Making employees redundant?

Friday, August 16th, 2019

Making Employees Redundant?

What should you consider first

by Justina Ricci, Solicitor, Employment Department

E: Justina.ricci@hanne.co.uk

T: 0207 228 0017

An employee who is made redundant may claim statutory redundancy pay, bring a claim for unfair dismissal or wrongful dismissal, claim that they were selected for redundancy unfairly and in some cases bring a claim for protective award if the employer failed to consult on redundancy properly. It is therefore crucial that employers are aware of the risks when making someone redundant to alleviate their exposure to potential claims.

When does a redundancy situation arise?

The employee may bring a claim for unfair dismissal, if they can demonstrate that this was not a genuine redundancy situation. Employers should therefore ensure that the term ‘redundancy’ is exercised carefully. Before making an employee redundant, an employer should always consider whether another type of dismissal may be more appropriate. It is important to ensure that the correct cause for dismissal is selected, as different reasons for dismissal will normally carry different procedural rules that the employer must follow.

In broad terms there are three main redundancy situations:

Closure of the business as a whole

The closure of the business may be temporary or permanent, i.e. closure of a restaurant for refurbishment.

Closure of the particular workplace where the employee was employed

A dismissal is deemed to be for redundancy if it is attributable wholly or mainly to the fact that the employer has ceased or intends to cease to carry on that business in the place where the employee was employed. The employee is dismissed for redundancy if dismissed when their own workplace closes, even if under the contract they could be required to work elsewhere.

As an employer you therefore cannot simply exercise a mobility clause in the contract to ask the employee to move to another branch. You can however, argue that work in another branch is suitable alternative employment and if the employee refuses to move to another branch unreasonably, the employee could lose their right to redundancy pay.

Reduction in the size of workforce

This situation arises when the employer, for whatever reason, wants to employ fewer employees doing a particular kind of work. There is no need for the employer to demonstrate that there is less work to be done. The employer may have decided to cut costs by reducing the workforce but making the remaining employees do more work. When making an employee redundant due to a diminished need for staff, the employer would need to demonstrate that the employee is dismissed as a result of this diminished need. The employer must be careful not to recruit someone else instead of the person being made redundant soon after, as this may indicate that the employee was unfairly dismissed because this was not a genuine redundancy. It is possible to replace employee ‘A’ by asking employee ‘B’ to take up the employee ‘A’’s job and making an employee ‘A’ redundant. This is called ‘bumping up’.

Where the employer wants fewer employees overall, it is usually easier to demonstrate that this was a genuine redundancy situation. Difficulty arises where the employer wishes to retain the same number of employees but different work from before. If a particular type of job has disappeared altogether it will be a redundancy, but if it has simply been altered or modernised this may not be the case.

If the employer no longer requires a full-time member of staff and replaces him/her with part time staff, this would normally be a redundancy situation. In this situation the employer must usually offer the full-time staff an opportunity to work part-time. If the employee refuses, the employer will usually need to pay redundancy pay. This is because a part-time position will rarely be a suitable alternative employment to a full-time position, unless the employer is able to demonstrate that the benefits for part time job remain the same as they were when the employee was working full-time. In practice this would be extremely rare.

Redundancy Payment

An employee dismissed on the grounds of redundancy is entitled to statutory redundancy pay if she/he meets the necessary eligibility requirements. In order to be entitled to a redundancy payment they must be an employee, have at least two years of continuous service and must be dismissed for redundancy.

The employee risks losing their redundancy pay if they are given notice and leave before the notice period expires. The employee may also lose their statutory redundancy pay if they are unreasonably refused an offer of suitable alternative employment.

The calculation of statutory redundancy pay is based on employee’s weekly gross salary, subject to cap of £525 (currently), age at the time of dismissal and years of service completed.

To calculate statutory redundancy pay, you can visit https://www.gov.uk/calculate-your-redundancy-pay where you will be able to obtain an exact figure. You will need to have certain information to hand to calculate it online. You can find the page by clicking here

The employee may have a greater contractual entitlement. For example, some organisations offer one months’ pay for every year of service. In this case, the contract will prevail and the employee will be entitled to receive the greater redundancy payment under the contract.

In the rare instance where the redundancy payment under the contract is less than the statutory redundancy payment; for example where the employment contract states that the employee’s weekly gross rate is subject to an old cap, i.e. £475 per week, the employee will be entitled to claim the current statutory redundancy rate. This is because where the contract is less favourable to the employee than their statutory entitlement, statute will almost always prevail.

