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An employer does not have to be on the verge of closing down before people can be made redundant. There does not need to be a shortage of work, or a period of trading at a loss.
All the employer needs to show is that there is, or is expected to be, a reduction in the need for as many employees as they have just now.
The law of course does recognise that a closure of a business, or a branch of a business, would generate a redundancy. But the business also can decide to ‘slim down’ and shed staff. The business does not even need to be making an actual loss, or have a shortage of work – it is enough to show a potential reduction in profit if changes are not made.
To use the technical language of the law, the test is whether there is a “requirement for employees to carry out work of a particular kind”, or to do so at the place where the employee is employed, has “ceased or diminished or are expected to cease or diminish.”
So arguments that making people redundant is not necessary are usually doomed to failure: “It can occur where there is a successful employer with plenty of work, but who, perfectly sensibly as far as commerce and economics is concerned, decides to reorganise his business because he concludes that he is overstaffed. Thus, even with the same amount of work and the same amount of income, the decision is taken that a lesser number of employees are required to perform the same functions. That too is a redundancy situation.” (Case of Kingwell & others v Elizabeth Bradley Designs Ltd, 2003).
But the employer must act fairly in the way in which the redundancy is carried out. This is the area where most of the successful challenges to redundancies in the courts and Tribunals are made, in the form of a claim of wrongful dismissal or unfair dismissal.
The main duties on the employer are to be as fair as they can in two areas: 1) consultation, 2) selection.
Consultation is necessary is both with the affected employees as a group – and with their union reps – and also individually, and usually there have to be at least three meetings for it to be a fair process – the first being the notification of being “at risk” and a discussion of how the process will be gone about, the second being a look at things like the selection criteria in more detail, and the third being the decision whether to dismiss (or not).
At each stage, the onus will be on the employer to show that the consultation was genuine – so that means the arguments made by the employee have to be answered. Most importantly of all, the decision to dismiss should not be made until the end of the process. If the consultation is a “sham”, then the dismissal will be an unfair one.
How the selection is made is a complex legal area. There are no criteria set down by law for assessing who should go and who should stay. But the law does require these to be as objective as they can be to measure, so things like:
Other measurements like Performance are less straightforward to use as it can be argued that they are one person’s opinion, so are more subjective. Using Attendance can be complicated where the employee has health problems, as it may be argued this can be a form of disability discrimination. And Length of Service can be seen as unfair on those who are younger. There may have been criteria used in previous redundancies – but that doesn’t mean they have to be used again.
Another controversial area is the ‘pool’ for selection: people may do different jobs at different times, or at different locations – so which other employees is it fair to make a comparison with? Again there are no set rules, only a general requirement of fairness. Although allowances will be made for the smaller employer, there would be an expectation that specialist advice would be taken if there are any disputes.
There is a duty on the employer to look for any vacancies that those being made redundant could be redeployed to. The employee does not have to agree to the redeployment, of course. But if the employee has declined ‘suitable alternative employment’ then this could count against them in terms of damages.
Provided they have been employed for two full years, a statutory redundancy payment will be due. This is calculated based on age and length of service. The payment is a week’s pay per complete year of service up to age 41 and a week and a half’s pay per complete year of service aged 41 and over. A “week’s pay” is capped at a maximum level which changes on 6 April each year, and is currently £538, with a maximum total redundancy payment of £16,140 (untaxed).
Employees are also entitled to receive a notice and usually, in a redundancy, this does not need to be worked but is paid in advance, or ‘in lieu’ – the usual weekly pay for each year of service as a minimum, up to a maximum of 12 weeks. Both figures may be more generous if the employee’s contract of employment refers to contractual redundancy or notice, or in larger workplaces, there may be a ‘custom and practice’ of enhancing redundancy.
The Employment Tribunal is the usual forum where claims that redundancy was unfair are heard. Claims can relate to flaws in the consultation or the selection, and the ET can make orders that documents in the possession of the employer are disclosed. Under the Data Protection Act, an employee has the right to any information about their dismissal. This can include minutes of meetings, emails, comparisons with others who were not selected and also information about whether anyone has been recruited post-dismissal.
The ET can order payment of a compensatory award to reflect the lost wages, up to a maximum of one year’s salary, and if they are satisfied that there was any discrimination involved in the selection (e.g. maternity, age, disability) then this can be topped up with a separate award of damages for ‘injury to feelings’, which will be at least £1000 and can be up to £40,000 in extreme cases.
Many employers choose to reduce the risk of a claim by making a financial offer to enhance the redundancy package in exchange for the employee agreeing not to contest matters. These are called Settlement Agreements (also known as a compromise agreement) and are recognised as a means by which matters can be resolved ‘out of court’. But to be valid the employee has to have been given legal advice, and it’s the employer who meets the cost of this.
Livingstone Brown have an experienced team who have dealt with redundancies for employers and employees. They have also pursued claims and defended them at the Employment Tribunal. The cost of this representation can be covered in a number of ways – insurance policies can provide for this, or a fixed fee arrangement can be entered into. For those who qualify, legal aid may also be available. The first step is to get in touch on 0141 429 8166 or complete our online form.
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