Business Law

Redundancy - A Guide for Employers

In the current hard economic climate many employers will have to face the difficult decision of whether or not to make some of their employees redundant.  The key to managing redundancies between management and employees is good, effective communication throughout the process.  Where an employer proposes to make 20 or more employees redundant at one establishment over a period of 90 days or less, there is a right to collective consultation.  Employers should also consult individual employees.  Tribunals have found that dismissals have been unfair where a union has been consulted but individuals have not

Redundancy is defined as: “dismissal for a reason not related to the individual concerned or for a number of reasons all of which are not so related”.  This definition might include a situation where dismissal is not related to the conduct or capability of the individual.

Employees are entitled to a Statutory Redundancy Payment if they are dismissed due to one of the following reasons:

  1. The employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed
  2. The employer has ceased, or intends to cease, to carry on the business in the place where the employee was employed
  3. The requirements of the business for the employee to carry out work of a particular kind has ceased or diminished or are expected to cease or diminish
  4. The requirements of the business for the employee to carry out work of particular kind, in the place where they were so employed, has ceased or diminished or are expected to cease or diminish within a reasonable period

What should you do to avoid redundancies?

Your company should develop a strategy for managing human resources which will minimise disruption, reduce or avoid job losses and make any organisational change easier.  If you plan ahead, you can decide what your current and future staff needs should be, avoiding short term situations and costly mistakes. If you still find yourself in a position where you are considering making compulsory redundancies you should consider:

  1. Natural wastage
  2. Restrictions on recruitment
  3. Retaining and redeployment to other parts of the organisation
  4. Reduction or elimination of overtime
  5. Introduction of short term working or temporary lay off
  6. Seeking applicants for early retirement or voluntary redundancy
  7. Termination of employment of temporary or contract workers

Should you have a redundancy procedure?

A formal redundancy procedure should be negotiated and agreed with trade unions or staff representatives,  be fully transparent and open avoid the suspicion that redundancies are imminent and allow representatives to contribute their views and ideas.

Depending on the size and nature of the company, the contents of the formal procedure on redundancy would normally contain the following elements:

  1. An introductory statement of intent towards maintaining job security wherever practicable.
  2. Details of the consultation arrangements with trade union or employee representatives.
  3. The measures for minimising or avoiding compulsory redundancies.
  4. General guidance on the selection criteria to be used when redundancy is unavoidable.
  5. Details of the severance terms.
  6. Details of any allocation expenses
  7. Details of any hardship or appeals procedures
  8. The policy on helping redundant employees obtain training or search for active work

How should you select employees for redundancy?

You should consult affected employees over redundancy at the earliest opportunity. You should try wherever possible to use objective criteria precisely defined and capable of being applied in an independent way.  When selecting employees for redundancy you should bear in mind that they must be selected fairly.

The chosen criteria must be consistently applied and be objective, fair and consistent.   Basing your selection on skills or qualification will help you to keep a balanced workforce appropriate to your organisation’s future needs.  You should also establish an appeals procedure.

Possible redundancy criterion

  • Attendance record
  • Disciplinary record
  • Skills or experience
  • Standard of work performance
  • Aptitude for work
  • Last in / First out (LIFO)

You can also include formal qualifications and advanced skills but not in isolation.

What are generally regarded as unfair selection criteria for redundancy?

Employees who are made redundant will be found to have been unfairly dismissed if they were unfairly selected for redundancy:

  1. For asserting a statutory employment right
  2. On parental leave or maternity related grounds
  3. Because they work part time
  4. Because they are fixed term workers
  5. For exercising or seeking to exercise the right to be accompanied at a disciplinary or grievance hearing
  6. Requesting flexible working arrangements
  7. For a reason relating to rights under the Working Time Regulations 1998
  8. For a reason relating to rights under the National Minimum Wage Act 1998
  9. For a reason relating to the Tax Credits Act 2002
  10. For “whistleblowing”
  11. For participating in trade union activities, for membership of non-membership of a trade union and in respect of trade union recognition or de-recognition
  12. For carrying out duties as an employee representative or candidate for election for purposes of consultation or redundancies or business transaction
  13. For taking part in an election of an employee representative for collective redundancy purposes
  14. For taking action on health and safety grounds as a designated or recognised health and safety representative or as an employee in particular circumstances
  15. For taking part in consultation on specified health and safety matters or taking part in an election for a representative of employee safety
  16. For taking lawfully organised industrial lasting 8 weeks or less
  17. For refusing or proposing to refuse to do shop work or betting work on Sundays
  18. For performing or proposing to perform the duties of an occupational pensions trustee
  19. For performing or proposing to perform the duties of a workforce representative for the purposes of the Trans-National Information and Consultation of Employees Regulation 1999
  20. If the selection criteria employed were deemed to be discriminatory under any of those grounds prohibited by law

For further information please contact:

Marina Vincent on 020 8422 5678