May 2020 Newsletter
Seven things to think about when making redundancies
An unfortunate consequence of the COVID-19 pandemic is that some employers may be forced to consider making redundancies. This month we will look at the issues employers need to consider if they find themselves in this difficult position.
What are the risks of getting it wrong?
- Whilst redundancy is one of the five potentially fair reasons under law for dismissing an employee, those with two years’ service or more can still claim that their dismissal was unfair if, for example, an incorrect procedure was followed, or, where applicable, selection criteria was inappropriately applied to a redundancy pool.
- Where the employer is proposing to dismiss 20 or more employees at the same establishment over 90 days or less, there is a legal requirement to consult employee representatives and a process to follow.
- In addition, employers could also face direct or indirect discrimination claims related to dismissal. Any employee can make such a claim, even those without two years’ service.
Despite these risks, employers who approach redundancy in a transparent way (by being honest about the difficulties being faced and open to suggestions from employees) can greatly reduce their potential liability.
Over the years, courts and employment tribunals have developed a range of “standards” that a reasonable employer will be expected to meet. There is no “one size fits all” approach; each employer should address the issues in a manner appropriate to the size and nature of their business.
Thinking clearly about these issues will help employers make difficult decisions in a way that is legally compliant and also retains those employees who can best help it succeed moving forward.
1. Should you ask for volunteers?
It is often the case that some employees will be willing or even eager to be selected for redundancy.
Where there are sufficient volunteers, employers can avoid the challenging process of selecting a pool of potential candidates (which can be stressful and upsetting for all affected employees) and also avoid the risk of legal proceedings. Some employers offer enhanced redundancy packages to volunteers to avoid having to implement compulsory redundancies (often as part of agreed redundancy procedures negotiated with trade unions).
However, whilst a reasonable employer will consider asking for volunteers for redundancy, there is no legal obligation to do so.
One reason not to offer voluntary redundancies is that competent employees might volunteer over less competent employees. Those whose skills and experience will make it easier for them to find new work are often not the employees an employer will most want to make redundant. It is important, therefore, for employers to reserve the right to refuse any application for voluntary redundancy. This can bring its own problems, however (especially where an employee refused redundancy is being denied a generous redundancy package). Such employees might feel demotivated and resentful. Those subsequently selected for redundancy may feel more inclined to challenge the decision when they discover that other employees were willing to leave but were prevented from doing so.
Employers should think carefully about whether asking for volunteers is the best approach for them to take in the particular circumstances.
2. The pool for selection
Once an employer has decided it needs to make one or more employees redundant, it must decide which employees to consider. To be deemed to have applied selection criteria fairly there will need to be a clearly defined group, or “pool”, of employees from whom final redundancies will be selected.
How wide or narrow that pool isthan is a matter for each individual employer to decide. However, the size of the pool must be given careful consideration. As long as employers can demonstrate they have reached a decision based on business reasons they are able to objectively justify, Tribunals are likely to find such decisions reasonable.
A ‘Pool of one’
Sometimes an employer may consider the appropriate pool for selection consists of just one person (this has the advantage of removing the need for a selection process). However, employers should be careful in proceeding down this route as it could be argued that the employer has created the redundancy situation simply to engineer the dismissal of that particular employee. A ‘pool of one’ might be appropriate where that employee is in a unique position in the workplace and their work is being discontinued for business reasons. To limit legal risk, employers should seriously consider whether any other employees with similar skills could be added to the pool for redundancy.
“Bumping” arises in a redundancy situation where one employee is “bumped” out of the way and made redundant so that another ‘at risk’ employee can take their place.
For example: employee X’s role is at risk of redundancy and employee Y is in a lower level position. Bumping would arise if Y is made redundant so that X can take Y’s job. The reason for Y’s dismissal would be redundancy, despite the fact that Y’s role was not at risk. Bumping often crops up if Y has less than two years’ service.
As you can imagine, bumping is not particularly popular with people in Y’s position, and is highly likely to be challenged at Tribunal (which is one of the reasons why employers are often wary about using it). Whilst the bumped employee may reasonable feel they were unfairly selected for redundancy (given it was not their job role at risk), the employer is entitled to base its selection on retaining the workforce that best meets its future needs.
Case law has established it is a legitimate option in redundancy situations which employers should consider (particularly where it has been requested by employees facing redundancy). The employee who is dismissed as a result will still have been made redundant, and will potentially be entitled to a redundancy payment.
3. Selection criteria
Next, employers must be able to explain the basis on which the selection for redundancy was made in each particular case. This should not be based on purely subjective factors (such as who the employer likes the most) but, as far as possible, on an objective assessment of the attributes of an employee and how they match the future requirements of the employer.
