Managing RedundanciesPosted in : HR Updates on 25 June 2012
Anne Dougan writes:
According to the CIPD Work Audit Counting the cost of the jobs recession, by the end of 2011 there were 460,000 fewer people in work in the UK than at the pre-recession peak in spring 2008; in the same period unemployment increased by more than 1 million. The need to move forward with a redundancy programme is still daunting for many employers and for many SMEs who lack internal expertise the developing legislation makes it a particular challenge. We have summarised essential steps and tips below and some of the key procedural elements. The manner in which they are applied will depend on the nature of the redundancies, the organisation's objectives and numbers involved.
When does a redundancy exist?
Many challenges to dismissal on the grounds of redundancy are on the basis of whether the redundancy was genuine. Redundancy is defined by the Employment Rights (NI) Order 1996:
“174. — (1) For the purposes of this Order an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to—
(a) the fact that his employer has ceased or intends to cease—
(i) to carry on the business for the purposes of which the employee was employed by him, or
(ii) to carry on that business in the place where the employee was so employed, or
(b) the fact that the requirements of that business—
(i) for employees to carry out work of a particular kind, or
(ii) for employees to carry out work of a particular kind in the place where the employee was employed by the employer, have ceased or diminished or are expected to cease or diminish.”
Note that Article 174 (5) states “(5) In paragraph (1) “cease” and “diminish” mean cease and diminish either permanently or temporarily and for whatever reason.”
Key issues for you as an employer to focus on are:
- It is THE JOB that is redundant in the first instance. The individual affected should only be so due to the fact that the job no longer exists.
- Poor performance of an individual is not a valid reason for making a role redundant.
- You will need to articulate clearly the reasons why the role is redundant.
Your headcount could remain constant but the type of work change. Therefore you could be making some employees redundant while recruiting in other areas.
What are the steps I need to follow?
By the time you announce either one or 1000 redundancies a lot of the work should be done already. Taking the time to consider alternatives, plan each step, get your documentation perfect and organise logistics is essential.
There is a requirement to consult in a meaningful way with employees (and their representatives) who may be impacted on by redundancy.
How long must I consult for?
- At least 30 days notice before the first redundancy dismissal for between 20-99 people
- At least 90 days for 100+ people.
- For less than 20 people consultation should be sufficient to allow meaningful dialogue and the statutory (123) dismissal procedures must be followed.
Who do we consult with?
Consultation should be at both group and individual level.
Group consultation will normally be with Trade Unions or duly elected work force representatives. Individual consultation allows employees to raise their individual concerns and discuss individual circumstances.
Note also that the Department of Employment and Learning must be informed of any collective (20+) proposals. The Department requires information in writing about the employer’s proposals prior to any redundancies being made.
When consulting with the group representatives the following information must be provided:
- Reason for potential redundancy
- Number of people involved
- Method of selection
- Support available
The regulations state that information must be given within certain time limits:
- If 20 – 99 potential redundancies occur at one establishment, at least 30 days notice must be give before the first dismissal takes place.
- If 100 or more potential redundancies occur at one establishment, at least 90 days notice must be given before the first dismissal takes place.
Consultation With Employees
The legal requirements of consultation with employees are as follows:
- Give as much notice as possible (note that the collective requirements are minimal – exceed them where you can).
- Explain the reason for potential redundancy (the reason must fit the statutory definition).
- Ensure no public announcement is made before the employee knows (how would you like it if it happened to you?).
- Explain the method of selection (it should be transparent and fair).
- Consult about alternative positions (do not assume employees will turn down lower positions).
- Provide written information about redundancy payments (and don’t forget about absent employees in all of this).
Note: during consultation the redundancy is only proposed and shouldn’t be confirmed until consultation is over.
Selection is one area that is open to consultation so again this is ‘proposed’ in the first instance. The group may wish to feed back ideas or alternatives in relation to the process or the criteria. Where a role or a function disappears it is normally straightforward – everyone is redundant as all similar roles are gone. However, if there are similar roles in another team you should ensure there is no challenge that everyone should be put in a pool for selection.
