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Redundancy: What is the process and what are the alternatives?

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From 1st September 2020, the furlough scheme enters its final stages, with employers now having to pay 10% of the furloughed employee’s wages, as well as pension and employer’s national insurance contributions. This will increase to 20% from 1st October 2020 before the scheme ends at the end of October.

There have been renewed calls from some groups to extend the scheme to avoid a ‘cliff-edge’, particularly as businesses in some sectors are still significantly restricted. However, the government have shown no signs of changing the position. Sadly, the winding down of the scheme may therefore mean that further redundancies become inevitable in the next few months for employers who are struggling financially with the impact of the pandemic.

In this blog, we look at potential alternatives to redundancy, and the steps which should be taken in a fair redundancy process.

Alternatives to redundancy

In a redundancy situation, there is a duty on the employer to consider alternatives to redundancy and ways to avoid or mitigate the impact.

The most obvious alternative is to find the potentially redundant employee an alternative role. In the current climate, there may not be many vacancies which make this an option, but if there are it is best to consult with the affected employees about the options. Even if the role is different from what the employee currently does or is at a different site or on a lower grade or salary, the employee may be willing to take the role and to retrain if necessary. It is also possible to agree that an employee will have a trial period in a potential alternative role, following which they will be redundant if the role transpires to be unsuitable.

There are other alternatives to redundancy which can be considered, although many will require consultation with the relevant employees and must be implemented carefully. These include:

  • Temporary lay off – if there is a clause in the contract permitting it, employees can be laid off for a temporary period where there is a reduction in work. Such employees are entitled to guarantee payments by statute – a maximum of £30 per day for 5 days in any 3 month period. However, an employee can apply for redundancy if a period of lay off carries on for too long.
  • Changes to terms and conditions – employees faced with redundancy may agree to alternative measures such as moving to part-time or agreeing a reduction in hours or salary, but this requires consultation and agreement to be permitted and may require collective consultation if it affects more than 20 employees.

Consideration can also be given to seeking volunteers for redundancy in the first instance. There might be employees who are considering leaving who would wish to agree to take voluntary redundancy. While this would not avoid redundancies, this might avoid the need for a compulsory redundancy process, reduce the time taken and avoid stress for other employees who might be placed at risk. However, it would be up to the employer to decide if such an option was suitable, as employees may volunteer for redundancy who are required by the business, and therefore agreeing to terminate their employment would not be suitable.

Redundancy process

If an employer identifies that there is a redundancy situation, it then needs to carry out a fair process to select employees for redundancy, otherwise if faces the risk of possible claims for unfair dismissal.

Firstly, this will involve consideration of how many employees might be dismissed as redundant. If the proposals would involve making 20 or more employees at the same establishment redundant within a period of 90 days, then there will be a requirement to carry out collective consultation with employee representatives. This imposes a consultation period during which no dismissals for redundancy can take effect and there are various statutory requirements which must be complied with.

In cases of proposed redundancies, the employer should broadly take the following steps:

  • Identify selection pools

Potentially redundant employees should be placed in pools of those at risk, which will usually be on the basis of job role or location depending on the reason for the redundancy. At this stage, all employees affected must be placed at risk and in the relevant selection pool.

  • Identify selection criteria

These criteria will be used to score employees to decide who within the pool would be provisionally selected for redundancy and who would remain in employment. The employer has discretion as to which criteria are used, but these should generally be objective and be capable of being assessed by reference to evidence, rather than based on subjective opinion only. Care should also be taken to ensure criteria are not applied in a discriminatory manner (such as taking account of absence on family related leave or for disability reasons). Consideration should also be given as to whether there are any employees who are pregnant or on maternity/adoption leave, as there are additional rules which apply to such employees in a redundancy process.

  • Carry out consultation

Whether collective consultation is required or not, in all cases there needs to be individual consultation with at risk employees. Generally, this should take place over the course of two or three meetings at which they should be invited to be accompanied by a colleague or trade union representative. 

Consultation generally needs to cover:

  • Why it is necessary to make redundancies.
  • How the selection pools were identified.
  • What selection criteria are proposed or have been used and how they will be applied.
  • Why the employee has been provisionally selected for redundancy.
  • The terms on which redundancy would take place if confirmed.
  • Possibilities for alternative employment or other alternatives to avoid redundancy.
  • Any comments the employee may have as to why they should not be selected for redundancy or any proposals to avoid their redundancy. .

Confirming the outcome

Employees who are selected for redundancy should be informed of the outcome in writing and advised of their termination date and the sums they are entitled to. In some cases, employers may wish to arrange for signature of a settlement agreement where the employee is receiving an enhanced redundancy payment beyond the statutory minimum.

There is no specific legal right for employees to appeal the outcome of a redundancy process, although employers may wish to offer it to add an additional check to the process. It is often good practice to do so and may offer additional protection in the event of an unfair dismissal claim.

While this is a broad and general overview of the steps an employer should be taking, every situation is different and it is advisable to take legal advice if your business is going through a redundancy process. For assistance with this and other issues, contact our employment team at Miller Samuel Hill Brown.

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