What are the risk if I do not follow the Redundancy process?

How much will it cost me if I do not follow a fair process?

When I advise employers and business owners I always give advice on all options and available processes to follow from the gold standard/belt and braces/lowest risk approach, through to the scrape through with some fair process and understand by doing so it carries a risk.

On occasion I am asked by employers if they can forget process altogether and just ‘sack’ someone.

My answer to this question is, yes of course you can, it is your business you can make any decision you want, as long as you understand that it comes with risks. I will always advise you and encourage you to take the most ethical/kindest route for your employees but ultimately the decision if yours.

So with this in mind I thought it would be useful to set out what the risks are for an employer who does not want to follow a fair process.

1. Legal claims in the Employment Tribunal

The starting point is the obvious legal claims and associated costs if an employee or employees decide to pursue their rights via the Employment Tribunal. There are various claims an employee may be able to make if you dismiss without following a fair process including, unfair dismissal, discrimination and automatic unfair dismissal.

2. Compensation for unfair dismissal

Compensation if an employee is successful with a straightforward unfair dismissal claim is split into two parts:

1. Basic award.

The calculation is the same as that for statutory redundancy pay, so if statutory redundancy pay has been paid this cancels out any basic award.

2. Compensation for financial loss as a result of the unfair dismissal.

This incorporates, loss of wages, future loss of wages, and loss of pension rights and benefits. There is a cap on unfair dismissal compensation of the lower of 52 weeks’ pay or the statutory cap (currently £88,519).

3. Compensation for failure to collectively consult

Where you make 20 or more employees redundant within a 90-day period there is a minimum process and period of collective consultation required. If you fail to comply with the requirements, then the Employment Tribunal can make a protective award to employees of a weeks’ pay for each week of the ‘protected period’ up to a maximum of 90 days. This can quickly become expensive if the redundancy process includes a large number of employees.

4. Compensation for discrimination

If the employee is able to successfully pursue a claim for discrimination, in addition to unfair dismissal, then they could be awarded compensation for injury to feelings.

Compensation for injury to feelings falls into three brackets (known as the Vento guidelines) depending on the seriousness of the discrimination:

Lower Band £900- £9,000

Middle Band £9,000 – £27,000

Upper Band £27,000 – £45,000

5. Legal fees to defend a claim

Can be anywhere between £5,000 – £25,000 depending on the type of claims involved and if the case proceeds to a final hearing in the Employment Tribunal.

6. Management time in defending a claim

This is a cost to the business which many people do not factor into their costs when considering defending an Employment Tribunal claim. Whilst you can of course get legal advice and your Solicitor can do the bulk of the work they will need to take instructions and discuss the case with someone in the business. There is also the time it takes to obtain evidence, complete witness statements and attend at the final hearing for any witnesses or managers involved.

7. Reputation risk

Employment Tribunal judgements are published online and so the full details of your behaviour could be set out for anyone to read. This could of course impact your reputation and standing with remaining employees, future candidates and possibly with customers.

Therefor there could be a significant negative impact of an Employment Tribunal judgment against your business.

8. Loss of protection from contractual restrictions

Hopefully, you have employment contracts in place which provide protection for your business from departing employees soliciting customers or colleagues from your business to a competing business. These restrictions are of course very beneficial to your business and protecting you from the risk of departing employees.

If you act in a manner which is considered a fundamental breach of contract then it is likely that the departing employee will argue that the restrictions are no longer enforceable as your actions mean you cannot rely on the terms of the contract and therefore cannot have the benefit of those restrictions.

Depending on the nature of your business and the type of work that the individual undertook for you this could be extremely detrimental and costly for your business. 

9. Negative employee relations with continuing employees

In any redundancy situation there can be a negative impact on the employees who are ‘left behind’ and remain in employment, this must be managed carefully to keep employees motivated and happy in any event.

If you treat their colleagues badly on the way out, it will inevitably impact how the remaining employees feel about you and could create concerns amongst those remaining as to how they will be treated in future. This can lead to low engagement, reduced productivity and lack of trust with management.

10. Employee ‘revenge’

Maybe the least common to occur to a great extent but it is always a risk if you do not treat people fairly and reasonably. This can range from deliberate and damaging sabotage through to a campaign of bad mouthing and sharing negative information on social media.

However, it manifests, it is a risk of not treating people with compassion and dignity when terminating their employment.

To conclude

My passion is to improve the world of work for all, and I would encourage you regardless of the situation to take the time to undertake a fair and reasonable process of consultation and selection.

You can of course weigh up the risks to your business as set out at 1-10 above, however ultimately it is about being kind and having compassion.

The process does not have to be long and onerous, and there is plenty of help available to get through it. It will be better for your business and all involved in the long run if you follow the minimum legal requirements.

If you would like any help with a redundancy process, then we are here to help and have a variety of packages available for any budget, including our DIY redundancy toolkit for employers which is available to download online for £100 plus VAT.