Redundancy Exercises – the top ten Pitfalls to avoid

The news last week was sadly full of stories about companies starting to consider redundancies as a result of the impact of coronavirus: Royal Mail is set to cut 2,000 jobs; Arcadia Group, John Lewis and Harrods are all planning staff cuts; car and other manufacturers are planning to follow suit; unfortunately, the list goes on. The stark reality is that businesses in all sectors are struggling with the impact of coronavirus, and despite efforts by the government to provide support (such as via the furlough scheme), the impact of this on jobs seems to be inevitable.

At a time when budgets are tight, the important thing for employers when considering redundancies is to take the time now to plan the process properly, and so avoid the potentially costly consequences of getting it wrong. 

Basic principles

As a reminder, in order for a redundancy dismissal to be fair for the purposes of unfair dismissal law, there needs to be:

• A genuine redundancy that satisfies the statutory definition of redundancy.
  
  
• A fair procedure, which will normally consist of:
  
  -fair selection of employees at risk of redundancy;
  - genuine consultation (individual and where applicable collective) before final decisions are made; and
  - consideration of suitable alternative employment.

For an overview about handling a redundancy process, Acas has produced a helpful Guide for employers on managing staff redundancies. 

Over the next month or so, we plan to look at these steps in greater detail to give you practical advice to help ensure the fairness of any redundancy process. In this post I look at what, I think, are the key ten (ok – eleven as I couldn't let "bumping" not make the post!) pitfalls to avoid when carrying out a collective and/or individual redundancy exercise.

Redundancy pitfalls to avoid

1. Don’t pre-determine the outcome of the consultation process

Employee consultation must include consultation in relation to ways of:

• avoiding the dismissals;
• reducing the numbers of employees to be dismissed; and
• mitigating the consequence of the dismissals.

Case law is also clear that in consulting in relation to ways to avoid the dismissals it is necessary, where the business reasons will inevitably result in redundancies, to consult on the business reasons behind the dismissals. Further the employer must, as stated, do so whilst the proposals are still at a formative stage.

It is therefore important that any management papers, minutes or even emails reflect the fact that the relevant business proposals are only proposals and that no final decisions have yet been reached. Otherwise the consultation will clearly risk being deemed to be a sham.

2. Getting the pool for redundancies correct

Before the consultation process commences, the employer will have to decide on the relevant pools of employees at risk of redundancy.

Each pool of employees to be placed at risk of redundancy should include the specific roles at risk, plus any roles which are interchangeable with those roles. For example, if the employer is considering making a number of administrator roles in a specific department redundant, the pool should include the specific roles in that department and any other administrator roles, which are interchangeable with those roles, across the employer’s other departments. 

Whilst there is, understandably, a temptation to try and limit the number of employees being placed at risk, defining the pool too narrowly can impact on the fairness of the rest of the redundancy process. For example, employees who are subsequently selected for redundancy but would not have been selected had the pool been defined correctly more widely, will, presuming they have the necessary two years’ qualifying service, have claims for unfair dismissal.

3. Concentrate on roles not people

In identifying redundancy proposals, it is important to focus on roles and not individuals. If you do focus on people rather than roles you will risk pre-determining the subsequent selection process.

It is also worth bearing in mind that any lists, no matter how “unofficial”, drawn up in the course of developing the proposals will be disclosable in any subsequent Tribunal proceedings. Again, any such lists should therefore focus on roles and not individuals.

4. Voluntary redundancies

Where applications for voluntary redundancy are invited it is important to make it clear that you reserve the right not to accept all applications, particularly where more applications are received than there are roles at risk. There will also need to be some forward planning in relation to the criteria to be used in deciding which applications to accept in these circumstances. 

It is also important to remember that voluntary redundancies still count for the purposes of calculating the number of proposed redundancy dismissals under the collective consultation legislation.

5. Applying fair selection criteria

The employer can decide on its own selection criteria provided that it is criteria which a “reasonable employer” could have agreed upon. It should though consult on proposed criteria before the criteria is finalised.

The criteria should be as objective as possible and each employee’s score against the relevant criteria should be recorded, preferably with any relevant notes. Where more subjective views do have to be reached, for example in relation to an employee’s performance, it is important that any such decisions are taken by at least two managers. This will hopefully then minimise any subjectivity.

Standard criteria can include:

• skills or qualifications;
• attendance or disciplinary records;
• length of service;
• standard of performance; and
• flexibility (in terms of an ability to fill more than one role).

