Five Things you Should Know about Redundancies
Introduction Whilst the process to follow during a redundancy is widely written about, there are a few questions that come up time and again. These common areas of misunderstanding have the potential to derail an otherwise fair and reasonable process, and can end with the employer facing a costly employment tribunal.
Voluntary redundancy Voluntary redundancy is one way to identify those in the business who might be wanting to leave anyway, and so can achieve two things at once: remove a potentially less committed employee from the organisation, and reduce the overall headcount where it is needed due to work ceasing or diminishing. Sounds simple enough, but there are some pitfalls to this.
First, when asking for volunteers, employers need to make it clear they will not necessarily accept everyone who puts themselves forwards; you don’t want to lose your best member of staff, or one with valuable skills and attributes not seen elsewhere in the organisation. Whilst this may disappoint those who put themselves forwards, it does present an opportunity to focus retention efforts on them, as clearly all is not well in terms of their commitment to the business.
A further issue with voluntary redundancy is that which was seen in the EAT case of White v HC-One Oval Ltd, where employers were reminded that just because an employee has volunteered to be made redundant, it does not mean that they cannot bring a claim for unfair dismissal, and win. In that case, the employee argued the redundancy situation was a sham and designed purely to remove them from the business. The EAT agreed with this. Employers should take away from this that even where they have volunteers for redundancy, a full and thorough process should still be followed, and a legitimate redundancy case must exist.
The selection process When faced with a situation where it is necessary to select which employees will be made redundant, there is a temptation to reward long service with the company, as these employees are deemed to be the most loyal. Certainly, this can be true, but it fails to account for the wider picture, such as the skills, qualifications and attributes of those “last in” that would be lost by taking this action. It can also impact unfairly on younger members of staff. It is much better to use a range of objective criteria. Failure to do this can, again, put the employer at risk of a tribunal case.
Bumping “Bumping”, or “transferred redundancy”, is a concept that not many employers are aware of, especially where they have no HR expertise in their business, and/or they have not gone through a redundancy process before. “Bumping”, as alluded to in its name, is where one employee (A), faced with redundancy, moves into another employee’s (B) role, resulting in B being made redundant. This can happen even where B’s role was not at risk in the first place.
Bumping can be a valuable exercise where employee A has skills and attributes that are of particular importance to the organisation, such as where they are the only one who is able to operate certain company systems — especially likely in smaller organisations. However, it is not risk free. A bumped employee is still redundant from their role, and therefore there must be a genuine redundancy situation in the original role for this dismissal to be fair. There is a two factor test for this:
Has the requirement for work of a particular kind diminished?
Was the dismissal wholly or mainly attributable to that diminution?
Note that bumping does not apply where employee B was being dismissed in any event, such as for a conduct issues, and employee A is offered their position. The reason for this dismissal would remain, in this example, conduct.
Trial periods Another area that might catch employers out is that of trial periods following redundancy, under s.138 of the Employment Rights Act 1996. When an employee is offered an alternative role, they are entitled to a four-week trial period in that new role before both sides make a final decision as to whether they are the right fit for it or not. What is often misunderstood is that in order for the trial period to begin, the original role must come to an end. This is either by the employee working out their notice in the previous role, being paid in lieu for that notice or agreeing to waive it, perhaps instead receiving it only if they are not successful in the role following the trial (if that is what they agree). If it is deemed during or following the trial period that the role is not suitable, the employee will be dismissed as redundant and given redundancy pay.
Redundancy pay Finally, we turn to redundancy pay. This carries a number of difficulties.
First, there is the question of employees paid variable pay. When is the period over which this would be calculated? In order to establish this, we need to identify two different dates.
The relevant date: if the employee was dismissed on notice, the date the notice expired. If they were paid in lieu of notice, then this is calculated by adding statutory notice to the date on which they were dismissed.
The calculation date: the date on which the employee’s weekly pay is established (subject to a statutory cap). For those with variable pay, this is calculated over a 12-week average, and so the calculation date would be:
for those not given notice, or given less than statutory notice, this is the date on which their employment would have ended had statutory notice been given (s.226(5)(b) of the Employment Rights Act 1996)
for all other cases, it is the date, counting back from the “relevant date” mentioned above, the employer would have given notice had they given statutory notice (s.226(5)(c) and (6) of the Employment Rights Act 1996).
The relevant date is also useful for another purpose. Rights to redundancy pay change depending on length of service and the employee’s age, so what if they have a work anniversary, or a birthday, during their notice period? What if they are paid in lieu? In order to avoid employees being given less than they are due, these anniversaries should be included in the calculation of the redundancy pay. Employers must therefore establish the relevant date to check the employee’s age and length of service at that time, not at the point they are actually made redundant, even if they are paid in lieu of their notice.
Conclusion There are many questions around redundancy, and in the above we have pulled out the ones that typically cause employers the most trouble. Alongside these, there is also the need to communicate openly and honestly with employees, and to consult in good time to ensure the consultation is meaningful. Above all, employers must act fairly and reasonably when going through this process.
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