7 key issues to consider when making redundancies

22nd May 2020

7 key issues to consider when making redundancies

Unfortunately, the country is likely to face a difficult economic climate for some time to come and sadly many employers will have no option other than to make redundancies.

While redundancy is one of the five permitted reasons for dismissal, employees with two or more years’ service can claim unfair dismissal. It’s important to note that there is no minimum service requirement, if the dismissal amounts to direct or indirect discrimination. Where 20 or more dismissals are proposed over a 90-day period, or less, at the same establishment, then an employer must consult employee representatives in addition to consulting with affected employees individually. Employers must also submit an HR1 form to the Secretary of State for Business, Innovation and Skills. Failure to take these steps can result in criminal sanctions and liability to pay protective awards of up to 90 days gross pay per affected employee.

Employers that approach redundancy transparently, who are honest about the difficulties they are facing and who demonstrate a genuine willingness to consider suggestions made by employees, can significantly minimise the risk of an unfair dismissal claim. The employment tribunals and courts have developed a range of standards expected of a reasonable employer, however there is no “one size fits all” approach. Instead there are several issues that employers need to address, in a redundancy situation, in a way that suits their business. An employer that thinks clearly these issues will be better equipped to make difficult decisions in a legally compliant way, whilst retaining those employees that it needs to succeed.

The following are 7 key things to consider:

1. Requesting volunteers

Some employees may be willing to take voluntary redundancy. If sufficient numbers of employees volunteer for redundancy then this may avoid the need to carry out a selection exercise (which is often a stressful experience for affected employees) and also the risk of claims. Some employers will offer enhanced redundancy packages to those who volunteer for redundancy, but this isn’t obligatory. Neither is requesting volunteers.

One reason to decide not to request volunteers is that very often the wrong employees volunteer. Those who have the skills and experience that will make them more employable outside of the business are probably the employees that the employer will most want to retain. It is important, therefore, to reserve the right to refuse any employee’s application for voluntary redundancy. This can give rise to its own problems, particularly where an employee is being denied an enhanced redundancy package. Employees who have their applications rejected may end up feeling demotivated, and even resentful. Furthermore, those who are selected for redundancy may be more likely to challenge the decision, if they discover that other employees were willing to take voluntary redundancy.
It’s important therefore to think carefully about whether asking for volunteers is the best approach for a business to take, considering the circumstances. Sometimes voluntary redundancies can cause more problems than they solve.

2. The selection pool

Where several redundancies are needed an employer will have to decide which employees should be considered. In order to apply selection criteria fairly there needs to be a clearly defined pool of employees to whom the selection criteria will need to be applied and selections for redundancy made.

It is for the employer to decide how wide or narrow that pool should be, nevertheless this needs to be considered very carefully. Sometimes an employer may decide that only one employee need be put at risk of redundancy, but this can give rise to arguments that the employer has contrived a redundancy situation in order to engineer the dismissal of a particular employee. Where an employee is in a unique position and it is his or her work that is being discontinued, for business reasons, then a ‘pool of one’ might be appropriate. However, an employer should carefully consider whether there are other employees who have similar, or interchangeable, skills who could also be included in the selection pool.

Say for example, a redundancy situation has arisen because a product line has not been performing and the employer has decided that as a result less employees are required to work on it. It may seem obvious that those employees working on that product line should be the only employees within the selection pool. However, that may not be the most appropriate or reasonable way to proceed. If the employees working on different products have interchangeable skills, then a wider selection pool would give the employer a greater opportunity of retaining the most skilled and highest performing employees in the workforce. That might result in an employee that works on a more profitable product line being made redundant and moving an employee from the product line which is not performing to take their place. This is known as ‘bumping’. The employee who is dismissed will still have been made redundant and will potentially be entitled to statutory redundancy payment. They may feel that their selection is unfair, but the employer is entitled to base its selection on retaining those employees who best meet its future needs. If the employer has properly considered the issue and can demonstrate that it reached a decision based on business reasons, then a Tribunal should find that the employer acted reasonably in taking this approach.

3. Criteria for selection

The criteria for selection should, as far as possible, be based on objective criteria. They shouldn’t be based on purely subjective factors, e.g. which employees the employer likes most. An employer will need to explain the basis for selection and how the attributes of those retained match their future requirements.