Last in first out (LIFO)
Traditionally, selection for redundancy was based on an employee’s length of service. The principle of “last in, first out” was considered objective by eliminating favouritism or subjective opinion. However, employees with the longest service are not necessarily the best performing or most skilled, so by adopting this approach employers might lose out on employees who are more valuable to the business. In addition, there is a risk of indirect discrimination as women, on average, have shorter service than their male colleagues (due to maternity breaks and other factors). Selection based exclusively on length of service could therefore result in women being disproportionately selected for redundancy.
Despite this, most employers will still want to give some credit to employees with a long and faithful service. It is common for length of service to at least form some part of the selection matrix (e.g. operating as a tie-breaker when other factors such as skills and performance are equal).
Performance in the job is a perfectly fair criterion to use when making a selection for redundancy, but it needs to be applied carefully. Ideally, there should be an objective basis for selection on this ground (e.g. output, sales figures or a performance appraisal record). Employers should avoid scoring employees based only on their own perception of the employee’s performance without evidence to back up their assessment.
Attendance is also a fair criterion but one that needs to be applied with care; employers should be prepared to make exceptions when poor attendance has been caused by an underlying condition that may amount to a disability.
Also, ensure to take into account whether an employee’s past inattendance is a reliable indicator of what will happen in the future. One employee might have a lengthy period of sickness absence in the past year, but if that was the result of a one-off accident and the associated recovery time, there may be little risk of absence in the future. Whereas another employee may have been absent for less time overall, but show a tendency to suffer short-term unexpected periods of illness with no underlying health condition. The latter employee may be much more likely to have poor attendance in the future.
Other common selection criteria include: disciplinary record, qualifications and experience. These are objective and easy to measure, but do not always help the employer to choose those employees who are the best match with its future business needs. Often, the employer is most interested in is qualities such as: attitude, flexibility, and potential, however as these are hard to measure, managers relying on these criteria should be careful to support their assessments with as much objective evidence as possible. (E.g. an employer scoring an employee low on attitude should be able to point to examples of behaviour on the part of the employee that supports that assessment.)
As with length of service, when choosing selection criteria always consider whether there is any risk of them operating in a discriminatory way. For example, an employee’s willingness to work overtime might be something that the employer wants to take into account, but there is a risk that this could seriously disadvantage those with caring responsibilities (more likely to be women). If challenged, the employer would have to work hard to persuade a Tribunal that reliance on such a criterion was proportionate in the circumstances.
One of the key aspects of a fair dismissal for redundancy is consultation; indeed, a lack of consultation in itself may be enough to render the dismissal unfair.
Consultation is not the same as negotiation. It is, however, a genuine dialogue with potentially affected employees about the best way forward. In large scale redundancies (20 or more dismissals over a 90 day period) there is a separate legal requirement for the employer to consult employee representatives, but even when only one redundancy is being proposed, the employer will be expected to consult the employees who are at risk of being dismissed.
For the consultation to be genuine, it must take place when the employer’s proposals are not yet finalised. There must be room for the employer to change its plans based on the response of employees and any alternative proposals they have. Redundancy should not, therefore, be announced as a “fait accompli”. Rather, the employer should provide employees with information about the proposed redundancies and invite them to submit their views on the proposals as a whole and, also, on the way in which the proposals apply to each of them personally. This often means an initial consultation meeting with the workforce as a single group to discuss the need for redundancies generally and the way in which selection will be undertaken. This is then followed by a second phase of consultation where employees discuss their particular position once the selection criteria have been applied.
Employers do not have to accept any alternatives put forward by an employee in the consultation process, but should give them genuine and open-minded consideration. The more the employer can show that it shifted its position in response to the consultation process, the easier it will be to demonstrate to a tribunal that the consultation exercise was genuine and fair.
Where fewer than 20 redundancies are being proposed, there is no formal time period over which consultation should take place. Typically, a period of two weeks between discussions taking place and selections being made before employees are given notice of dismissal for redundancy would be reasonable (depending on the number of employees in the pool for selection). Employers should consider any pre-agreed timeframes with trade unions or other employee representatives where relevant.
Consultation during the pandemic
ACAS advises that employers continue to owe a duty to consult during the pandemic. As there is no legal requirement for consultation to be in person, employers should consider remote options such as telephone or video or conference-calling technology.
5. Applying the criteria
When the selection criteria have been chosen and the pool of employees identified, the employer must apply those criteria to each employee in the pool to identify which employees to make redundant. This can be largely a paper exercise, with a manager scoring employees under each of the criteria to produce a selection matrix. Those employees who score the lowest will provisionally be selected for redundancy and should then be given an opportunity to comment on or challenge the scoring (usually in a one-to-one interview).
