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Redundancies – how to avoid costly mistakes

Predictions of recession and a slew of announcements of downsizing by the construction, financial and property sectors mean that companies are having to deal with making large numbers of staff redundant in order to cut costs. According to industry estimates, 10,000 permanent jobs in the construction industry alone have been lost so far this year and given the gloomy outlook, this figure is likely to increase substantially.

It is essential that employers follow proper procedures before making any redundancies to avoid costly tribunal claims. Where an employer expects to make 20 or more employees redundant at one establishment within a period of 90 days or less, it must allow sufficient time to undertake a period of collective consultation before any redundancies take effect. Certain minimum time periods apply depending on the scale of the redundancies proposed. Where 100 or more redundancies are proposed, consultation must begin at least 90 days before the first dismissal takes effect. For less than 100 redundancies, the consultation period is 30 days. Where the duty applies, the employer must also notify the Department for Business, Enterprise and Regulatory Reform of the proposed redundancies. Failure to do so is a criminal offence.

Recent case-law has established that it is not enough for employers to consult trade unions on how a closure and redundancy exercise would be handled, but must also examine whether the decision to make redundancies can be justified on economic grounds. This may mean that the statutory consultation periods need to be extended to give sufficient time for this to take place.

Consultation must be undertaken with a view to reaching agreement on ways and means of avoiding the dismissals, reducing the number of dismissals and mitigating their consequences. This could include asking for volunteers, requiring those employees with mobility clauses to work at a different location, laying off staff or offering short term working arrangements. It is not sufficient for the employer simply to explain its proposals and listen to any counter-proposals.

Employers must ensure that they adopt a fair selection procedure and apply this to the correct pool of employees. “Last in first out” used to be a common and acceptable formula, but should not be used as it potentially discriminates against women (who generally have shorter service) and is likely to amount to age discrimination. Businesses will want to retain their most productive and efficient staff. It is therefore usual to include scores relating to individual performance and ability. Any category must be capable of being objectively scored and ideally backed up by written records. Alternatively, or in addition, scoring should be undertaken by more than one individual to minimise subjectivity. Employers can use attendance records to assist with scoring, but must exclude absences related to pregnancy, maternity or other family friendly leave, or where the absence is connected to a disability.

Even where the obligation to undertake collective consultation arises, the employer must consult with each employee at risk of redundancy before reaching any firm decision regarding their dismissal. The employee should be given the opportunity to comment on their redundancy selection assessment and to put forward suggestions to avoid redundancy. If fewer than 20 employees are being made redundant the employer must ensure that the statutory dismissal procedures are followed, otherwise the dismissals will be deemed to be automatically unfair.

Failure to comply with any of the rules on information or consultation, or on the election of representatives, can lead to a protective award being made by an Employment Tribunal. The maximum protective award is up to 90 days’ pay gross pay per employee. The award is not based on loss of earnings, but on the seriousness of the employer’s default. Recent cases have indicated that tribunals will start at the maximum award (irrespective of whether the requirement to consult was 30 or 90 days) before discounting to reflect any genuine attempts to consult with the workforce.

It is therefore essential that the redundancy exercise is undertaken carefully. Employers will face substantial additional costs if they are deemed to have simply gone through the motions or, worse simply ignored the procedures altogether.

If you would like more advice on this issue please contact us.