11 August 2020
Redundancy in 2020
The exceptional business circumstances caused by Coronavirus mean that redundancies are inevitable. This article is concerned only with circumstances as they apply in the United Kingdom where the main law relating to redundancy is contained in the Employment Rights Act 1996. This article deals only with the law in England and Wales. Similar provisions apply in Scotland and Northern Ireland.
Redundancy can be a complex area of employment law. Every business has to consider the possibility of alternative employment for employees it is considering for redundancy. If an employer makes a reasonable offer of suitable alternative employment, an employee who refuses such offer is not entitled to a statutory redundancy payment.
This article can only offer an outline and specific legal advice should always be sought. The circumstances of each redundancy situation are different. The employees’ contract of employment and the size and administrative resources of the business are crucial to the redundancy process. Redundancy only applies to employees and not persons who are genuinely self-employed.
The Employment Rights Act 1996 defines redundancy as covering 3 different circumstances:
- Where employment has to end because a business has to close down completely;
- Where employment has to end because an employee’s place of work has to close; and
- Where less employees are needed by the business to do the work that its employees are employed to do.
This article is mainly concerned with the third situation namely where the Employer has to make a selection of the employees who should stay and the employees who need to go.
If a business closes completely or specific branches close entirely usually there is no selection issue and all employees will receive the same treatment. However, where a business closes a branch but some employees at the closed location can be employed at another location then the Employer will also face the problem of selecting which employees should be retained.
ACAS have published guidelines for redundancy to be followed by Employers. Whilst such guidance is not legally conclusive, failure to follow the guidance is liable to result in an Employment Tribunal being more likely to find a redundancy was unfair.
It is wise for Employers whenever possible to try and adhere to the guidelines laid down by ACAS.
ACAS GUIDELINES AND REDUNDANCIES OF OVER 20 PEOPLE
ACAS have published a booklet headed “Handling Large Scale Redundancies”. This booklet is applicable to businesses which have more than 20 staff who are liable to be made redundant. The booklet explains it is necessary for the business to consult with employee representatives before embarking on a programme of redundancies so that the selection criteria to be used for redundancy, and the process to be followed, can be agreed with the recognised Trade Unions or elected employee representatives before any redundancies can be made.
If a business does not have a recognised Trade Union and has no employee representatives, the employer will have to hold an election to appoint employee representatives from the staff affected before the consultation process can take place. The details of this are outside the scope of this note. Employers who find themselves in this situation are urged to seek further legal advice on their individual circumstances.
As explained in our April blog on Coronavirus, businesses which are contemplating making more than 20 staff redundant also have an obligation to notify the HM Government at the Department known as the BEIS, in the event 20 or more employees are to be made redundant. Where a higher number is involved, a longer notification period will be required.
Failure to follow these procedures will involve costly legal penalties. The most significant is the possibility that each employee made redundant will be eligible to receive a protective award of up to 90 days’ pay because the Employer failed to consult with elected employee representatives under Chapter 2 of the Trade Union and Labour Relations (Consolidation) Act 1992.
Current Coronavirus Situation
The Government has recently announced additional measures to encourage employers to retain staff for as long as possible, but is reducing financial support and will phase out the Furlough Scheme by the end of October 2020. Logically, most businesses must consider making staff redundant no later than the end of October 2020.
Whilst a small financial incentive is offered for employers to retain furloughed employees until at least the end of January 2021, the withdrawal of Government financial support will make it impractical for most businesses to retain staff who are not gainfully employed if the business is to survive.
ACAS have also published guidelines entitled “Handling Small Scale Redundancies”. These guidelines are likely to be the most relevant to small businesses where less than 20 redundancies are involved. These provide for individual consultation with the employees affected as no consultation with elected representatives is required in law.
The ACAS guidelines set out a seven point plan for handling redundancies which are accompanied by examples of draft letters that Employers can adapt.
EMPLOYERS APPOACH TO REDUNDANCY
Not only must a business have regard to the law of unfair dismissal, but they must also have regard to the law of discrimination in applying the guidelines.
The ACAS guidelines make clear that in approaching a redundancy, businesses can encounter many problems with staff who have health problems, are on maternity leave, or have childcare responsibilities.
Employers need to identify criteria that allow for all employees to be put on an equal footing.
It is desirable that Employers apply simple objective criteria to select which staff to retain and which staff must go to reduce costs.
