With the current economic climate characterised by Covid-19 related downturn, the prospect of redundancy is becoming an increasing reality as many businesses consider scaling down, particularly when the Government’s furlough scheme is phased out.
But what exactly is redundancy? And what should a diligent employee do when they receive that phone call or email initiating the redundancy process?
What is redundancy?
“Redundancy” is the term used when an employer reduces a company’s workforce due to one of the following:
- Business Closure: where an employer is ceasing or intending to cease the business for the purpose of which the employee was employed.
- Workplace Closure: where an employer is ceasing or intending to cease the business in the place where the employee was employed.
- Reduced requirements: where there is a reduced requirement for employees to carry out a particular kind of work, or a particular kind of work in the place where the employee was employed.
It is the last of these that typically gives rise to the most legal issues because there will often be judgments made by the employer as to who to keep and who to let go, and those judgments need to be made fairly.
What to do when you are told that your role is “at risk” of redundancy
Has your employer offered you a Settlement Agreement?
If your employer has offered you a settlement agreement, you should not feel obliged or pressured to accept it. It is essential to seek legal advice regarding the contents of any settlement agreement before you enter into it. This is not only a legal requirement but will also ensure that you reach an agreement which is beneficial to you and tailored to your needs. Your legal adviser must be independent of your employer.
What if you have not been offered a Settlement Agreement?
It is important that an employee facing the prospect of redundancy is aware of their rights and the correct procedure that should be adopted by their employer. In certain circumstances, redundancies are inevitable and unavoidable, but knowing your rights will enable you to spot breaches of procedure, identify situations where you may have a claim and ultimately help you to ensure that you are treated fairly and/or secure a better termination package.
These are dependent on both the length of time that you have worked for your employer and the terms of your employment contract.
If you have been an employee of the company for two years, you will have the following rights:
- A right not to be unfairly dismissed. Your employer’s failure to adhere to certain procedural steps (see below) and/or to have genuine motives may allow you to bring a claim for unfair dismissal in an Employment Tribunal – see more on this below.
- A right to time off to look for alternative work or partake in necessary training.
- A right to receive a statutory redundancy payment. This is calculated in accordance with a formula based on your years of service, your age and your weekly pay. Essentially you would get:
- half a week’s pay for each full year of service you were under 22;
- one week’s pay for each full year of service you were 22 or older, but under 41; and
- one and half week’s pay for each full year of service you were 41 or older.
- Length of service is capped at 20 years and weekly pay is capped at £538, so the maximum statutory redundancy pay one can get is £16,140 (20 x 1½ x £538)
Even if you have not worked for your employer for two years, you still have the following rights in a redundancy situation:
- A right to contractual notice, as per the terms of your employment contract. This notice period is subject to statutory minimum notice (one week’s notice entitlement for each complete year of service up to 12 weeks’ notice entitlement after 12 years’ service).
- You may still have a claim for unfair dismissal if you believe that the criteria used to select you for redundancy are related to a protected characteristic (such as sex, race, disability, religion or belief, sexual orientation, pregnancy or maternity or age) and/or were because you had previously blown the whistle on particular unlawful activities of your employer.
- You may have a right to an enhanced redundancy payment, if you have an express or implied entitlement to such a payment. Some organisations have policies and/or custom and practice relating to the level of redundancy pay. This should be checked.
What would your employer need to do to make the dismissal fair?
As mentioned, if you have two years’ continuous employment with your employer, you have the right not to be unfairly dismissed.
To dismiss fairly for redundancy, an employer must also follow certain steps and generally act fairly. Key matters include:
- “Pooling”: The employer must first identify those employees who are at risk of redundancy. So if, say, there are three employees who do similar work, the employer should generally consider all the employees from this “pool” as potential candidates for redundancy.
- Fair and objective criteria: In selecting which employees to retain and which to make redundant, employers should apply fair and objective selection criteria across the relevant “pools”. Such criteria might include factors such as performance, qualification, length of service and disciplinary record. Employers often score employees across a matrix of criteria and select for redundancy those with the lowest scores. Employers should not apply subjective criteria such as who a manager likes, and decisions should not be tainted, even in a unconscious way, with any unlawful discrimination (e.g. on grounds of sex, race, age, disability, religion and belief, etc.).
- Consultation: The employer should consult meaningfully with all “at risk” employees about their proposed redundancy. This consultation is important. It is your chance to probe your employer as to the business reasons for making redundancies and the reasons behind your selection. You might ask questions about the selection criteria used and why you have been scored as you have in any matrix of criteria. You would want to understand who the employer proposes will be doing the work you currently do. Why them rather than you? Consultation is also an opportunity to discuss any alternative employment options. It is desirable that a formal written record is kept of what is said at any consultation meetings.
- Alternative employment: The employer must consider and offer suitable alternative employment within its company where such alternative employment is available. To ensure that a role is suitable, you are entitled to accept the alternative employment on a trial basis of up to four weeks. This acceptance does not affect your right to a statutory redundancy pay should you decide, at the end of the trial period, that the new role is in fact unsuitable. You must, however, be careful when rejecting any alternative positions, as an unreasonable rejection of offers of suitable alternative employment can invalidate your right to statutory redundancy pay and can limit any compensatory award you may receive later if you are successful in bringing an unfair dismissal claim against your employer.
- Genuine motives: An employer should go into a redundancy consultation process with an open mind and not have pre-determined any decisions. You should be given the opportunity to put forward proposals for how redundancies might be avoided. It is important to note though that an Employment Tribunal would not find a dismissal to be unfair just because it turns out to be a bad commercial judgement if, at the time, management genuinely believed that it was the right thing to do.
- Potential losses: It can be important to be aware of the financial consequences of any unfair treatment. If the treatment goes to the root of the dismissal, the potential losses suffered by an employee (the compensation you would seek were the matter to go to an Employment Tribunal) could be substantial, particularly if you expect to be out of work for many months, or even years. However, if the unfairness is only procedural and would not have made a difference to the ultimate outcome, an employer may be able to argue that the losses are simply equivalent to the pay you would have received over the period it would have taken to go through a proper procedure
The fairness of any redundancy related dismissal will depend upon careful analysis of the particular facts of each particular case. We would recommend employees to take legal advice to guide them through the redundancy process so as to get clarity and as much information as possible from their employer. If the process is unfair, this can be called out with a view to improving any redundancy package which is offered and/or providing a platform to threaten and, if necessary, to pursue a claim through an Employment Tribunal.
If you would like any further information or advice regarding redundancies please contact Nick or any member of our employment team.
About the Author
Nick is a highly experienced employment lawyer with an exceptionally strong reputation in the City of London and beyond.
Employment disputes can be very stressful for all concerned and Nick combines both empathy and toughness as necessary. He is a tenacious litigator and a tough negotiator with particular expertise in dealing with complex issues involving any combinations of employment rights, share or other ownership-related rights and the rights and obligations of directors, officers and/or partners/LLP members.
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