(3rd June 2020) The furlough scheme closes to new entrants from 10th June and from August onwards employers will start contributing to the costs. It was inevitable that many business owners would at some point start considering their post covid-19 workforce. At myHRdept our client enquiries are already turning from furlough to redundancy.
myHRdept clients will be provided with the usual support to assist with designing and executing redundancy programmes where redundancies are inevitable, to other businesses who are not yet clients we offer our one-off Covid Redundancy Service which includes advice time, template letters & timetable, consultation forms and a template redundancy termination notice. The Covid Redundancy Service is strictly subject to availability – click here for more details.
Having been handling redundancies for some 30 years now (18 of these with myHRdept) we’re pretty well qualified to advise on the topic. We are publishing this guide to redundancies to help clients and others find answers to the most common questions and to get to grips with the structure of a redundancy programme.
This article is by no means intended to be a definitive guide to redundancies which, in common with any other form of dismissal, comes with a risk of employment litigation. Readers are strongly advised to seek advice on their particular circumstances and myHRdept would be pleased to welcome new clients wishing to obtain that advice as a part of our other services. Please contact us for more information about our services.
What is redundancy?
Redundancy is one of the UK’s fair reasons for dismissal (subject of course to following a fair procedure.) An employee is potentially redundant if:
- The employer stops or intends to stop carrying out the business for which that employee is employed by them; or
- The employer stops or intends to stop carrying out that business at or near the location where the employee is employed; or
- In either ‘1’ or ‘2’ above the requirement for the work diminishes rather than ceases altogether.
Redundancy and Covid-19 – cut staff now or consider alternatives?
In current circumstances employers may be considering reducing the size of their workforce due to an anticipated reduction in demand for services. This is particularly likely in the hospitality industry and retail, though other businesses and services with a substantial public facing element are likely to be similarly affected.
The trouble is that at the moment it’s going to be very difficult to tell how much business will reduce and for how long. Our experience of two previous recessions is that many employers take too pessimistic a view and cut too deeply, inhibiting their ability to respond to increases in demand and causing more long term damage to their business than less severe staff cuts would have done.
Another side effect of cutting staff is the loss of the ability to innovate in new products and methods and to bring those innovations to market. If we were partly an events business we might be thinking of making our events redundant given it is unlikely there will be many traditional type events happening this year. An alternative approach though might be to task that team to come up with a modern technology solution that allowed us to make the same return from digital events – it’s a rapidly developing market place that one, but sure as eggs is eggs, if we fire all of our events staff, we won’t be a part of it.
Businesses rarely have the luxury of having exactly the right number of staff for any particular moment in time and redundancy doesn’t have to be a one-off scenario – a wise business owner will trim rather than slash and will wait and see if further adjustments might be necessary later.
The importance of a business case & the proposal to dismiss
The base of any redundancy campaign is the business case – why redundancies are being proposed. Employees should be given as much supporting information as is available to help them understand why it is proposed to remove roles from the organisation.
The word ‘proposed’ is quite important when it comes to redundancies. Employers should never use final language (e.g. your role ‘will’ be made redundant) until the consultation has concluded. Until that point the dismissal remains ‘proposed’ and open to suggestions and counter-proposals.
How to structure a redundancy programme
Like most HR processes a redundancy programme follows defined steps:
- Employees are placed ‘at risk’ of redundancy
- A consultation period takes place during which the employee attends at least two 1:1 meetings (these can be calls in current circumstances, but there is still a right to be accompanied on the call)
- During the consultation period the employer may carry out a selection exercise to identify who will be selected for redundancy
- The final 1:1 consultation informs the employee of the outcome ,which may be dismissal with notice.
- Although not strictly necessary, offering an appeal is very good practice.
Consultation periods should be as long as is necessary to properly analyse the proposal to dismiss and for a meaningful exchange of views to take place.
If more than 20 redundancies are being contemplated in one location and within a 90 day period collective consultation rules will apply and employee representatives must be elected before consultation begins. Consultation must then be for a minimum of 30 days, 45 days if 100+ are contemplated. The employer must also inform government of its plans using an HR1 form (available on line.) Notices of redundancy dismissal cannot be served until the minimum consultation period has concluded.
Aside from collective consultations we would suggest that consultations periods continue for at least a couple of weeks, longer if necessary.
What can consultation achieve?
Consultation should communicate clear reasons for the proposed redundancies and should give plenty of opportunity to explore alternatives, for the employee to make suggestions and for questions and answers. Where selection is to be carried out the employee should have an opportunity to see and comment on the selection matrix and methods proposed.
In legal terms the employer is under a duty to try to avoid making redundancies or to mitigate their impact if they can’t be avoided.
At a practical level in consultations we have seen employees suggest pay cuts, alternative methods of selection and nominate themselves for lower level roles. We have also seen employees opting to buy into businesses and even to buy the business outright. None of these things would have been possible if the employer failed to consult.
Employers may need to choose between staff members to select who will go. There are significant risks of discrimination claims arising from unfair selection practices. There are safer methods e.g. ‘Last in First Out’ (LIFO) but these might not always enable the employer to retain their strongest employees.
Women on maternity leave have priority in any redundancy selection, even if they’re not the strongest candidate for a remaining role.
Generally speaking selection criteria (often a scoring matrix) should be objective, not subjective. For example selecting to retain employees with a higher skill level is generally demonstrably objective if those skills are actually required. Assessing ‘willingness’ is much more difficult in objective terms.
Care should also be taken to filter out low scores for potentially discriminatory reasons. For example if absence were to be a criteria, absence due to a known disability or statutory leave should be disregarded.
Considering voluntary options
Employers may wish to offer a voluntary option usually with an enhanced termination payment. This can be effective in minimising risk particularly when used with a settlement agreement, but the wrong people might volunteer. For this reason voluntary enhanced exits are often offered only to someone already selected, or who is very likely to be selected for redundancy.
There is a very handy government calculator for the calculation of Statutory Redundancy Pay (SRP.) Before using it you will need to know your employee’s age, start date and weekly earnings and it’s a good idea to put these into spreadsheet before using the calculator. SRP can be paid tax free, as can additional discretionary redundancy pay up to a total of £30K for SRP and discretionary RP combined.
All redundancy dismissals are ‘with notice’ dismissals, and notice will be the higher of contractual notice or 1 week per month of service to a maximum of 12 weeks. If there is a contractual right to pay notice in lieu, the payment will be taxable as income.
There is a fair amount of documentation involved in any redundancy campaign. We would expect to see:
- Announcement/business case
- At risk letters to employees being considered for redundancy dismissal
- Consultation forms or minutes (at least 2)
- Selection assessment forms
- Redundancy termination letters
- Appeal paperwork