Notice Period

An employee is entitled to receive their statutory (or contractual if greater) notice before redundancy takes effect. The employer may be able to pay notice pay in lieu, but only if the contract of employment provides for this. The employer may also be able to place an employee on gardening leave, again only if the employment contract allows the employer to do so.

Accrued but Untaken Holiday Pay

The employee will also need to be paid his accrued but untaken holiday pay. For an easy way to calculate employee’s holiday entitlement please visit https://www.gov.uk/calculate-your-holiday-entitlement

An employer may ask the employee to take holiday during the notice period. The employer must give the employee double the notice for the amount of holiday to be taken. i.e. if you want the employee to take 2 days of holiday you must give these.

Risks of Employees Claiming Compensation in a Redundancy Situation

The employee may bring a claim for unfair dismissal if they believe that their employer made them redundant but this was not a genuine redundancy situation.

The employee may bring a claim for redundancy pay if an incorrect rate was paid or if the employer has failed to pay a redundancy payment altogether.

The employee may bring a claim for wrongful dismissal if the employer fails to provide adequate notice as per contract or statute (whichever is greater). For more information on notice period entitlements please click here.

The employee may also bring a claim for unfair dismissal and/or discrimination because of one of the protected characteristics under the Equality Act 2010: race, religion or believe, sex, pregnancy or maternity, sexual orientation, gender reassignment, martial or civil partnership status, disability or age. The employee may argue that they have been selected for redundancy unfairly, i.e. in breach of the Equality Act 2010 or in breach of whistleblowing legislation. You can find more information on discrimination and whistleblowing by clicking those links.

Failure to Consult Employees

An employer should give as much warning as possible of impending redundancies to enable the Union and affected employees to consider possible alternative solutions and if necessary, find alternative employment. If you make less than 20 people redundant in a 90-day period, you will not have a prescribed procedure to follow, but it should still meet the general requirements,

Time limits

Employees have three months less one day (subject to ACAS stop the clock provisions) to bring a claim for unfair dismissal, discrimination and wrongful dismissal. They will have 6 months less one day to bring a claim for a redundancy payment.

Employee Rights in Redundancy Situation

  • Employees who you propose to make redundant should be given reasonable time off to look for alternative employment during their notice period;
  • An Employee who is put on short time working or laid off without pay may resign and claim statutory redundancy pay if they follow the correct procedure;
  • An employee is entitled to receive their statutory (or contractual if greater) notice before redundancy takes effect. The employer may be able to pay notice in lieu, but only if the contract of employment provides for this;
  • Even when there was a genuine redundancy situation, the employee may be deemed to be unfairly dismissed if the employer cannot demonstrate that it followed the correct procedure, consulted employee, held adequate number of meetings and considered suitable alternative employment;
  • Even when there was a genuine redundancy situation, the employee may be deemed to be unfairly dismissed if the employer cannot demonstrate that it had used a reasonable selection criterion in its decision to make that particular employee redundant. In such instances a claim for unfair dismissal will normally be accompanied by discrimination claim or whistleblowing determinant claim.
  • The employer has a duty to consider and where possible, offer suitable alternative employment which the employee is capable of doing.

So what should employer do to protect itself in an event of claim?

Throughout the redundancy procedure, the employer should:

  • Get copies of all minutes, notes and memoranda of meetings at which the redundancy was discussed;
  • Get a list of all workers who could be selected for redundancy; ascertain selection criteria i.e. Length of service, performance, meeting deadlines and goals etc. Consider start dates, but be careful of age discrimination. Consider absence and performance but be mindful of disability and sex discrimination legislation i.e. if someone has been absent more than others from work but this is due to illness or because they need to care for someone who is ill. If you then make a decision to dismiss that person on the basis of their absence, this could be discrimination arising from disability or disability discrimination by association. Such a decision may also constitute discrimination due to sex if a female employee in question was absent due to childcare arrangements.
  • Get a list of all vacancies available shortly before and after the dismissal, including the whole notice period to determine whether the worker could do any of them.
  • Be mindful of the realisation that you still have the need for someone to do the job after you have made a decision to make someone redundant. Any adverts or placement of a new person in the same position could constitute not genuine redundancy and expose you to a claim for unfair dismissal.