July’s Employment Law digest: Practical guidance on making redundancies
25th July, 2023
No employer relishes having to contemplate the dreaded 'R-word'. However, whilst redundancies are generally viewed as the last resort in response to business pressures, most organisations will at some point find themselves in a position of having to explore potential redundancies.
In his article for the February 2023 Employment Law Digest, Director James English looked at redundancies and the importance for employers of getting this right. As we have seen an increase in employers making, or proposing to make, redundancies in recent months, this month Managing Associate Tom Shears looks at this topic in greater detail, examining the life cycle of a redundancy process and exploring some practical guidance on how to avoid pitfalls and minimise risks.
The Redundancy guide
Redundancies most often arise in response to a need to reduce costs or as a result of a downturn in work (such as loss of a key customer contract). However, neither of these are a requirement for there to be a redundancy situation under the legal definition. A redundancy situation can include the whole business or a particular site closing down, or a scenario where the employer has a reduced requirement for people to do a particular type of work. This is a wide definition and incorporates situations where an employer believes that the existing work can be done by fewer people, or proposes that the organisation can be restructured by replacing existing roles with new ones so that things work more effectively.
Employment Tribunals are not usually keen to scrutinise business decisions and judge whether they appear to be commercially reasonable. It is generally accepted that employers are entitled to decide how best to run their business, even where an employee disagrees. However, employers must still be prepared to show that they have properly thought through how a redundancy proposal will work at the outset, and Employment Tribunals might be willing to start tugging at the threads of a business case where there appear to be inconsistencies or irrationalities which may give weight to a claim from an employee that they are being personally targeted.
Where an employer is proposing to make 20 or more redundancies at an establishment within any 90-day period, special ‘collective consultation’ rules apply. These impose prescriptive requirements on the employer as to the process and timescales for any redundancies, and failure to comply carries significant penalties including a protective award of up to 90 days’ uncapped pay for each affected employee. Specialist legal advice should always be taken on any potential collective redundancies.
Once you have identified the area where staffing reductions can be made, the next step is to decide the redundancy ‘pool’. In broad terms, the ‘pool’ is the group of employees who do the work for which there is a diminished requirement. In many cases, the pool will be obvious – there may be a group of employees with the same job title who work interchangeably carrying out the same duties. In other cases, it will be much trickier as an employer may have various employees who perform similar duties but with different job titles, or a team of employees who carry out the same role but who are focused on different customers with the redundancy situation arising from one of those clients having taken their business elsewhere. Can the employer limit the pool to a narrow group of employees or even just a single employee?
There are no hard and fast rules about how you must define the redundancy pool. The test which the Tribunal is required to apply is whether the pool falls within the ‘range of reasonable responses’ i.e. might a reasonable employer have chosen this pool, not is it the pool that the Tribunal thinks best. However, in practice Tribunals can be strict when scrutinising whether the employer has taken a reasonable approach to the redundancy pool.
It is often the case that Tribunals will take some persuading that a narrower pool is appropriate where there are a range of potential pools. Employers often favour narrow pools as they may think that this will ensure that the most appropriate person is selected from a business perspective. However, it can be an easy decision for a Tribunal to find that a reasonable approach would have been to use a wider pool, and to point out that a robust and reasonable selection matrix would have ensured that the ‘right’ person was chosen in a fair manner.
It is possible to have a ‘pool of one’ – most commonly where there is a ‘stand-alone’ role (i.e. only carried out by one person) – but Tribunals are particularly keen to scrutinise whether it is reasonable to define the pool so narrowly.
Once the pool has been identified, the employer will often only need to select some of the employees in the pool for redundancy. This will not always be the case – for example, if it is a ‘pool of one’, or if all of the roles within the pool are proposed to be deleted. In those cases, everybody in the redundancy pool is automatically at risk of redundancy.
However, in many cases an employer will only be seeking a reduction in headcount. For example, if an employer is only seeking one redundancy from a pool of 5 employees, it will need a fair method of identifying which employee is chosen.
Employers’ hands are tied fairly tightly when it comes to how they go about making this selection. Case law is fairly clear that employers are expected to use a selection matrix against which each employee in the pool is scored – as opposed to making everybody in the pool re-interview for their job.
Tribunals expect to see a matrix based on largely objective criteria – meaning those which can be verified against fixed criteria such as disciplinary record, attendance record and length of service. Whilst there is no blanket ban on subjective criteria (which rely on individual judgment), employers are on much safer ground where they can provide clear guidance on how employees are scored and can provide evidence. For example, a performance criterion which can be supported by annual performance ratings and regular one-to-one appraisals is unlikely to be criticised. However, a seemingly arbitrary rating out of 5 for ‘attitude’ or ‘enthusiasm’ is unlikely to sit well with a Tribunal.
The reality is that there isn’t any good time to tell employees that they may be facing redundancy. Some employers favour group announcements where multiple roles are affected; others would rather take a more personal approach and speak to people individually – however, this can create something of a ‘race against the clock’ to speak to everybody before they hear whispers elsewhere.
