If you're thinking about downsizing your business and making redundancies, you better get the process right. Should you not follow proper procedures, you could well come a cropper later when trying to defend employment tribunal claims.
Here's what you need to know.
How does the law define redundancy?
An employee is dismissed for redundancy if the dismissal is due to: the closure of the business; the closure of the workplace where the employee was employed; or reduced requirements of the business for employees to do work of a particular kind.
Statutory redundancy payments
Employees who have at least two years’ service and are made redundant in this legal sense are usually entitled to a statutory redundancy payment (calculated by reference to length of service, age and earnings (up to a maximum of £489 per week) with an overall cap of £14,670).
An employee who unreasonably refuses an offer of suitable employment with their employer or an associated employer will lose their entitlement to a redundancy payment.
Generally, employees who have at least two years’ continuous service have the right not to be unfairly dismissed. The maximum compensation award for unfair dismissal claims is normally the lower of 52 weeks’ pay or £80,541.
Redundancy is a potentially fair reason to dismiss. However, in order to dismiss fairly, the employer must follow a fair process. This should include:
- Consulting with the individual before a decision is reached. Consultation periods usually last around two weeks, but the duration will depend on the particular circumstances.
- In some cases carrying out a fair selection process. If an individual has a unique role going through a selection process might not be necessary. But when, for example, employees are doing the same or similar roles and there is a headcount reduction, it would normally be required. An appropriate pool should then be identified and objective criteria used.
- Searching for suitable alternative roles within the organisation and, possibly, other group companies, as well.
- Depending on the number of proposed redundancies consulting with the workforce, collectively.
Where there is a proposal to dismiss as redundant 20 or more employees from one establishment within a 90-day period, the employer must carry out collective consultation.
Here redundancy has a wider meaning than the definition of redundancy for entitlement to a statutory redundancy payment or for unfair dismissal. It means a dismissal that’s not related to the individual concerned. It could include, for example, where an employer changes employees' terms and conditions of employment through termination and re-engagement.
When the duty arises the employer has to engage with a trade union or, in cases where no trade union is recognised, elected employee representatives. There are specific requirements on the information to be provided, how the consultation must be undertaken and time-scales.
The Department for Business, Energy and Industrial Strategy (BEIS) must also be notified of the proposed redundancies.
Employment tribunals may make protective awards when employers breach the rules on providing information, consultation and electing representatives. The maximum award is 90 days’ gross pay for each dismissed employee.
Matt Gingell is a specialist employment lawyer and legal commentator. He advises businesses and individuals on all employment law related issues. He also writes articles, HR guides, and employee guides.
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