Where there are a reduced number of roles a process of selection will have to be carried out. Grouping employees into pools can sometimes be less clear than you think. If in doubt take advice.
Should we look for volunteers?
- Whether this is feasible will be dependent on a number of factors.
- If it is appropriate it can be a good way of reducing compulsory redundancies (but volunteers count for consultation requirements).
- It is important to remember that the organisation has the right to decline a request for voluntary based on business need or cost.
What selection process should we use?
The process for selection will depend on the nature of the roles but could include:
- A selection matrix based on skills and experience completed by appropriate and nominated managers
- A process of interview
What criteria can be included?
Some common examples include the following but it will be role dependent;
- Skills, competencies and qualifications
- Work experience
- Disciplinary records
- Attendance records – if unfairly applied potentially could be challenged under Disability Discrimination Act (or Sex Discrimination Order if maternity absences are included)
Whatever process is applied it must be robust and transparent. An employee can claim unfair selection for redundancy and you will be required to demonstrate the objectivity and fairness of the process.
4. Redundancy Payments
Statutory Redundancy Pay
- All qualifying employees with more than 2 years service are entitled to a statutory minimum amount
- The basic formula is a week’s pay per year of service however this varies with age. You will find a table in the DEL booklet on redundancies. The NI Business Info website has a calculator that will work out the entitlement:
* A week’s pay is currently capped at £430.
Enhanced Redundancy Pay
- Redundancy payments (including contractual elements) can be made tax free up to £30,000. Professional advice should be taken before assuming payments in excess of a statutory payment are tax free.
- There are a variety of formulas that can be used to provide an enhanced payment. This will be dependent on the budget available and also any previous agreements or policies. However, beware of the potential age discriminatory impact where you deviate from the statutory formula.
- Where an enhanced payment is considered the organisation should consider offering this as a discretionary payment made only if an employee signs a Non-IT1 (via the LRA) agreement or compromise (where the employee has a relevant independent adviser) agreement i.e. they agree that they will sign away any right to take tribunal action in return for the agreed consideration.
5. Dismissal Procedures
You must still comply with the statutory dismissal procedures in all non-collective redundancy dismissal situations.
This email is a very high level view and checklist – it is not intended to be taken as legal or professional advice. If embarking on making redundancies, whether it is one person or a larger number, it is advisable to ensure the process is robust from the outset. All too many employers try to fix it after the damage is done. It should always be remembered that redundancy can be a very traumatic time for individuals and employers have a responsibility to implement redundancies fairly and respectfully. The process can also be very stressful for managers and they may require support too. One thing is certain: taking the time to do things correctly will protect your reputation as an employer and provide you with a stronger case should you be challenged on the dismissal. Even the best planned process will encounter obstacles and issues as it moves though; it is how these are dealt with that will impact any potential liability over time.
Hints and tips - some things to watch out for
- It is THE ROLE that is redundant in the first instance. The individual affected should only be so due to the fact that the job no longer exists.
- You will need to articulate clearly the reasons why the role is redundant.
- Poor performance of an individual is NEVER a valid reason for making a role redundant. It is a valid selection criterion.
- Pooling of employees in at risk categories is the area where most employers get it wrong. If there is any possibility that employees argue the pool should have been wider, think it through and be sure that you can justify your pool.
- Consider your selection criteria and ensure it is not directly or indirectly discriminatory (e.g. using absence which relates to a disability).
- Your headcount could remain constant but the type of work change. Therefore you could be making some employees redundant while recruiting in other areas.
- Consultation must be ‘meaningful’. You need to really listen and accommodate recommendations where reasonable.
- When confirming a redundancy ensure you follow the statutory 3-step dismissal procedure.
- If in doubt consult thinkpeople or a good employment law solicitor – it will most likely be worth it in the long run.
- Don’t ever make promises you might not be able to keep.
The information in this article is provided as part of Legal-Island's Employment Law Hub. We regret we are not able to respond to requests for specific legal or HR queries and recommend that professional advice is obtained before relying on information supplied anywhere within this article.