January 27, 2016

How to handle the redundancy process

Delivering bad news about redundancies is never an easy task.

However, how the process is managed can have a long-lasting impact on individuals and the organisation as a whole. At a time when many such businesses are in ‘survival mode’, the last thing that an employer wants to face is expensive litigation.

A number of recent cases have highlighted the importance of handling redundancies carefully to help reduce the risk of litigation and the costs associated with it.  So, if you’ve got to break bad news to staff, it’s vital you communicate well. Here’s a short guide to handling redundancy situations.

1. Redundancy Consultation

One of the areas where many businesses get it wrong is in failing to ensure that staff are properly consulted.

Collective Consultation

It is important to bear in mind that there is an obligation to consult collectively (i.e. as a group) where you propose to make 20 or more employees redundant at one establishment over a period of 90 days or less.
Employers are required to consult with the ‘appropriate representatives’ of any of the employees who may be affected (directly or indirectly) by the proposed dismissals or by any measures taken in connection with those dismissals.

Consultation must be undertaken with a view to reaching agreement with appropriate representatives on issues such as ways of avoiding dismissals or reducing the number of employees to be dismissed. This applies even when the employees concerned volunteer for redundancy.

The penalty for failing to comply with minimum consultation requirements is a protective award of up to 90 days’ pay for each affected employee.

Consultation should begin in good time and must begin:

  • At least 30 days before the first dismissal takes effect if 20 to 99 employees are to be made redundant at one establishment over a period of 90 days or less.
  • At least 45 days before the first dismissal takes effect if 100 or more employees are to be made redundant at one establishment over a period of 90 days or less.

Although there are no minimum requirements to consult collectively where fewer than 20 employees are to be made redundant, it is good practice to do so in order to avoid any suggestions of unfairness. You can though set your own timetable for this and adopt shorter timescales if this suits your business best.

Multiple locations (the Meaning of Establishment)

How does collective consultation work for employers with multiple sites? In 2013 the Employment Appeal Tribunal (EAT) reached a controversial decision requiring businesses to aggregate dismissals across the whole of their business for the purposes of triggering collective redundancy consultation.

At the end of the last decade, the EAT in the case of Usdaw & Others v Ethel Austin (known as the Woolworths case) held that ‘establishment’ should not be restricted to mean just the location at which the employee worked, but in a large scale organisation like Woolworths, establishment should be the organisation as a whole.

They considered that this was fair, since individual locations with fewer than 20 employees could be denied valuable protection.

Helpfully for employers, in the summer of 2015 the European Court of Justice (ECJ) ruled that this Interpretation was not correct as it ran contrary to the meaning of ‘establishment’ in EU law. The ECJ ruled that EU law must be interpreted uniformly across the member states and therefore the EAT decision was not correct.

The ECJ ruling has now been remitted back to the Court of Appeal in the UK for a final decision, so the issue is not finally settled as yet. However it is unlikely that the Court of Appeal will refuse to follow the ECJ’s ruling.
This is welcome news for employers, especially in hard pressed times, as handling redundancy consultation based on the individual site is likely to be shorter, simpler and less costly.

2. Individual Consultation

It is important to bear in mind that the need to collectively consult does not override the need to consult employees individually. This is important for example where there is a redundancy criteria and scoring exercise in place.
Proper consultation would involve discussing the redundancy criteria and the employee’s individual scores with him/her before a final decision is made. Failure to carry out this essential step will more than likely lead to a finding of unfairness in a Tribunal.

Redundancy Notification

It is easy to confuse this step with the requirement to consult (dealt with above). As well as proper consultation in a redundancy exercise, there is also a requirement to notify the Secretary of State for Business Innovation and Skills.
This is done via form HR1 which some readers may be familiar with.

The obligation arises out of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRA) and applies where an employer at one establishment, is proposing to dismiss as redundant, at least 20 people within a period of 90 days. The main purpose of this notification is to alert the Department for Business Innovation and Skills to potential large scale job losses, so that they can take steps (in theory anyway) to assist relocate or retrain the employees.

Failure is a Criminal Offence

Failure to do so is a criminal offence and the Government holds a rarely exercised right to punish those responsible by way of an unlimited fine and where the person responsible is a Director, disqualification from holding such a post for up to 15 years.
Although rarely exercised, the well-publicised case involving three former Directors of City Link has just recently been concluded.

The case concerned the point at which the employer was obliged to file the form HR1. In the first prosecution of its kind, the court concluded that the three former Directors were not guilty of a criminal offence. The Judge considered that the three former Directors were genuinely of the belief that a sale of the business was not only possible, but quite probable. In the Court’s view, this meant that the trigger point for notifying the BIS had not been reached.

This is an interesting case which concerns the statutory test for determining the date upon which an HR1 form must be filed. The obligation arises when redundancies are “proposed”. The term proposed is of course open to interpretation and hence debate as to when precisely the obligation arises. The BIS will be disappointed with this decision and it is not clear whether or not there will be an appeal.

The case emphasises the importance of carefully considering obligations under the Act, not only those concerning notification to the BIS, but also statutory obligations to consult. Notification to the BIS must be made at least 30 days before the first redundancy takes effect where there are to be between 20-99 redundancies and 45 days where there are to be 100 or over.

Interestingly the ECJ’s decision in the Woolworths case did not deal with what constitutes ‘one establishment’ when deciding when to notify form HR1 to the BIS and a cautious approach is probably best advised.

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Redundancy Checklist

If a potential redundancy situation arises, employers should consider the following:
1. Can we avoid redundancy?

2. Is there a genuine redundancy situation?

3. Which jobs are affected?

4. What is the pool for selection?

5. How many jobs are affected and over what time period?

6. Are these all at one establishment?

7. What selection criteria should be used?

8. Do I need to consult collectively, if so with whom?

9. When should the redundancy situation be announced?

10. Who should score any selection criteria?

11. Who will hold the individual consultation meetings and when?

12. Who will take the final decision on dismissal?

13. Who will hear any appeal?

14. What alternative employment is available?

15. What about trial periods?

16. What redundancy compensation should be paid?

17. Should employees work their notice or be paid in lieu?

if you need advice or help on this topic, please contact us. You can stay up to date with all the latest legislation using our handy Employment Legislation Guide.

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About the author

Tom Muirhead

Tom has represented clients across the UK, both at Employment Tribunal and in the Employment Appeal Tribunal. With a strong background in HR at senior level, Tom is adept at explaining the legal framework to clients in a practical way.