1 Aug 2011
Carol Smith
Job Title
In her latest column on personnel issues, CAROL SMITH explains how to avoid redundancy pitfalls in your practice.
EVERY DAY SEEMS to bring news of fresh redundancies and organisational restructuring. Implementing redundancies is complex and several legal challenges can crop up. They are:
• Absence of a genuine redundancy situation.
• Failing to consider alternatives.
• Defining the pool for redundancies incorrectly.
• Not offering suitable alternative employment.
• Failure to carry out a fair selection procedure.
• Failure to consult properly on collective redundancies.
• Failure to inform and consult on an individual basis.
Redundancy is a potentially fair reason for dismissal, but the employer needs to be sure that the situation falls within the statutory definition of redundancy – closure of the business or workplace, or a diminished need for employees to carry out “work of a particular kind” – and that it follows a fair and proper procedure. It should not be used as an excuse to get rid of unsatisfactory or unpopular staff.
Provide staff with early warning of the possible loss of jobs. An announcement about impending redundancies should not come like a bolt out of the blue. Indeed, if staff are informed about the situation, employees may make suggestions to avoid redundancy or to minimise its adverse effects.
Good and clear communication is vital. Do not inform staff by text or email that they are redundant. Avoid language during the consultation that might give the impression a final decision about redundancies has already been made. Part of the communication process is consultation with the employee. Remember that formal consultation with those at risk of redundancy is not only a legal obligation, but must be undertaken with a view to reaching agreement – and, consequently, with an open mind. A redundancy dismissal will normally be unfair if there has been no or inadequate consultation with individuals.
The whole redundancy exercise should be a response to the acknowledged need to cut costs to ensure a better business future.
The employer should be clear which employees have the skills needed for this better future.
The employer should think carefully about the factors to be considered in deciding who stays and who goes. The redundancy selection criteria cannot be subjective and must not be discriminatory. Avoid subjective criteria and personal opinions. Potentially fair criteria include: performance, attendance and sickness records; skills connected with taking the business forward; and flexibility. Length of service (including last in, first out) can be used as part of a matrix, but not on its own, as it is likely to be age discriminatory.
Only after the period of consultation is complete should the employer confirm in writing that at-risk employees are redundant and serve them the required notice under their contracts of employment. The employer must set out the financial entitlements, including the redundancy payment (and how it is calculated), pay in lieu, outstanding wages and holiday, and of their right to appeal.
Employers often prefer to make payments in lieu of notice (PILON), rather than requiring an employee to work his or her notice period. If there is a contractual provision entitling an employer to make a PILON, then any payment will be subject to deduction of tax and National Insurance contributions.
The employer may also decide to mitigate any future risk of the employee bringing a claim of unfair dismissal by using a compromise agreement. Always take legal advice on this. Remember, only those employed for at least two years are entitled to a statutory redundancy payment; payments to those with fewer years of service will merely be ex-gratia.
It is essential that an employer gets the planning and documentation right during a redundancy exercise. Effective communication is vital. And an employer should not underestimate the wider effects of the redundancy experience on the morale of the total workforce.
