January 27, 2016

Redundancy Process: How To Handle Redundancy As An Employer

Delivering bad news about redundancies is never an easy task.

How the redundancy 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 the redundancy process.

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.

Redundancy Process 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?

Selection Criteria

Another key area for consideration as part of the redundancy process, is the matter of Selection Criteria. It has been the source of much case law and its application in a redundancy situation can often give rise to litigation.

Who Decides What Criteria to Use?

It is well established that it is for the Employer to decide what selection criteria to use in a redundancy situation. A Tribunal is not entitled to substitute its own principles of selection for those of the Employer (on the basis of course that the Employer knows its business best and that the function of the Tribunal is not to re-open an internal process by putting itself in the Employer’s shoes).

This principle however does have its limits and a Tribunal does have discretion to interfere in cases where no reasonable employer would have adopted a particular set of criteria. As an example, in the case of Williams v Compare Maxim, the Employment Appeal Tribunal considered as unsatisfactory, the criteria adopted of ‘retaining of those staff who in the opinion of the managers concerned, would be able to keep the company viable’. Such criteria of course are far too subjective to include in a fair redundancy process.

Fair Selection Criteria

Modern practice is to use a selection scoring matrix, utilising a number of key factors, which may include some or all of the following (and of course others):

  • Absence
  • Lateness
  • Disciplinary Record
  • Length of Service
  • Performance
  • Qualifications

Can I Still Use Length of Service?

Length of service as a criteria used alone is now quite rare for a number of reasons, but most notably as a result of the introduction of Age Discrimination Law. However it can still be used provided it is utilised as part of a selection matrix involving other criteria. Using Length of Service alone is likely to lead to a breach of the Equality Act and should not be adopted.

What about the use of Absence Criteria?

Although it is legitimate to use absence as part of a selection process, special consideration may need to be given to those employees who may be deemed to have a Disability. It is important in such cases to exclude from the redundancy scoring any absences which are a result of an Employee’s disability. Advice should always be taken in such circumstances.

Does the Selection Criteria need to be Measurable and Objective, or can I rely on my Manager’s Opinion?

Clearly, the more measurable and objective the criteria you adopt, the less likely it will be that the Employee will be able to challenge it. However, it is recognised that a degree of subjectivity is inevitable in any redundancy exercise.

In the recent case of Mitchells of Lancaster v Tattershall the Employment Appeal Tribunal concluded that ‘the concept of a criterion only being valid if it can be scored or assessed causes us a little concern, as it would invoked to limit selection procedures to box-ticking exercises’ and ‘…just because criteria of this sort (subjective) are matters of judgement, it does not mean that they cannot be assessed in a dispassionate or objective way’.

Some subjectivity may be inevitable, but it is best avoided if possible. One way to make subjective criteria easier to justify is for an employer to rely on the assessment made by not just one Manager but by several. That way, an Employee is less likely to be able to say that his assessment was biased.

Relying on the opinions of others is acceptable. In the case of Eaton v King the Employment Appeal tribunal held that it was acceptable for a Senior Manager to rely on the assessments made by his Subordinates when carrying out a redundancy exercise. It should however be noted that this approach is likely only to be found fair where the assessment is only one element of the selection criteria used.

Even if I use Fair Criteria, Can I Still end up in Tribunal?

Although there is limited scope for a Tribunal to interfere in the Employer’s decision to adopt particular criteria, it is still vital that the Employer applies the criteria carefully and genuinely.

In the case of Bascetta v Santander the Employment Appeal Tribunal held that ‘An Employer who sets up a system of selection which can reasonably be described as fair and applies it without any overt signs of conduct which mars its unfairness will have done all that the law requires of him’.

It is important of course to be diligent when it comes to scoring an employee against the criteria. For example, if an Employer decides to use qualifications as one of the criteria, it will be important for him to ensure that the Employee’s personnel records are up to date and include relevant qualifications.

It will also be important for the Employer to be careful in deciding what weight to apply to a particular qualification. For example, a 1 day course in Word Processing should perhaps carry less weight than a Degree relevant to the job.

Similarly, if an element of the selection criteria is subjective, for example people management, it will be important to be able to support a score by identifying some examples of good or bad people management skills.

Further, if an Employee suggests, perhaps as part of an appeal process, that his selection was biased, or that there was an ulterior motive behind his selection, it will be important for the Employer to take this seriously and to properly investigate any such suggestions, to ensure that the criteria used have in fact been applied fairly and consistently.

Selection Criteria and Consultation

Consultation over the criteria to be adopted is of course one of the ways to help ensure that the criteria and its scoring stands up to scrutiny. As well as consultation with a recognised Trade Union or Employee Representative, consultation with the individual Employee must not be overlooked. Consultation with the Trade Unions or Employee Representatives will normally involve ways to avoid redundancy and the proposed selection criteria. Consultation with the individual is vital for the purpose of explaining their own personal situations and to give them an opportunity to comment on their assessments. In the case of Heron v Citylink the Employment Appeal Tribunal made it clear that Even in an apparently clear case there may be factors known to the Employee but unknown to the Employer which could cause the Employer to change his mind’.

 

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

Want a round-up of stories like this delivered to your inbox?

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.