Now that the summer is over, organisations are turning their attention to the productivity of their businesses, in an increasingly competitive landscape.
The recent increase in employer national insurance contributions has raised the cost of employing staff, while advances in technology, most notably artificial intelligence, may be reducing the demand for human labour.
It is unsurprising that, against a backdrop of economic uncertainty, unpredictable growth, and evolving market demands, redundancies are frequently a part of the conversation. Senior leadership teams often then take a commercial decision to reduce headcount. However, there are several pitfalls when managers proceed without a good understanding of the law relating to redundancy, consultation periods and severance pay.
In this article we address some of the most common myths and misconceptions about redundancies.
1. “Redundancy can be used to label most dismissals”
Many will use the term “redundancy” incorrectly to refer to a “no fault” dismissal of any kind. An organisation may then seek to dismiss an employee with notice in accordance with the provisions in the employment contract and label the dismissal a “redundancy”. However, redundancy has a statutory definition, which is set out in the Employment Rights Act 1996 (“ERA”). An employee is dismissed for redundancy when the dismissal is “wholly or mainly” attributable to the fact that:
a. the employer has ceased or intends to cease to carry on the business for which the employee was employed (or to cease carrying it on in the place where the employee was employed) (i.e. a business or site closure); or
b. the requirements of the business for employees to carry out “work of a particular kind” (or work of a particular kind in the place where the employee was employed) “have ceased or diminished or are expected to cease or diminish” (i.e. a reduced requirement for the particular kind of work carried out by the employee).
Other “no fault” dismissals should be correctly classified and not labelled as redundancy if the above definition is not met. For example, if an employee is underperforming. The performance management process includes setting fair objectives and giving the employee a reasonable opportunity to improve over a reasonable period of time.
Attempting to implement a redundancy exercise in lieu of a more time consuming and potentially less palatable dismissal procedure can leave the employer vulnerable to unfair dismissal claims.
2. “Where fewer than 20 redundancies are proposed, we can complete a redundancy consultation in a week”
The collective consultation regime, which is engaged when an employer proposes 20 or more redundancies at the same establishment within a period of 90 days or less, requires a consultation period of either 30 or 45 days depending on the number of employees impacted.
However, there is no prescribed statutory time period for an individual redundancy consultation period. We know from case law (Rogers v Slimma Plc UKEAT/0182/07) that seven days’ consultation was considered the “bare minimum” but nevertheless an adequate period in those specific circumstances.
We also know that consultation must be genuine and meaningful and that it will be fundamental to the fairness of an individual’s redundancy dismissal. Therefore, the length of the consultation period will need to be adjusted to the specific facts and circumstances. Employers are advised to err on the side of caution when planning consultation time frames. The shorter the time frame, the higher the risk that procedural fairness may be called into question.
Consultation must also take place when redundancy proposals are at a “formative stage”. This means it should occur at a time when the employer has an open mind and it is possible for the employee to influence the outcome. Employees are only at risk of redundancy ahead of the conclusion of the consultation period.
3. “Reorganisation means redundancy”
This is a common misconception. It is often believed that a reorganisation or restructuring will necessarily involve a redundancy scenario.
Although redundancy exercises and reorganisations involve structural personnel changes, a reorganisation does not always involve redundancies; it can simply mean restructuring roles or teams to optimise workflows, reallocate resources or adjust roles to better meet strategic, commercial goals without the need to also reduce headcount.
Ordinarily, redundancies are the result of operational changes or financial pressures that involve the need for role reductions. This usually requires a selection process to fairly and rationally determine which employees stay. It is important for employers to consider carefully whether the re-structure or reorganisation does in fact satisfy the redundancy definition above before commencing the redundancy process.
4. “Voluntary redundancies are not redundancies”
There are several myths around voluntary redundancies. Voluntary redundancies still qualify as statutory redundancies. Therefore, the requirement for an employer to carry out a fair process remains.
Employers can either offer the opportunity to staff to take voluntary redundancy or employees can “volunteer” without an employer making clear that voluntary redundancy is being offered as an option. There is no legal obligation on employers to accept offers of voluntary redundancy.
Employees who volunteer are entitled to the same redundancy payments and legal protections as those who are otherwise selected for redundancy. Dismissing someone under the label of “voluntary” redundancy without adhering to a fair procedure carries legal risk, including employee claims of unfair dismissal. Therefore, voluntary redundancies do not necessarily protect employers from Tribunal claims, although they may reduce the likelihood of disputes. If a process is discriminatory, lacks transparency, or if undue pressure is placed on an employee to accept redundancy, the risk of an employee bringing a claim remains high.
Relying exclusively on the “voluntary” nature of an employee’s exit, without the legal protection of a settlement agreement, may leave employers exposed.
5. “Employees on maternity leave cannot be made redundant”
Although specific legal protections apply, it is still possible in some circumstances for an employee to be made redundant fairly during maternity leave. However, employers must exercise caution as employees who are pregnant or who have given birth within the preceding 18 months are afforded enhanced protections during a redundancy process, which includes giving them a priority right to alternative vacancies.
Any selection process or redundancy decision carried out by an employer must not be related to the employee’s pregnancy or maternity leave. Redundancy decisions are to be based on objective, fair criteria, in line with the Equality Act 2010 to avoid claims of unlawful discrimination.
Employees must also remember to include pregnant employees or those on maternity leave in all relevant communications and consultations as may be appropriate and required.
6. “The ‘last in, first out’ rule will apply so the employees with longer service are safe”
The belief that newer employees will always be made redundant ahead of longer serving employees is incorrect and the approach carries considerable legal risk. Length of service should not be the only objective selection criterion applied when scoring employees as part of a fair and non-discriminatory selection exercise.
The “last in, first out” approach increases the risk of younger employees alleging indirect discrimination claims because they have less time to accumulate years of service. As a result, an employer would then need to provide justification that its approach was proportionate to achieve a legitimate aim.
Length of service as an evidence-based, measurable, objective selection criterion may be valid but it should be included alongside other such criteria, that may include, for example, attainment of performance targets, time keeping and attendance.
7. “Lay offs” mean redundancies
People may colloquially refer to redundancies as “lay-offs”. However, in employment law terms, “lay-off” refers to a different concept, which involves an employer temporarily ceasing to provide paid work to an employee (for example a closure of the business due to lack of supplies or orders) who nonetheless remains an employee.
8. “All redundant employees are entitled to redundancy payments”
Not every employee who is made redundant is automatically entitled to a redundancy payment if they are ineligible for a statutory payment and no express or implied contractual payment falls due.
Only employees with more than two years’ continuous service are entitled to statutory redundancy payments, which are calculated on the basis of an employee’s age and how long they’ve worked for the employer.
Currently, statutory redundancy pay is capped at a statutory maximum weekly amount of £719 up to £21,570. The maximum length of service that is considered for redundancy pay is 20 years.
In addition, even those with two years’ service may not be entitled to a statutory redundancy payment if they unreasonably refuse an offer of suitable alternative employment.
Contact us
If you have any questions about these issues in relation to your own organisation, please contact a member of the team or speak to your usual Fox Williams contact.
This general guidance should not be relied upon without first taking separate legal advice. Neither the author nor Fox Williams LLP accepts any responsibility for any consequences resulting from reliance on the contents of this document.
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