6. Avoiding discriminatory selections

When applying selection criteria, it is important to avoid any discriminatory factors. For example, stating the obvious, periods of maternity leave should not account against some when assessing attendance. Equally, careful thought should be given before including any absences which are related to a disability.

7. Consultation “with a view to reaching agreement”

When carrying out a collective consultation exercise (see point 9 below and our blog on top tips for collectively consulting), consultation must be entered into “with a view to reaching agreement”. This does not mean that agreement must be reached. However, it does mean that:

• As stated, the proposals must still be at formative stage.
• Sufficient information is provided to allow for a response.
• Sufficient time is allowed for a response.
• Responses are considered and responded to.

8. Remember that special rules apply to employees on maternity leave

Where an employee on maternity leave is selected for redundancy, they are afforded additional protection as they are entitled, as of right, to be offered any suitable alternative employment available (thereby jumping ahead of any other employees in the queue).

The government has indicated that it will legislate to increase this redundancy protection to cover an additional period of six months following an employee’s return to work from maternity leave. For more information, see here. However, currently any steps to implement this change have been delayed due to coronavirus and so it is not known when it might come into effect.

9. Remembering to issue a section 188(4) notice

Where an employer is proposing to dismiss 20 or more employees on grounds of redundancy at a single establishment in a period of 90 days or less, it must collectively consult with any recognised trade unions/employee representatives for a period of 30 days (where few between 20 – 99 redundancies are proposed) or 45 days (where 100 or more redundancies are proposed) before any dismissals take effect. The rules for this are set out in section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).

Crucially, in order for the 30 or 45 day period to commence, the employer must issue in writing to the appropriate representatives what is a very prescriptive notice (under s188(4) TULRCA) setting out:

• the reasons for the proposals;
  
  
• the numbers and descriptions of employees whom it is proposed to dismiss as redundant;
  
  
• the total number of employees of any such description employed by the employer at the establishment in question;
  
  
• the proposed method of selecting the employees who may be dismissed;
  
  
• the proposed method of carrying out the dismissals, with due regard to any agreed procedure, including the period over which the dismissals are to take effect;
  
  
• the proposed method of calculating the amount of any redundancy payments to be made (otherwise than in compliance with an obligation imposed by or by virtue of any enactment) to employees who may be dismissed;
  
  
• the number of agency workers working temporarily for and under the supervision and direction of the employer;
  
  
• the parts of the employer's undertaking in which those agency workers are working; and
  
  
• the type of work those agency workers are carrying out.

What you obviously do not want to do is to think you have started the 30 or 45 day consultation period only then to find that you have not because no notice or a non-compliant notice has been issued.

The information to be provided also means that the proposals have to be at a fairly developed stage (but still a formative stage) in order to be able to start the consultation process.

10. Informing the Department for Business, Energy and Industrial Strategy (BEIS)

Where 20 or more or 100 or more redundancies are being proposed at a single establishment in a period of 90 days or less, the employer must notify the Redundancy Payments Service (RPS), acting on behalf of the Secretary of State for BEIS, before a consultation starts. RPS is notified by filling in a form HR1, providing them with a similar level of detail as required above. The deadline for notifying the RPS depends on the number of proposed redundancies: if 20 – 99 redundancies are proposed, notification must be given 30 days before the first redundancy; if 100 or more are proposed, notification must be given 45 days before. You can be fined an unlimited amount for a failure to notify RPS.

11. Bumping

Bumping occurs where a specific role is at risk and the employee in that role is bumped into another role (which they obviously must have the relevant skills to carry out), resulting in the individual in that other role then being made redundant in their place. One example from a case on bumping is where a mechanic at risk of redundancy asked to be bumped into a driver role, which was being carried out by someone with far less service than him.

An employer is not always required to consider bumping and indeed in most cases it is likely to be inappropriate. However, it is worth at least noting that it has been considered and why it is not being pursued. Further, in cases where the work is low skilled, there is evidence that an employee has worked in other areas and where they have longer service than the employees in those other areas, you may then be under an obligation to consider bumping and if you do not it could impact on the fairness of the relevant dismissal.

The only good news is that this is a fairly technical point and not therefore one that many employees will take. Further employee representatives are also unlikely to take the point as it is not really in their interest for one of their constituents to bump another one out of work.

For more information on how to carry out a fair redundancy exercise, see our blogs on How to run a fair selection process and Employee consultation – redundancies and beyond.

If you require further information about anything covered in this blog, please contact David Hunt, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, July 2020