COST OF REDUNDANCY
The Government website contains a calculator to calculate the statutory redundancy payment of the employee based on their age and length of service. Highly paid employees will not receive larger redundancy payments due to the statutory maximum applied to the calculation of pay. Employees’ statutory redundancy pay is set at a maximum of £538.00 gross earnings per week. The higher cost of making higher paid employees redundant will arise if they have longer notice periods than lower paid staff.
APPROACH TO REDUNDANCY
It is always sensible for businesses to calculate how much redundancies will cost before planning to make redundancies. However, the cost of employees is only one factor to consider.
A well-managed redundancy policy should look at other considerations and the ACAS guidelines urge employers to look beyond the figures and consider the future of their business. Dismissing as redundancy your most able and well qualified staff who will produce future business income purely on grounds of cost will actually undermine a business even if such redundancies will initially cost less than paying off less productive staff. Long serving employees will be the most expensive in having to pay a statutory redundancy payment. However, they may have the least to offer for the future of your business if they are reaching the end of their working life and do not have all the modern skills necessary for a computer-based environment.
It is sensible for Employers to identify selection criteria that look to the future of their business in order that they retain those employees that are most likely to enable the business to cope with the challenges that lie ahead over the next couple of years, such as remote working and greater reliance on IT.
It is sensible employers should come up with selection criteria for redundancy that focus on employees’:
- Knowledge and qualifications;
- Relevant IT skills;
- Ability to work as part of a team.
Each business will have different needs and may need to add to these suggestions.
The ACAS guidelines lay down a 3 stage process for Employers:
- To let employees know they are at risk of redundancy;
- To consult with employees affected on a one to one basis. This may be done face to face or remotely to suit social distancing by phone or video conference;
- To ensure that employees selected for redundancy receive the sums properly due to them in respect of:
(i) their contractual notice;
(ii) their accrued holiday pay;
(iii) the appropriate statutory redundancy payment.
It is also important that employees selected for redundancy who receive dismissal letters are advised of their rights of appeal.
CHALLENGING A REDUNDANCY
An employee has to be employed for two years to be eligible for a statutory redundancy payment. Employees with less than two years’ service have no statutory entitlement to a redundancy payment. There are 2 methods for employees to challenge a redundancy, namely unfair dismissal and discrimination.
Employees can challenge a redundancy under section 105 of The Employment Rights Act 1996.
This applies where:-
-the reason for dismissal is redundancy
-the circumstances applied equally to one or more other employees who held positions similar to the employee dismissed but who have not been dismissed.
There are over 20 specific statutory provisions where there could be unfair selection. These include protection for Pension Fund Trustees, employees who asserted their statutory rights, such as their rights to the national minimum wage or where part time workers have made a request to their Employer for written reasons for less favourable treatment compared to that of a full time employee.
In many of these cases employees can complain of unfair dismissal even if the employee has not been employed 2 years. Similarly employees do not need to have 2 years’ employment to claim discrimination.
If there is no possible unfair dismissal claim, employees will only be able to challenge selection for redundancy if they can show that the process followed discriminated against them on grounds of sex, age or some other “protected” characteristic. Those who are married with child care responsibilities arising from home schooling, may be particularly vulnerable to selection for redundancy.
Sex discrimination may occur if the employee concerned has not been objectively assessed for selection for redundancy using a fair criteria that makes allowances for staff on maternity leave or who have had to seek flexible working hours.
THE APPROACH OF THE EMPLOYMENT TRIBUNAL
Following the 2008 financial crisis, Tribunals received many redundancy claims. Employers were confronted with a similar crisis to 2020, and Tribunals were sympathetic to employers. Selection processes, were generally treated as being fair and reasonable provided the business followed a fair procedure. It was difficult to persuade Employment Tribunals that employers should have followed a different procedure and that this would have made a difference to the outcome. Indeed, the employee cannot contend that the businesses procedure should be overruled by the Tribunals because it may seem unfair to the employee. A Tribunal has to decide whether an Employer has acted reasonably. A Tribunal cannot substitute its view of what is fair for that of a reasonable employer. Thus an Employer who follows ACAS guidelines carefully should not be found to have unfairly dismissed staff for redundancy.
Employers should be aware that they may have varied their employment contracts by Furlough Agreements with staff, which may have an implication for the redundancy practice procedure to be followed.
All employment situations are different and a cost benefit analysis will usually demonstrate the cost of legal advice is far less than an expensive error terminating employment. Once employment has ended this can only be corrected where either:
- both sides agree; or
- an Employment Tribunal orders this.