Historically selection for redundancy was largely based on an employee’s length of service. Whilst ‘last in, first out’ has the key advantage of being entirely objective, it does have some potential drawbacks. Firstly, the longest serving employees may not be the best performers, or most skilled employees. Therefore, relying too heavily on this criterion could result in an employer losing valuable employees. Secondly ‘last in, first out’ can be indirectly discriminatory. By way of example, many women are performing some roles that have traditionally been done by men. On average women performing those roles will, almost inevitably, have shorter service than their male colleagues. Selection based exclusively on length of service could therefore result in more women than men being selected for redundancy. Similarly, younger employees statistically have shorter service than older colleagues, which can also give rise to claims for indirect age discrimination.

Nevertheless, there is a general sense that ignoring length of service entirely, is a step too far. It is common to find length of service as one of several criteria included on a selection matrix. It might for example be used as a tiebreaker when employees score the same on other attributes, such as skills and performance.

Performance is a fair criterion to use, but it needs to be applied with caution. Again, ideally there should be an objective basis for selection on this criterion, for example achievement of sales targets or a performance appraisal record. Employers should avoid scoring employees based on their own subjective assessment of their performance, without evidence to back this up.

Attendance is another criterion that needs to be used carefully. Employers need to be prepared to make reasonable adjustments when poor attendance may have been caused by a disability. An employer must also consider whether it is reasonable to view the employee’s past attendance record as a reliable indicator of what might happen in the future. For example, an employee might have taken a long period of sickness absence as a result of an accident. Another employee may have lower levels of absence overall but show a tendency to suffer frequent short-term absences with no underlying medical condition. Such an employee may be more likely to have future poor attendance; therefore, the measurement of sickness absence needs to be sufficiently sophisticated to take such factors into account.

Other criteria that are commonly used are disciplinary record, qualifications and experience. These criteria are objective and easy to measure, but don’t always help the employer to select employees for retention who are best matched to its future business needs. Often an employer will be most concerned with qualities such as attitude, flexibility, and potential, however these can be difficult to measure and will frequently involve an employer making subjective judgments that it may find difficult to explain. Managers relying on such criteria should therefore produce as much objective evidence as possible to support their assessments. For example, an employer needs to be able to point to examples of poor attitude if scoring an employee low on this criterion.

When choosing selection criteria employers need to consider whether there is any potential for the criteria to operate in a discriminatory way (such as with length of service and attendance). For example, an employer might want to consider an employee’s willingness to work overtime, but the risk is that this could seriously disadvantage employees with caring responsibilities who will often be women. If challenged, an employer would have to persuade the employment tribunal that it was proportionate to rely on such a criterion.

4. Individual and collective consultation

Consultation is a key aspect of a fair dismissal. Lack of consultation may of itself render dismissal unfair.

Consultation and negotiation are not the same. However, consultation is a genuine dialogue as to the best way forward. As we’ve mentioned already, where 20 or more dismissals are proposed there is a separate legal requirement to consult collectively. However, even when only one redundancy is proposed the employer must consult those employees who are at risk of being dismissed.

A consultation will only be genuine if it takes place before the employer’s proposals have been finalised. There must be scope for the employer to change its proposals based on the responses received from employees and any alternative suggestions that they may have. Redundancy must never be announced as a fait accompli. Instead the employer should provide employees with details of its proposals and invite them to submit their views on them, and how they apply to each of them individually. Often a redundancy process will start with an initial consultation meeting with the workforce as a group to discuss the need for redundancies generally, and the proposed method for selection. This will then be followed by individual consultation meetings with employees who have been provisionally selected.
An employer is not obliged to accept alternatives put forward by employees but should give them genuine consideration. The more the employer can demonstrate that it has shifted its position as a result of consultation with employees, the easier it will be to demonstrate that the consultation was genuine.

Where less than 20 redundancies are proposed there is no minimum period over which consultation should take place. However, typically, consultation will last about two weeks before employees would be issued with notice of dismissal for redundancy. The amount of time that will be needed to carry out a consultation exercise will however vary with the number of employees in the selection pool and any procedures that might have agreed with trade unions or other employee representatives.

5. Application of the criteria

Having chosen the selection criteria and identified the affected employees, the employer must apply the criteria to select the employees who are to be made redundant. Often that will be largely a paper exercise, with a manager giving scores to employees against each of the criteria to produce a selection matrix. The lowest scoring employees will be provisionally selected for redundancy and will then be consulted about their individual scores. They will be given the opportunity to comment on their scores or challenge the way their scores have been arrived at.

