What should employers consider when managing redundancy as the furlough scheme comes to an end? Croner-i explores the issues
The furlough scheme has been a saving grace for many employers while COVID-19 lockdown restrictions have been in place. However, as these restrictions are slowly eased and with the scheme ending on 30 September, employers may find they have no other choice but to make some roles redundant.
What is redundancy?
A redundancy situation exists where:
- You shut down a business or part of it completely
- You shut down at a specific location (even if you are moving to a new location)
- Your requirement for employees to do work of a particular kind has reduced or come to an end.
Following redundancy procedures
If a redundancy exercise becomes necessary, there are various steps that need to be considered in any instance. These are:
- Careful initial planning and preparation
- Consider if any alternatives to redundancy exist
- Notify the Department of Business Innovation and Skills (on form HR1) if there are to be more than 19 employees affected
- Collective consultation is required in all cases where more than 19 employees are affected (and should also be considered in smaller exercises)
- Individual consultation is required in all cases
- Consult and inform appropriate representatives of affected employees as a statutory duty
- Consider the method to be used for selection and the details of the selection process
- End all contracts of employment through the proper use of notice or payment in lieu of notice
- Identify the payments that will be due to any employees who are made redundant
- Offer a right of appeal to anyone selected for redundancy.
The planning stage in a redundancy exercise is crucial. Employers should give particular consideration to:
- Defining why redundancies are necessary — in case there are alternative options they can explore
- Preparing a timetable for the steps that will need to be taken, when they will be taken and by whom
- Preparing the draft documentation you will need at each of these stages in advance and ensuring that such documentation is securely stored and kept confidential at all times
- Checking all affected employees’ contracts of employment and other details in advance. For example, length of service, notice periods, whether you have the right to make a payment in lieu of notice, and the employee’s age, salary and benefits packages
- Explaining to managers the legal timescales involved. For example, a large-scale exercise (more than 100 people) will involve a 45-day consultation period and a notice period of up to 12 weeks depending on the terms of the contracts of employment, plus time needed for elections of staff representatives. The process can take around five months in total and even a single redundancy involving just one post will take a few weeks to handle fairly
- Lining up your team. For example, payroll, lawyers, accountants, outplacement consultants, job centre and more. You may have to wait until after the initial announcement is made for reasons of confidentiality
- Whether you have got employee representatives in place to consult with in the case of a collective consultation or whether you need to build in an election process
- Managing the human element. Redundancies invoke many emotions and you must be prepared that even the most skilled person can find it hard to make the announcement or sound genuinely concerned when what they have been told to say is scripted. They may easily go ‘off script’ and you will have to be prepared to clarify things. A ‘frequently asked questions’ document for managers may help to keep them ‘on message’
- The strategies to be put in place for those who are left and who will need clear leadership and direction. Additionally, who at a senior level you will keep free for the appeal stage so there can be no allegation of prior involvement.
Finding alternative solutions
Employers should first consider if there are alternative measures that could be put in place to reduce the need for redundancies. These might be:
- Introducing a freeze on recruitment
- Reducing overtime
- Reducing the use of temporary workers
- Re-training employees in other areas (redeployment)
- Reducing sub-contracting
- Temporary layoffs or short working
- Changing terms and conditions, such as a wage freeze, wage cut, reduction in bonus or pension contributions.
As part of the consultation process, you will need to discuss these alternatives with your staff. Do not assume that staff would not be willing to consider alternatives to redundancy.
Legal risks with redundancy
The main legal claims that an employer in a redundancy situation might face are for:
- A ‘protective award’ where the employer has failed to consult collectively with employee representatives: This award starts at 13 weeks’ pay (actual pay, not the statutory capped sum of a week’s pay) per affected employee and a tribunal will only reduce that figure where it believes there is a good reason to do so; such claims can be brought by the employee representatives until three months after the last dismissal
- Unfair dismissal: Any employee with two years’ service can bring a claim; those with less than the required length of continuous service can bring a claim where they believe the reason for their selection for redundancy was unlawful (perhaps on the grounds of discrimination or because they were pregnant or on maternity leave or because they acted as an employee representative). Claims can result in a basic award which is calculated in the same way as statutory redundancy pay and a compensatory award which is based on the employee’s financial losses up to a maximum of £89,493 from 6 April
- Discrimination on the grounds of sex, sexual orientation, race, ethnic origin or nationality, religion or belief, age, disability or on the grounds of being a part-time worker or employee on a fixed-term contract: In the redundancy context, it is unlawful to select candidates for redundancy on these grounds or to treat them differently on these grounds; in particular, care needs to be taken to ensure that any selection criterion used do not have the effect of treating a particular group less favourably
- An injunction to prevent you from breaching a collective agreement: Trade unions are most likely to bring such a claim, arguing that there is a binding agreement dictating how a redundancy situation should be dealt with and that should be honoured; such an action would be brought through the courts
- Statutory redundancy pay: Employees with two years’ service are entitled to a redundancy payment based on their age, length of service and their weekly pay (up to a maximum of £544 from 6 April); such claims can be made for six months following the dismissal and the maximum payment is currently £16,320 (from 6 April)
- Contractual redundancy pay: If you have promised to pay an enhanced payment to employees, this contractual entitlement can become binding as a matter of custom and practice.
To avoid these legal risks, careful planning of any redundancy exercise is of central importance.
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