they will lose their right to a statutory redundancy payment. If the trial period is successful and the employer and employee agree that the new role is suitable, the employee will no longer be entitled to any redundancy pay as the employment will not be ending.
If the employee has at least two years’ service with the employer, they will also have the right to take a reasonable amount of paid time off work to look for alternative employment or to arrange training to assist them in finding alternative employment.
Redundancy Pay and Other Financial Entitlements
Employees who are made redundant are entitled to certain payments depending on how long they have been employed and the terms of their employment contract:
- Statutory Redundancy Pay (SRP). If the employee has worked for the employer for two years or more, they will usually be entitled to a statutory redundancy pay. (SRP) The amount of SRP will be calculated using a set formula that takes into account the employee’s age, length of service and weekly pay, subject to an upper limit. The formula is:
- One and a half week’s pay for each complete year of service over the age of 41;
- One week’s pay for each complete year of service over the age of 22 but under the age of 41; and
- Half a week’s pay for each complete year of service aged 22 and under.
The period of continuous employment is capped at a maximum of 20 years and the gross weekly pay is currently capped at £479 per week (rate current from April 2016).
Enhanced redundancy Pay
The employee may be entitled to an additional redundancy payment (or a redundancy payment even if they have not been employed long enough to qualify for an SRP) if the employer has:
- Entered into a collective agreement with a Trade Union setting out enhanced redundancy terms, which have been incorporated into the employment contract;
- A redundancy policy that sets out contractual entitlement;
- An established custom and practice in making enhanced redundancy payments which has been consistently followed or if there is an established custom and practice in the industry in which the business operates; or
- The employee is offered an enhanced redundancy payment conditional on the employee entering into a Settlement Agreement.
- The amount of Notice Pay due to the employee will depend upon the terms of the employment contract and is subject to a statutory minimum based on length of service. This is broadly one week per year of service up to 12 years. The employer may not require the employee to work all or part of their Notice Pay and may make a payment in lieu of notice. Alternatively the employer may allow the employee to stay at home during the notice period (known as Garden Leave) and will pay the employee on the usual pay day.
- Pay In Lieu For Accrued But Untaken Holiday
- If the employee has accrued untaken holiday entitlement as at their last day of employment they will be entitled to a payment in lieu of holiday. Alternatively, if the employee has taken more holiday than they would have accrued as at the last day of employment, the employer may be entitled to make a deduction from their final salary payment.
If the employee is to be made redundant the employer should write to them setting out the payments they are entitled to.
Unfair Dismissal By Reason Of Redundancy
If there is a genuine redundancy situation and the employer follows a fair procedure it will be able to fairly dismiss the employee for that reason. If there has been no genuine redundancy situation or the employer has not followed a fair procedure in selecting the employee for redundancy, or the decision made by the employer to select a particular employee is one which no reasonable employer should have made, the employee may have an unfair dismissal claim. For more information about redundancy, unfair or constructive dismissal please contact us today.
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25th April 2017
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