Increasingly however, employers will use an interview with the employee to make the actual assessment of who they should select for redundancy. This essentially involves asking affected employees within the pool to apply for the jobs that will remain, and the employer runs what effectively amounts to a recruitment exercise. While this approach is well-established, it should be approached with caution. Performance in the interview shouldn’t be permitted to predominate over the employer’s knowledge of the employee’s performance at work. Some employees may struggle to articulate themselves well at interview and it would be unwise to make an employee redundant simply because they didn’t come across well in an interview setting. The focus of any interview should therefore be the selection criteria that have been identified. An employer should also ensure that the employee’s actual performance at work is also taken fully into account.
Employees should be told why they were provisionally selected for redundancy and how they were assessed against the criteria. They should also be given the chance to rectify any errors in that assessment. Although not obligatory, this might take the form of a formal appeal against their provisional selection. Generally, it will be enough to show that the employee has been consulted about the criteria for selection and that those criteria have been applied fairly.

6. Pregnancy, maternity and family-based leave

It is vital that pregnant women and those on maternity and other types of family-based leave are not disadvantaged. There is no law against making such employees redundant. But redundancy must be genuine and the fact that the employee is pregnant or taking such leave must not have influenced the decision to make them redundant in any way. Employers should be careful that employees who have recently returned from such leave are also not placed at any disadvantage. For example, selection criteria based on recent performance is problematic. The fact that the employee has been absent must not result in a less favourable assessment. Assessing an employee’s performance before she went on maternity leave is also risky as this may also have been affected by her pregnancy. The recommended approach is to take a wide view of performance based on the employee’s entire career history.

Employees on family-based leave must be consulted about forthcoming redundancies. Use of one or more of their ‘keeping in touch days’ may be necessary for consultation meetings. Employers must ensure that employees on family-based leave are sent all relevant correspondence. If the employer is communicating with the workforce by email or other electronic means, then it must ensure that the employee can easily access it and they will see it at the same time as other employees, or as soon as reasonably practicable afterwards. The selection process itself must be carried out in such a way that it does not place an employee on maternity leave or any other type of family-based leave at any disadvantage. If the employer is interviewing employees as part of its selection process, then an alternative approach will need to be adopted to assess any employee on maternity leave.

Employees on maternity, adoption or shared parental leave have a right to preferential treatment in relation to alternative employment. If the employer has a suitable alternative vacancy, then an employee in such circumstances who is due to be made redundant must be offered that vacancy. If the vacancy is suitable for the employee, then the employer must offer it to the employee, this is even if other more qualified candidates are available.

7. Alternative employment

A reasonable employer will consider whether there is alternative work available for the affected employees. Employers often make the mistake of assuming employees will not be interested in certain alternative roles and not discussing them with them. That’s because they may be lower paid or less senior roles. However, it’s better to give the employee details of all possible alternatives and have a genuine discussion about which (if any) of them might be appropriate.

An employee will lose the right to statutory redundancy pay if they unreasonably refuse an offer of suitable alternative employment. However, employers should not be too hasty to assume that this applies where an employee rejects an offer of alternative employment. Firstly, the offer itself must be ‘suitable’. This involves comparing the terms and conditions of the new role with those the employee currently works under. If the new role would involve a significant pay cut, longer working hours or a need to relocate then it is unlikely to be considered suitable alternative employment. The same can be said of a significant loss of status or seniority.
Even if the role is suitable, the employee’s refusal may be reasonable. Reasonableness is judged from the employee’s point of view, considering the subjective reasons for the refusal. These may include family commitments that prevent relocating or travelling longer distances to work, or there might be reasons related to the nature of the work. Provided the employee can explain why the new role was not suitable for them, a Tribunal is likely to be sympathetic.

It’s often assumed that acceptance of an offer of alternative work will trigger a four-week trial period. However, the statutory trial period will only apply where an employee has been given formal notice of dismissal and the alternative work commences after that notice has taken effect. In such circumstances the employee can resign at any time during the first four weeks of the new role and still claim a statutory redundancy payment.

If, however, the alternative role begins before the notice period expires, or before notice has been given, then any trial period is simply a matter to be agreed between the parties. If the employee is unhappy in the new role and resigns then they may not be entitled to statutory redundancy pay. To avoid disputes, when making the offer of alternative work, the employer should clearly set out whether any trial period will apply and what will happen if either party is unhappy with how the new role is working out.

The guidance contained in this is article is for general purposes only and does not constitute legal advice. Employers and employees should seek independent legal advice on their circumstances. For advice on redundancy or any other employment law issue, please contact Marie Allen at marie.allen@gotelee.co.uk or 01473 298133.

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