Make sure your redundancy process follows the rules

Employers often use the term “redundancy” as an excuse to get rid of under-performing employees. However, to be a genuine redundancy, a dismissal must be wholly or mainly attributable to a business or workplace closure or a reduced requirement for employees.

A redundant employee is entitled to the greater of contractual or statutory minimum notice (or a payment in lieu). In addition, where an employee has more than two years’ service, he or she is entitled to statutory redundancy payment calculated according to age, length of service and a multiple of a week’s pay. A week’s pay is capped at £330 and the maximum statutory redundancy payment is £9900. It is, of course, open to an employer to pay more.

Any employee with a year’s continuous service has the right to not be unfairly dismissed. While redundancy is potentially a fair reason for dismissal, whether it is fair in any given case depends on the circumstances. Sometimes dismissal on the grounds of redundancy will be automatically unfair (for example, selection because of pregnancy). In other cases, a genuine redundancy dismissal will be unfair (and entitle the employee to additional compensation) if the employer has failed to follow the correct procedure, carry out adequate consultation or offer suitable alternative employment.

An employer should first identify the pool of employees from which to select those who are to be made redundant. Factors to consider are:

• whether other groups of employees are doing similar work, in which case they should be included in the pool; and

• whether employees’ jobs are interchangeable, in which case the pool may be bigger.

Each employee in the pool should be “scored” according to fair, objective criteria. Those with the lowest scores are then at risk of redundancy. The criteria should be capable of independent verification against performance reviews, timesheets etc. Subjective ones such as “attitude” are generally regarded as unfair. Those that discriminate on unlawful grounds, such as sex or race, generally result in a finding of unfairness and discrimination.

Indirect discrimination

It is not always obvious that a criterion is potentially discriminatory. For example, selecting people for redundancy on the basis of attendance may indirectly discriminate against women who may have had more absences because of maternity leave.

Criteria must be applied in a consistent and fair manner. Time-keeping could be a fair criterion, but it will be unfairly applied if an individual is marked down heavily for having been late on one occasion.

There is an obligation to consult individually with each employee and in some circumstances collectively as well. If an employer is proposing to make 20 or more employees redundant at one establishment within a 90-day period, they must collectively consult. This includes informing and consulting employee representatives and notifying the Department for Business, Enterprise and Regulatory Reform. Where fewer than 20 redundancies are proposed, statutory disciplinary and dismissal procedures (SDDPs) apply. Failure to follow SDDPs will render a redundancy dismissal automatically unfair, which may increase the compensation awarded. Failure to consult collectively will lead to each affected employee being entitled to up to 90 days’ gross pay, in addition to any unfair dismissal compensation.

Common mistakes that lead to claims include:

• Making the pool too small. Employers often do this because they want to avoid upsetting individual employees whom the employers know are not going to be made redundant.

• Choosing subjective criteria or criteria based on discriminatory grounds such as age.

• Reverse-engineering the process by first identifying the individuals the employer wants to get rid of and then working out criteria that create the desired result (and worse still, leaving a paper trail).

• Failing to recognise when the obligation to consult collectively arises, or failing to follow the SDDPs.

• Failing to offer suitable alternative employment, on the assumption that it is not suitable because the job is at a lower salary or in a different area of work.

• Failing to give those selected for redundancy the opportunity to appeal.