How to avoid claims in the employment tribunal when making redundancies

Despite the UK government's financial help for employers following the Covid 19 lockdown, many businesses find themselves having to restructure their organisation as restrictions are lifted.

How to avoid claims in the employment tribunal when making redundancies

Despite the UK government’s financial help for employers following the Covid 19 lockdown, many businesses find themselves having to restructure their organisation as restrictions are lifted. This may result in the need to reduce a business’ workforce. This could be for many reasons; having reduced revenue due to cancelled or reduced contracts, or being overstaffed for the amount of business you have.  

Before making any redundancies, you should consider alternatives. This will reduce the risk of employee claims if you are seen to have done all you reasonably can to have avoided making redundancies. It will also help from an employee relations perspective and avoids the cost and time of recruiting and training new staff if business improves. Such alternative measures could include stopping recruitment in other part of the business, stopping or reducing the use of contractors or agency staff, reducing employee costs by ending overtime, not paying discretionary bonuses and getting employees to agree to reduced salaries or hours, including seeking volunteers for periods of unpaid leave, moving employees internally and in the case of premises closure, offering support to those who want to transfer to other offices, such as helping with moving costs.

Having completed a review of your business and reduced costs where you can, if you consider that redundancies are likely to be inevitable, regardless of whether you have furloughed staff or not, you must ensure you follow a fair process in relation to any redundancies.

Making redundancies can be daunting. However, if you do all that you reasonably can to avoid redundancies, prepare a good business case about why you need to make redundancies and follow a fair procedure, this reduces the chance of successful Employment Tribunal claims for unfair dismissal, avoiding a drain on time and money and giving some peace of mind for you and your employees, also consider asking for volunteers for redundancy.

A dismissal is a redundancy dismissal only if one of the three below situations applies:

  • business closure;
  • the closing of the place where the employee being made redundant works; or 
  • you have a reduced requirement for employees. 

Collective consultation

If you propose making 20 or more employees redundant at one establishment within a period of 90 days or less, you have to carry out collective consultation. This means you  must Inform and consult with employee representatives of the affected employees. This must be done at least 45 days before the first affected employee is made redundant if 100 or more redundancies are proposed or at least 30 days in advance if 20 ’99 redundancies are proposed.

In addition, you must also notify the Secretary of State about the redundancies; (in practice, you should notify the Department for Business, Energy, and Industrial Strategy (BEIS)). 

The consequences for failing to comply with the collective consultation obligations are harsh. The Employment Tribunal can award up to 90 days’ pay in respect of each employee where there has been a breach of collective consultation obligations. In addition, it is a criminal offence to fail to notify the Secretary of State and an employer may be fined.

Individual consultation

Although there is no duty to consult collectively if you are proposing making fewer than 20 employees redundant, you should follow a fair procedure to avoid the risk of an affected employee bringing an unfair dismissal claim in the Employment Tribunal. This includes a fair selection process, consult individually with employees and offering affected employees any suitable alternative employment (if there are any positions available).

Fair selection involves first deciding on the pool of employees that you are going to select from. You have a reasonable degree of flexibility on this but the pool should be appropriate and you must be able to show that you thought carefully about the pool you decided upon. If appropriate, it can be a pool of one employee. 

Next consider how you are going to select from the pool. It is best to use a selection matrix with objective criteria you can justify with evidence, such as appraisals. You should not use any discriminatory criteria, such as time off for maternity leave. Fair selection criteria could include performance and ability, length of service, attendance records and disciplinary records.

Individual consultation is fundamental to the fairness of any dismissal and should be carried out before any decisions about redundancies have been finalised and the employee given sufficient time to prepare for any meetings. It does not matter if it is inevitable that a redundancy will take place, you should still consult. The consultation should include discussing the employee’s selection for redundancy, ways to avoid the redundancy and any suitable alternative employment available. 

Redundancy payments

An employee who has worked for you for two years or more will be entitled to a statutory redundancy payment. They may also be entitled to further redundancy payments under their employment contract.

Statutory redundancy payments are calculated by using the formula set out in section 162 of the Employment Rights Act 1996.

Contractual redundancy payments can be expressed or implied. The latter most commonly occurs where a set of redundancy terms are regularly applied in a particular trade or industry or by a specific employer.

If you are offering an enhanced redundancy package, it is vital to ensure that the redundancy procedure does not leave you open to claims of discrimination. For example, you could find yourself defending a claim for age discrimination if you use age and/or length of service to calculate the payment, unless you carefully follow the formula set out in section 162.

Seeking legal advice

If you must make redundancies, it is best to seek expert legal advice from a qualified solicitor to ensure you are aware of your obligations and any risks throughout any redundancy process. This is the best way to protect yourself from unfair dismissal claims, which can damage your business and its reputation. Having a redundancy situation is never ideal, but a clear process to steer your business through this period of change is vital to ensure a fair redundancy process.

Clive Rich
Clive Rich

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