Although redundancy is one of 5 potentially fair reasons for dismissal under the Employment Rights Act (1998), this is still dependent on following a fair and correct process. The consequences of getting this wrong could be disastrous to the survival of a business, with the maximum compensatory award for unfair dismissal currently sitting at £88,519. This is before even considering potential discrimination claims (for which compensation is uncapped) and the ensuing reputational and strategic consequences for the business. It is therefore of the utmost importance to ensure that there is a deep understanding of the legal obligations on employers when making redundancies before any process is instigated.
One of the most important obligations on employers is the requirement to meaningfully consult. Failure to effectively consult with employees over redundancy will almost certainly put a business at risk of an unfair dismissal claim. Where a business proposes to make 20 or more employees redundant within a 90-day period, they must follow collective consultation with either a recognised trade union or elected employee representatives. Whilst there are no set rules or time frames for consultation where less than 20 redundancies are proposed, an employment tribunal may still hold that an employee has been unfairly dismissed if no consultation has taken place. Note that consultation does not have to result in agreement, but should be undertaken with the aim to do so. Any suggestions raised by employees should be thoroughly considered and where reasonable, tested before compulsory redundancies are made.
Exhaust all alternatives
There are several workforce planning alternatives that can alleviate financial pressure on a company. Contract and temporary workers should always be released first, overtime should be reduced to an absolute minimum and recruitment should be halted where possible – even if the overtime and vacancies are in different roles to those at risk. If lay off and short time working is agreed in the employment contract then that could be enforced as a temporary measure, or agreement from employees could be sought for a temporary pay reduction. You may be surprised how many employees would be willing to agree to this as a temporary measure to save a struggling business and their job within it. Another alternative is to ascertain whether employees would be eligible for the government’s new job retention scheme, or Furlough as it is more widely known. If all of these options have been exhausted, then seek volunteers for redundancy or early retirement as this will reduce time and risk when making compulsory redundancies.
Ensure fair and objective selection criteria
Selection criterion should be as objective as possible, using HR metrics where possible to support decisions. Extra care should be taken when scoring on criteria where there is a risk of discrimination. For example, if scoring on absence, absence related to a disability or pregnancy would be deemed direct discrimination under the Equality Act (2010), as well as unfair dismissal under the Employment Rights Act (1998). Furthermore, selection criteria such as flexibility or willingness to work overtime could be deemed indirect sex discrimination, as women are more likely to score worse due to an increased likelihood of childcare commitments outside of work. Deciding the selection criteria and subsequently scoring on these will be one of the riskiest parts of the redundancy process in terms of discrimination so it is best practice to keep the selection criteria objective and easily quantifiable. Where possible, seek more than one manager to score employees and take an average to increase the fairness of the process and reduce unconscious bias.
The redundancy process is one of great risk and should be carefully considered and used only when there are no other options. Failure to meaningfully consult with employees and an ignorance to their suggestions and other viable options will increase the risk of an unfair dismissal claim. Furthermore, where selection criteria is not carefully scrutinised, there is an increased risk of discrimination, in addition to unfair dismissal. For discrimination, there is no limit on the compensation that can be awarded.
As such, it is strongly advisable that if your company finds itself in a redundancy situation, that professional advice is sought. The cost of getting redundancies wrong will far exceed the cost of an employment law expert to guide the business on following a fair and correct process.
Your next steps
If you currently find yourself in a redundancy situation or worry that you may need to make redundancies in the future and would like to discuss this further, please get in touch via our contact us page.