HR People Management Exchange - Redundancy

HR People Management Exchange – 26 November 2008

REDUNDANCY (Overview)
Introduction
Managing a redundancy procedure can be a daunting prospect. The process involves sensitivity, tact and a considerable amount of legal knowledge. This note is intended to provide a basic overview.
Meaning of "redundancy"
In order to fall within the statutory definition of "redundancy" an employee's dismissal must be "wholly or mainly attributable to" the employer:

• Ceasing or intending to cease to carry on the business for the purposes of which the employee was employed by it (business closure);

• Ceasing or intending to cease to carry on that business in the place where the employee was so employed (workplace closure); or
• Having a reduced requirement for employees to carry out work of a particular kind or to carry out work of a particular kind at the place where the employee was employed to work (reduced requirement for employees).
Unfair dismissal
Employees with a year's continuous employment are entitled not to be unfairly dismissed.

A redundancy is a potentially fair reason for dismissal.
Potentially unfair redundancy
Even if a dismissal is genuinely on grounds of redundancy, whether it is fair or unfair to dismiss for that reason normally depends on the application of the general test of fairness.

In the case of redundancy, the employment tribunal must consider whether the decision to dismiss lay within the range of conduct that a reasonable employer could have adopted ("the band of reasonable responses test"). An employer will normally not act reasonably unless it:

• warns and consults any affected employees (or their representative);
• adopts a fair basis on which to select for redundancy (including pools and selection);
[NB: selection based on an employee being on maternity leave or for having exercised some other statutory right would be automatically unfair]
• takes such steps as may be reasonable to avoid or minimise redundancy by redeployment within its own organisation (including offering alternative employment).
Individual consultation
The employer must normally warn employees of the possibility of redundancy and then consult individually with them before reaching any firm decision regarding their dismissal. A procedural failure does not automatically lead to a finding of unfair dismissal (unless the minimum statutory DDPs are not complied with).
Matters to discuss during consultation
The matters that should be discussed during the consultation process will depend on the specific circumstances but, typically, consultation will include the following:

• Notification that he/she has been provisionally selected for redundancy.
• Verification of the basis for selection.
• An opportunity to comment on their redundancy selection assessment.
• An opportunity to put forward any suggestions for ways to avoid redundancy.
• Consideration of any alternative employment positions that may exist.
• An opportunity to address any other matters or concerns.
Statutory dismissal and disciplinary procedures (DDP’s)
Whether the DDPs apply will depend on the number of redundancies the employer is proposing to make at one establishment within a 90-day period.

If the employer is proposing to make 20 or more employees at one establishment redundant within a 90-day period, the employer is obliged under section 188 of TULRCA to inform and consult employee representatives (another topic in itself!) and the obligation to follow a DDP does not apply.

Where less than 20 redundancies are proposed in a 90-day period, the DDPs apply to each employee whom the employer contemplates dismissing. A failure to follow the DDPs will lead to a finding of unfair dismissal and can also lead to an increase in any compensation awarded (whether in respect of an unfair dismissal claim or otherwise) of between 10% and 50%.

The standard DDP provides for a three-step procedure as follows:

1. Step 1: the employer must set out in writing the grounds on which dismissal is being contemplated and invite the employee to attend a meeting to discuss the matter.
2. Step 2: the employer must hold a meeting, prior to which the employer must have informed the employee of the basis for the grounds of action given to the employee pursuant to Step 1. In redundancy cases this will include why the employer has decided to make redundancies and why the employee is being (provisionally) selected for redundancy. Provide details of the pool, the selection criteria and the employee's assessment under those criteria.
3. Step 3: the employer should provide the employee with a right of appeal against any decision to dismiss them.
There are also general requirements that must be followed. These are:
• Each step and action must be taken without unreasonable delay.
• The timing and location of meetings must be reasonable.
• Meetings must be conducted in such a way that both employer and employee are given the opportunity to explain their case.
Where the meeting is an appeal meeting, the employer should, so far as is reasonably practicable, be represented by a more senior manager.
Selection criteria
Fair selection involves the fair application of, ideally, objective selection criteria to the correct pool of employees.
The pool
An employer should begin by identifying the group of employees from which those who are to be made redundant will be selected. If an employer simply dismisses an employee without first considering the question of a pool (unless it is a unique role), the dismissal is likely to be unfair.

Factors that may be relevant in identifying the correct pool are whether:

• other employees or groups of employees are doing similar work to the employee or group of employees provisionally selected;
• employees' jobs are interchangeable, in which case a wider pool might be appropriate;
• the selection pool was agreed with the union or employee representatives.
Once genuine consideration has been given to the issue of the pool, attention turns to the criteria to be applied in selecting particular employees for redundancy. Selection criteria should be objective and should be capable of being verified, for example, against attendance, performance and other personnel records. Selection on subjective grounds is likely to be unfair. Potentially fair selection criteria include:

• Last In First Out" (or LIFO) used to be a common (and acceptable) formula for selecting those to be made redundant, although it does run the risk of being indirectly discriminatory against female employees and/or amount to indirect age discrimination. It should therefore be used with caution.

