Redundancy is a word that strikes fear into the hearts of most of the workforce and employers. Workers don’t usually want to lose their jobs, and employers don’t want to spend an often significant amount of money on payouts. Redundancy may come up for a number of reasons: you may need to scale down your operation, or you may be closing one of your shops, for example. A key point to remember is that a person cannot be made redundant; it is their job that must be redundant, and any other jobs within your business they could do must be considered too.
A number of different pieces of legislation cover redundancy. The Employment Relations Act 1996 (ERA) states that employees are entitled to a redundancy payment if their reason for leaving is because their job no longer exists and the reason they were employed has ceased or is expected to cease or diminish.
Under the Trade Union and Labour Relations (Consolidation) Act, if more than 20 employees are made redundant, the employer has a duty to tell the Department of Trade & Industry (DTI) within a period of 90 days. The DTI provides a form in order to do this.
If you have recognised trade unions or elected representatives, you must consult them. Redundancy for consultation purposes has a different definition than that used for redundancy pay: it is for a dismissal for a reason not related to the individual concerned.
Employees made redundant, including part-time workers, must get statutory redundancy pay if they are
aged between 20 and 64, or have worked for you for at least two years.
The statutory minimum payment is based on one week’s gross pay, and this is capped at £270. The payments are free of tax and national insurance.
You must also pay your employees notice pay. This depends on what you’ve put in their contract. So, if they have to give one week’s notice if they were to leave of their own accord, you must pay them one week’s notice. You can decide to give people more redundancy pay, which is written into their contracts.
While redundancy is considered a fair reason for dismissal, you still have to act reasonably under the ERA. As a result, you must follow a fair procedure and have objective selection criteria.
You must ensure those on maternity, paternity or adoption leave are treated fairly and take care not to discriminate against them. This also applies to sex, marital status, other family rights, race, religion, belief, sexual orientation, disability and age.
A fair procedure for redundancies must be adopted, where the employees to be made redundant are chosen appropriately and objectively, and warned before the redundancies. If there is an alternative job they can do, you must offer it to them. The employee then has a statutory four-week trial period to decide whether to accept this offer.
The statutory dismissal procedure applies when a company is making fewer than 20 people redundant. Under this basic minimum, you must write to the employee, telling them why you may make them redundant, and invite them to a meeting to discuss the matter. Once you have held the meeting, you must hold an appeal meeting if the employee wants to appeal against the decisions.
There is no set length of a consultation period but you should give the employee as much warning as possible and allow meaningful consultation to take place. Normally, you should have two consultation meetings with the employee, allow them enough time to respond and you enough time to consider their response. You must not dismiss the employee before the end of the consultation period.
When consulting with the employee, you must explain to them why you may have to make them redundant, any factors which might influence your decision in whether they will be made redundant, any measures to avoid redundancy and whether you have any alternative employment for them.
You must keep a written record of the consultations, as these could be used as evidence in an employment tribunal. These include letters setting out the circumstances of the redundancy, invitations to and notes of consultation meetings and follow-up letters.
If the statutory dismissal procedures are not followed, the dismissal will automatically be unfair. If either party has not completed the procedure, the tribunal must increase or decrease any compensation paid by 10%, depending on which party is at fault, and may increase or decrease any compensation by up to 50% depending on the circumstances.
The awards for unfair dismissal is currently capped at £55,000. There is also the risk you could be found guilty of a particular type of discrimination. The compensation for this is uncapped. So tread carefully on redundancy: it’s a legal minefield.