There is an increasing trend for employers to use employee interviews to make the actual assessment of who should be made redundant. Essentially, affected employees are asked to apply for the remaining roles within the part of the business concerned and the employer runs, in effect, a recruitment exercise. Whilst this approach is well established and is not unfair in itself, it should be proceeded with care. Performance in the interview should not take precedence over performance at work as an employee may struggle to articulate qualities they have amply demonstrated in their work. Any interview should therefore be focussed clearly on the selection criteria that have been identified and the employer should ensure that the employee’s actual performance in the job is taken fully into account.
Employees selected for redundancy should be told why they were selected and how they were assessed against each of the criteria. They should also be given the opportunity to correct any errors in that assessment. This may involve a formal appeal against their selection, but this is far from being a universal practice and is not a legal requirement. Provided the employee has been consulted about the criteria being used and the employer can show that they have been fairly applied, then this will generally be sufficient.
6. Pregnancy and family leave
In any redundancy exercise it is crucial to ensure that pregnant women and those on maternity, adoption or shared parental leave are not placed at a disadvantage. There is, however, no law against making such employees redundant provided the redundancy is a genuine one and the pregnancy or taking of leave does not in any way influence the employer’s decision.
Employers should be careful that employees who have recently returned from maternity or other similar leave are not placed at any disadvantage in a redundancy selection exercise. Selection criteria based on recent performance in the role can pose legal risks (therefore the fact that the employee has not been at work must not lead to a less favourable assessment). Similarly, an employee’s performance before she went on maternity leave may have been affected by her pregnancy. It is best to take a wider view of the employee’s performance based on overall career history.
Keeping in touch/ consultation
For employees on leave, it may be necessary to use one or more of their ‘keeping in touch days’ to attend redundancy consultation meetings. Employers should ensure that employees on leave are included in any related correspondence. If the employer is communicating with the workforce by email then ensure the employee on leave can easily access their work email and it will be seen at the same time as it is seen by other employees (or as soon afterwards as is reasonably possible). The selection process itself must then be carried out in a way that does not place an employee on maternity leave at any disadvantage. If the employer is interviewing employees as part of the selection process, then a different way will need to be found to assess any employee on maternity leave.
Finally, those on maternity adoption or shared parental leave are entitled to preferential treatment when it comes to any available alternative work. If the employee is due to be made redundant, but the employer has a suitable alternative vacancy elsewhere in the organisation, the employee must be offered that vacancy. The employer’s duty is not just to give the employee an opportunity to apply for alternative work, or to give the employee’s application a fair consideration. If the vacancy is suitable for the employee, then the employer must offer it (even if better qualified or more suitable candidates are available).
7. Alternative work
Apart from the specific obligation owed to those on maternity, adoption or shared parental leave, employers carrying out redundancy exercises should consider alternative work for all affected employees.
Sometimes employers make the mistake of not discussing alternate roles with employees on the assumption that they will not be interested (i.e. if the role is less senior or less well paid). However, from a legal perspective it is best to present all possible alternatives to the employee and have a genuine discussion with them about whether any are suitable.
Avoiding redundancy payments
One reason to always try and offer alternative work is that, as a matter of law, any employee who unreasonably refuses an offer of suitable alternative work is not entitled to a redundancy payment. This can represent significant savings for employers.
In order for employers to discharge their responsibility for redundancy payments, any alternative work offered must be genuinely ‘suitable’. You should compare the employee’s current terms and conditions to those of the new role. If the new role involves a significant pay cut, more unsociable hours or a need to relocate then it is unlikely to be regarded as a suitable alternative.
Even if the role is suitable, the employee’s refusal of it might still be found to be reasonable by a Tribunal, who will consider any subjective reasons for the employee refusing the role (e.g. family commitments that prevent them working further away from home/ compelling reasons to do with the nature of the work). If the employee can convincingly explain why the new role was not right for them, a Tribunal is likely to be sympathetic to any claim for a redundancy payment.
Notice periods and redundancy payments
If an employee accepts an alternative role and has been given formal notice of dismissal by their employer, with the alternative work beginning immediately after the notice period, the employee can resign at any time in the first four weeks of the new role and still claim a redundancy payment.
To avoid disputes about an employee’s entitlement to redundancy payments, employers should clearly set out when making the offer of alternative work whether any trial period will apply and what will happen if either party is unhappy with the new role. If the employer and employee arrange for the alternative role to begin before the notice period expires or even before formal notice is given, then any trial period is simply a matter to be agreed between them. If the employee is not happy in the new role and resigns then it may be that there is no dismissal at all, much less a dismissal for redundancy, and that there is no redundancy payment owing.
This bulletin is provided for general information purposes only and does not constitute legal or any other type of professional advice. Cater Leydon Millard Limited, do not accept and, to the extent permitted by law, exclude liability to any person for any loss which may arise from relying upon or otherwise using the information contained in these bulletins. If you have a particular query or issue you are strongly advised to obtain specific, personal advice about your case or matter and not to rely on the information or comments in this bulletin.