Redundancy: Getting it right

Making redundancies is a difficult decision for any employer to make. If the situation becomes unavoidable, an employer will need to manage employee relations, whilst ensuring that it has a robust procedure in place for handling redundancies. Failure to do so could render subsequent employee dismissals unfair and result in claims being pursued. 

We have set out below five key areas for employers to consider when proposing redundancies for less than 20 employees.

1. Establish a genuine redundancy situation

Employers must establish that there is a genuine redundancy situation in accordance with the statutory definition, as follows:

• an entire business closure;
• a specific workplace closure; or
• a reduced need for employees to conduct work of a particular kind.

Employers should avoid seeking to disguise an employee dismissal under the guise of redundancy if the reality is in fact other concerns, for example performance or conduct.

2. Selection

The selection process and selection criteria are important factors when assessing the fairness of redundancy dismissals. Sometimes, the selection pool is obvious (for example if there is no longer a need for a certain department, all employees within that department will be included within the pool). 

In other cases, the pool will not be so obvious. Employers should consider the interchangeability of employees’ roles when determining if certain employees should be included within the pool. If it is the case that employee skill sets, tasks and duties are often conducted similarly across roles and/ or departments, pooling may be applicable.

A tribunal will also consider the fairness of any selection criteria/ scoring system applied to a pool of employees, which should be both objective and capable of independent verification.

3. Individual consultation 

Once a pool for selection has been established, an announcement should be made to employees to advise that they are being placed at risk of redundancy. Individual consultation with each employee will then need to take place, which is fundamental to the fairness of any subsequent decision to dismiss for reason for redundancy.

The consultation meetings should provide an opportunity for employees to comment on the business rationale for the redundancies and the identified selection pool/ criteria. Employees should also be made aware of the financial implications of any subsequent redundancy dismissal and should be invited to put forward any ideas/ suggestions to avoid redundancy.

Discussions at the consultation stage must always present redundancy as a proposal only at this stage (to avoid challenge that the decision was pre-determined). 

4. Alternative employment

A redundancy dismissal will be deemed unfair if an employer fails to consider whether or not any suitable alternative employment exists within the business. This should be discussed with the employee during the consultation meetings. 

Whilst an employer is not expected to create roles for individuals at risk of redundancy, a reasonable search for existing roles should be conducted. It is advisable to document this search to demonstrate compliance. 

5. Payment

If redundancies are made, employers must ensure that employees are paid any statutory redundancy entitlement, their notice entitlement and untaken holiday accrual. Employers should also ensure such payments are compliant with any contractual redundancy policies to the extent that these exist.

If payment in excess of employees’ contractual rights and/ or statutory entitlement is being offered, it may be sensible to make such an offer conditional upon a settlement agreement. This will eliminate the risk of future claims being pursued by an employee (although legal advice will need to be obtained by the employee for a settlement agreement to be legally binding).