Real Employment Law Advice

What does redundancy mean?

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Introduction

Being faced with the prospect of making employees redundant is both stressful and daunting. It can feel like the task ahead is mammoth and there is so much to deal with. You have to ensure you follow the correct legal procedure, make the right decisions for your business and manage disgruntled employees.

It is therefore crucial that you get the procedure right first time and you avoid costly mistakes that can take up your time later on.

The legal definition of redundancy includes three types of situation:

  1. Business closure,
  2. Workplace closure,
  3. A reduction in the workforce.
 

Therefore the dismissal of an employee will only be by reason of redundancy if it is wholly or mainly attributable to:

  1. Ceasing or intending to cease to carry on the business for the purposes of which the employee was employed i.e. you make paperclips and you decide that you will no longer make them and close the business;
  2. Ceasing or intending to cease to carry on your business in the place where the employee was employed i.e. factory closed in Southampton and moved to Edinburgh;
  3. Having a reduced requirement for employees to carry out work of a particular kind or to do so at the place where the employee was employed to work i.e. you run a factory hand-making boxes and you purchase a machine which makes the boxes. There will be a reduced requirement for staff to make boxes.

When do you need to inform & consult unions or representatives about redundancy?

If you are making 19 or less employees redundant then there is an obligation upon you to inform and consult with employees but there is no minimum period of time within which you must do so and you can do so individually or collectively

Where 20 or more employees are being made redundant or are proposed to be made redundant there is an obligation to inform and consult appropriate employee representatives. This is either trade union representatives, if you have them, or if not representatives who are elected from the workforce.

The consultation must begin at least 30 days before the first dismissal and you must notify the Secretary of State at least 30 days before the first dismissal.

If there are 100 or more employees being made redundant or are proposed to be made redundant there is an obligation to inform and consult representatives. In this case the consultation must begin at least 45 days before the first dismissal and notification must also be sent to the Secretary of State at least 45 days before.

You should notify the Secretary of State using form HR1. A failure to notify is a criminal offence and you could be fined, therefore it is important that you get this right.

In addition a tribunal may award up to 90 days’ pay as compensation to each employee where you breach the duty to inform and consult.

Employers cannot avoid these obligations to inform and consult by grouping their redundancies into less than 20 at a time, as the total number is calculated over a 90 day period. So, if you plan to make 20 or more employees redundant at different intervals over the next 90 days the duty to consult will still be triggered.

If you are unsure about whether you should inform the Secretary of State or go through the procedure please seek advice.

How do I select employees fairly?

A dismissal for redundancy is a potentially fair reason for dismissal. Note that it is only ‘potentially fair’, the test for whether the dismissal is fair or not is a general test of fairness that applies to all dismissals, namely whether you have acted reasonably in dismissing the employee in all the circumstances.

There are some things that you can do to ensure that you act fairly in selecting and making an employee redundant:

  • Identify what your ‘pool’ for redundancy is. Who are the most appropriate employees from whom you should select for redundancy?
  • Consult with all individual employees in the pool.
  • Use an objective selection criteria to select from those employees in the pool.
  • Apply your mind and seriously consider if there is any suitable alternative employment within your business.
 

If you would like a check list to follow when dealing with redundancy in your business send me an email to alison@alisoncolley.co.uk and put the subject title ‘Redundancy’ and I will send you the check list.

What are the alternatives to redundancy?

It is an important part of a fair procedure that you consider whether redundancy can be avoided or the impact reduced.

This should be one of the points that you consult employees about, and is required under collective consultation.

For a list of alternatives to redundancy see my legal update posts.

How much notice do I need to give an employee?

Once an employee has been selected for redundancy you will need to give them notice of the termination of their employment in line with the terms of their employment contract or the statutory minimum notice, whichever is longest.

How much do I need to pay an employee who is leaving because of redundancy?

If the reason for the employee’s dismissal is redundancy and they have been employed for 2 full years’ or more then they will be entitled to a statutory redundancy payment.

Statutory redundancy pay is calculated according to a set formula based on age, length or service and pay. There is a cap on the amount of a weeks’ pay and the total amount that is payable. This amount changes each year.

For redundancy dismissal after the 6th April 2016 the rates are £479 and maximum payment £14,370. (This amount changes normally every April so please ensure you check the up to date details).

There is an easy to use online calculator click here: redundancy calculator

Do we have to pay an enhanced redundancy payment?

Whether you have to pay an enhanced redundancy payment, that is a payment over and above the statutory minimum, will depend on the terms of the employees contract and/or whether it has become ‘custom and practice’ for you to pay enhanced payments.

If it states in the employee’s contract that you will pay more than the legal minimum amount then any failure to do so would be a breach of contract and the employee would be entitled to claim the difference between what you have paid and what you should have paid.

Even if there is no express clause in the employee’s contract they may be entitled to an enhanced payment if you have paid this to previous employees on a regular basis and it has become your custom to do so.

There has been a recent case on this subject (March 2014) in the Employment Appeal Tribunal and you can find more details [HERE].

What happens if we cannot afford to pay redundancy pay?

In certain circumstances the National Insurance Fund will pay the employee their redundancy payment

If you would like a check list to follow when dealing with redundancy in your business send me an email to alison@alisoncolley.co.uk and put the subject title ‘Redundancy’ and I will send you the check list by email.

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