Redundancy Fact Sheet

It is preferable for an organisation to establish a formal procedure on redundancy. In many organisations a formal agreement may have been agreed between management and trade union or employee representatives.

At the very least, in order to plan and implement a redundancy situation properly the following stages will be followed in most redundancies:

• planning
• identifying the pool for selection
• seeking volunteers
• consulting employees
• selection
• appeals and dismissals
• suitable alternative employment
• redundancy payment
• counselling and support.

Of course the exact procedure varies according to the timescale and size of the redundancy. The core points concerning these stages are summarised below.

Planning

Organisations should always attempt to avoid redundancies. Ways of doing this include:

• natural wastage
• recruitment freezes
• stopping or reducing overtime
• offering early retirement to volunteers (subject to age discrimination issues)
• retraining or redeployment
• offering existing employees sabbaticals and secondments
• pay freezes
• short-time working
• pay cuts in return for taking time off work
• ‘alternatives to redundancy’ (ATR) schemes (also possibly including ’sabbaticals’) in which employees do not work for their employer for a specified period and are free to seek new work whilst receiving an ATR allowance.

During the recent recession many employers have adopted a wide range of alternatives to redundancy.

However, employers may be unable to implement such proposals without breaking their employees’ contracts, so care needs to be taken before attempting to implement such steps.

If the redundancy involves more than 20 employees the employer is required to complete form HR1 and send it to the Department of Business Innovation and Skills (BIS).

Identifying the pool for selection

The group from which employees will be selected for redundancy (the selection pool) must be very carefully identified. It will usually consist of those who undertake a similar type of work, those  in a particular department, those who work at a relevant location, or those whose work has ceased or diminished or is expected to do so. In many redundancies, a range of different selection pools may be identified. If an employer makes redundancies without considering a selection pool correctly, the dismissals will be unfair.

Seeking volunteers

As part of the overall procedure, once the need for redundancies has been identified and careful planning has taken place, offering a voluntary redundancy package and then seeking willing redundancy volunteers may avoid compulsory redundancies altogether.

Consulting employees

Collective consultations with recognised trade unions or elected representatives must currently start at least 45 days (reduced from 90 days from 6 April 2013) beforehand for proposed redundancy dismissals of 100 or more employees, and at least 30 days before notification of redundancies for 20-99 employees. However, the 20 or more employees rule is currently the subject of litigation which may affect when the consultation provisions apply in future.

If collective consultation is required, it must be completed before notice of dismissal is given to any of the employees. The law requires meaningful consultation – it is not enough only to inform. The maximum compensation that can be awarded if an employer fails to consult is 90 days’ pay. If there are no recognised trade unions or employee representatives, the employer must facilitate the election of representatives by the employees for the redundancy consultation. Acas have issued guidance on managing collective redundancies.

At the start of the consultation process the employer is legally obliged to give the following information to the representatives:

• the reason for the redundancy dismissals
• the number of proposed redundancies and their job types
• the total number of employees affected
• the proposed methods of selection
• the procedure to be followed in dealing with the redundancies
• the method of calculating redundancy payment.

Employers are also required to consult individual employees and give them reasonable warning of impending redundancy.

Selection

When the approach to selection has been agreed and consultation over relevant issues is complete, individuals must be selected from within the wider pool. Where there is a choice between employees, selection must be based on objective criteria which may include:

• length of service (only as one of a number of criteria)
• attendance records
• disciplinary records
• skills, competencies and qualifications
• work experience
• performance records.

‘Last in, first out’ (LIFO) is an unsatisfactory way of retaining the most competent and, owing to age discrimination legislation, is a risky selection method, as those with less service are likely to be younger employees. Case law has held that LIFO may still be relevant as part of a wider range of selection criteria, but it must not be used as a sole method of selection, and the employer must be able to justify its use.

Tribunals look favourably on selection procedures based on a points system which scores each employee against the relevant criteria. However, great care must be taken in the choice and application of the criteria to avoid factors which may be discriminatory on any grounds. For example, selection of part-timers could be discriminatory if a high proportion of women are affected.

Scoring should, if possible, be carried out independently by at least two managers who know all employees in the selection pool. The marks from the two assessors should then be added together to give a total score for each employee.

Appeals and dismissals

Once the selection and consultation is complete individuals selected for redundancy should be notified in writing that they are ‘at risk’ of redundancy. They should be invited to a meeting to discuss this, which is the first part of the individual consultation.

This should be followed by at least one further consultation meeting. The actual number of meetings will depend on what the employee has to say. The employer must be seen to consider any argument that the employee puts forward.

Once the individual consultation has been completed a decision has to be made on whether or not the employee is to be made redundant. If they are, then they must be informed in writing and be given an explanation of the redundancy payment that they will receive.

An employee should be allowed to appeal against the decision to make them redundant.

An employee is entitled to be accompanied at all individual consultation meetings by a trade union representative or colleague.

It is automatically unfair to select employees for redundancy for a number of reasons, including:

• trade union membership (or non-membership)
• part-time status
• pregnancy or maternity-related reasons

In addition, selection for redundancy because of an employee’s age, sex, sexual orientation, marital status, disability, race or religion or any other protected characteristic will constitute a breach of the Equality Act 2010.

Employees must be given notice of their redundancy, statutory notice or contractual notice, whichever is greater.

Suitable alternative employment

Employers must consider offering suitable alternative work and are expected to look for alternatives throughout the organisation. The law removes entitlement to a statutory redundancy payment if an employee unreasonably refuses a suitable alternative. An employee is entitled to a four week trial period in a new role. If the employer and employee then agree that the role is not a suitable alternative, the employee reverts to being redundant.

The law requires employees who have at least two years’ service to be given paid time off to look for work during the final notice period.

Redundancy payment

Dismissed employees with two or more years’ service are entitled to a minimum redundancy payment based on a formula similar to the basic award for unfair dismissal. However, employers do not have to make statutory redundancy payments to employees who have ‘employee shareholder’ status.

Counselling and support

Giving notice is unpleasant and can be badly handled. Managers should be trained to handle redundancies with sympathy and clarity. Employees can be badly affected by redundancy and need support to accept reality and mount an effective job search. A well-designed redundancy programme should enable employees to refresh their interview skills, redraft CVs and reply effectively to job advertisements.

Where possible, outplacement advice should be offered to employees leaving the organisation to maintain their morale and help them find alternative employment.