Either way, employers will want to time the announcement to minimise disruption to the business as far as possible, whilst being as compassionate as possible towards those who are impacted. Businesses will also need to identify colleagues who aren’t personally impacted but will need to be aware of what is happening – and think about how they can assure staff who aren’t ‘at risk’ that they are not impacted.
A golden rule is that the initial announcement is not the time for detailed discussion or heated debate about the potential redundancies – be prepared to tell employees that the consultation meeting is the forum to get into the detail.
The cornerstone of a fair redundancy process is consultation. The fundamental purpose of this process is to provide employees with an opportunity to challenge the redundancy proposal and/or their selection, and to put forward alternative suggestions. Consultation should cover every aspect of the redundancy process – the business reasons, the redundancy pool, the selection matrix and the individual scores awarded to the employee.
So what does a reasonable consultation process look like? There is no ‘one size fits all’ approach, and each case will differ. In some cases, the redundancy situation will seem very difficult to avoid, there may be no need for selection criteria and the employees may accept the situation without any meaningful challenge. In other situations, an employee may challenge every aspect of the process and several consultation meetings may be required to hear, consider and respond to challenges and counter-proposals.
The key factors which an Employment Tribunal will expect to see in a reasonable consultation process are:
- An ‘open mind’ and a willingness to revisit the proposal and/or the provisional selection of the employee for redundancy
- Providing reasonable information where requested and allowing adequate time for the employee to put forward questions and proposals
- Genuine consideration of challenges and alternative proposals, with reasons provided where these are not considered to be feasible
Whilst employers should avoid the trap of treating the redundancy as a ‘done deal’ and jumping straight to this point, exploring whether there are any roles which the employee could do as an alternative to being made redundant is nevertheless an important part of the consultation process. Alternative roles may be pre-existing vacancies, or new roles created as part of the same restructure which has given rise to the redundancy situation.
Employers are generally expected to give employees at risk of redundancy some form of preferential treatment for vacancies within the business, and not necessarily made to compete for roles alongside external candidates unless there is a good justification for this.
The good news for employers is that they have far more flexibility on how to fill vacancies compared to how they should select employees for redundancy. Competitive interview processes are generally fine for this purpose, although an employer should still be careful to be consistent and provide justification for their decision.
Whilst enhanced protection in redundancy scenarios for employees who are pregnant or on maternity leave has been in the pipeline for many years, at present the only specific protection (beyond general pregnancy and maternity discrimination legislation) relates to alternative employment. Where an employee on maternity leave is to be made redundant and there is a suitable alternative vacancy, that employee must be offered that role without a competitive process – even where there are other ‘at risk’ employees who may be able to do that vacancy. This is a rare example of positive discrimination not only being permitted, but required.
One of the trickiest issues for an employer to deal with is how to approach the process where an employee has been away from work for some time, for example due to long-term sickness absence or maternity leave.
A common pitfall for employers is not properly consulting with these employees – this is after all the ‘easy’ or ‘kind’ approach to take in many minds. However, not providing these employees with an equal opportunity to challenge their potential redundancy as other colleagues not only gives rise to a risk of unfair dismissal claims, but also of disability or maternity discrimination claims.
Some key tips for employers:
- Ensure that you consult with these employees in an equally meaningful way.
- This may require particular thought around practical issues such as delivering the initial announcement and arrangements for consultation meetings.
- Be prepared for meaningful consultation to take slightly longer to allow for practical arrangements for meetings e.g. for alternative childcare arrangements to be made for young mothers.
- Adjustments to scores will need to be considered where an employee has absence or other issues which are related to long-term health conditions which could be a disability under the Equality Act 2010.
- Pregnancy-related absences must be discounted entirely when scoring.
- Alterations may be required to the scoring process to allow for a period of maternity leave. If there is a criterion relating to sales made in the last 9 months and the employee has been on maternity leave for that entire period, awarding a score of 0 will almost certainly be unfair and discriminatory. However, automatically awarding a score of full marks may be unfair and even potentially indirectly discriminatory towards other employees. A sensible and balanced approach should be taken such as using the 9-month period prior to maternity leave, or using the equivalent 9-month period in the previous calendar year (assuming that this wasn’t impacted by maternity leave).
How can we help?
- HR Protect clients can access our comprehensive redundancy section in our HR Protect portal, which includes a range of advice documents, precedent letters and guidance notes.
- If you have any questions relating to anything discussed in the article or if you would like advice on any other matter please do get in touch one of our expert Employment lawyers.
- HR Protect clients who have insurance as part of their package will also be covered in relation to any Employment Tribunal claims that may arise from a redundancy situation, so long as they have followed our advice and the redundancies are not implemented or initially proposed within the first 90 days of the first year of insurance.
- Claims relating to redundancy dismissals can be expensive and any employer who thinks they may have to make redundancies in future should consider whether insurance would be worth having. As with most insurance policies, claims arising from pre-existing situations will not be covered and most policies will need to have been in place for a minimum of 6 months prior to any redundancies in order to be covered.
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