• Individual performance and ability. It is important to ensure that criteria are clearly defined from the outset and the performance or ability can be verified. Where possible scoring should be undertaken by more than one individual to minimise subjectivity.
• Attendance record. Care should be taken, however, to ensure that absence related to pregnancy-related illness and absence on maternity or other family-friendly leave is discounted. Also, where an employee's absence is connected with a disability, selection on grounds of attendance record may amount to disability discrimination.
If fair selection criteria are unfairly applied, the dismissal will be unfair.
Ways of avoiding redundancy
Any fair procedure should involve considering whether it is possible to avoid the need for redundancies. This could involve, restrictions on recruitment, alternative employment, retraining, voluntary early retirement (age discrimination will need to be considered), voluntary redundancy, short-term working and restricting overtime.
Alternative employment
It is also important to consider alternative employment for potentially redundant employees to ensure a fair and reasonable redundancy procedure.

Employers are not obliged to create alternative employment for redundant employees where none already exists. An employer need not offer an equivalent job; if employees are prepared to accept jobs of lower status, a failure to offer such a job may render a dismissal unfair.

When considering alternative employment, any employees at risk of redundancy who are on maternity leave have an automatic right to be offered any suitable vacancies. In short, employers are required to positively discriminate in favour of women on maternity leave.
Suitability and trial periods
If an employee unreasonably refuses an offer of suitable available alternative employment it can affect the employee's entitlement to a statutory redundancy payment. The question of the suitability of the alternative employment is objective. We can provide further guidance of this and also what happens when an employee wants to leave earlier than the termination date, should it arise.

If an employee accepts an offer of alternative work they are entitled to a statutory four-week trial period to "test" the new employment. If the employee terminates their employment (or gives notice to terminate) during the trial period, they will be treated as having been dismissed for redundancy from the date on which the original contract terminated. The employee is also treated as having refused the offer of a new job. Consequently, if the new job was an offer of suitable employment, and the employee unreasonably refused it, they will not be entitled to a statutory redundancy payment.

There are specific rules applicable to any period longer than four weeks which usually result in a loss of redundancy pay. Further advice can be given if it appears that longer than four weeks is needed.
Time off to seek alternative employment
An employee who is given notice of dismissal by reason of redundancy and has two years continuous service (at the date the notice expired or would have if the statutory minimum notice had been given) has a right to take a reasonable amount of time off with pay during working hours to seek alternative employment or to arrange training for future employment. If an employer unreasonably refuses to allow an employee time off or allows time off, but refuses to pay for it, the employee can apply to the tribunal who can make an award against the employer. The remedy for a successful claim is a declaration that the employer has unreasonably refused the employee time off or has failed to pay the employee for reasonable time off and compensation representing the amount due to the employee.

There is no definition of what amounts to "reasonable". However, the tribunal will balance the needs of the employer with the need of the employee to search for work or arrange training. We can provide further guidance should this become an issue.

The maximum amount of paid time off to which an employee is entitled during the whole of their notice period is 40% of a week's pay.
Redundancy Payments
Statutory redundancy payment
Employees with a least two years' continuous employment are entitled to a statutory redundancy payment if they are dismissed by reason of redundancy.

The amount of statutory redundancy pay to which an employee is entitled depends on their age, length of service and pay. The employee is entitled to:

• One and a half weeks’ pay for each complete year of service whilst age 41 or over.
• One week’s pay for each complete year of service between ages 22 and 40.
• Half a week’s pay for each complete year of service under the age of 22.
The maximum length of service which may be taken into account to calculate a redundancy payment is 20 years, whilst a week’s pay is capped at a statutory maximum (currently £330). This figure is increased in February each year.
Contractual enhanced redundancy payment
In addition to a statutory redundancy payment, an employee may also be entitled to an enhanced redundancy payment.

Some employers will have an applicable collective or industry-wide agreement that offers enhanced redundancy payment terms. Even if there is no such agreement, there may be an established custom or practice within an individual employer that entitles an employee to an enhanced redundancy payment. An employee will only be able to enforce these terms if they can show that they have been incorporated into the contract of employment (either expressly or impliedly, e.g. by custom and practice).
Enhanced redundancy payments and age discrimination
Many enhanced redundancy payments are calculated on the basis of the employee's age and/or length of service.

The Age Discrimination Regulations include an exemption for certain enhanced redundancy payments. Those enhanced redundancy payments must be calculated in accordance with the method for calculating the amount of a statutory redundancy payment) but the calculation can be adjusted in the following ways:

• The cap on a week's pay can be removed or adjusted.
• The "appropriate amount" allowed for each year for employment (one and a half week's pay, one week's pay or half a week's pay, referable to the age of the employee) can be multiplied by a figure of more than one.
• Once either or both of these steps has been taken, the overall figure produced by the calculation can be increased by multiplying it by a figure of more than one.
• Therefore enhanced payments that are based on the statutory scheme, but are more generous, will not be unlawful under the Age Regulations. However enhanced redundancy schemes that have some other basis for calculation, not based on the formula for a statutory redundancy payment and adjusted as permitted by Regulation 33 of the Age Regulations, will need to be objectively justified under the Age Regulations. In particular, enhanced redundancy payments that are based on length of service alone will need to be objectively justified.

Notice pay
In addition to any statutory redundancy payment and enhanced redundancy payment due to redundant employees, they will also be entitled to payment of notice for any period of notice not worked.

These notes are for guidance only.
The material for this presentation has been designed solely for the benefit of delegates attending this presentation. The material is not complete and does not stand on its own and is not intended to be relied upon for specific advice.
Please contact Wheelers LLP for advice on any specific issues that may arise.