Employers' guide to Redundancy

The problem

Your business employs 10 workers doing roughly similar work. Each can turn their hand to the other's job if necessary, but there is only enough work for eight, so two will have to go. A redundancy situation has arisen.

Expert advice

There is a temptation on the part of managers when faced with making redundancies to decide who in the workforce the business can do without and then to tell those people. Not only is this opening the company up to potential claims for unfair dismissal or discrimination but it has an extremely unsettling effect on the rest of the workforce.

In our example, the people affected are all 10 employees. This is what lawyers call "the pool", and it is fundamental that the employer has correctly identified the pool of affected employees if he is to act fairly.

It is unwise to make assumptions about who should stay and who should go. Involving the workforce is not only a legal requirement but can operate to the business's advantage, if handled properly.

Having identified the pool, the next step is to inform all affected employees. You should first consider requests for voluntary redundancy. It may be that somebody was already considering leaving, retiring early or moving to another part of the country.

If you have to make people compulsorily redundant, then you need to adopt objective selection criteria in order to be as fair as possible. Frequently, companies choose criteria that involve some performance-related indices, such as skills and productivity, and some consideration of the employee's disciplinary and sickness records. Choosing criteria which cannot be justified runs the risk that any dismissal may be unfair and/or possibly discriminatory on the grounds of race, sex or disability.

Having arrived at the decision as to who is to be made redundant, you must consider whether you have any "suitable" alternative work these employees could do. It does not have to be the same job or even a similar job. If a suitable vacancy exists, you are under a duty to offer it to the employee. Both sides have a statutory four-week period in which to consider whether the job is suitable. If there is no suitable vacancy, or the vacancy turns out to be unsuitable, then the person leaves with their redundancy pay. If someone unreasonably refuses an offer of suitable alternative employment, the employer can refuse to pay redundancy pay.

To go back to our example, let us assume that there is no alternative work available for the two employees who have now been selected as redundant. They are entitled to their notice - a minimum of statutory notice, which is one week for every continuous year they have been employed, unless their contractual notice is longer. It is perfectly in order to pay someone in lieu of notice, but bear in mind that, unless the contract expressly allows you to do so, it is technically a breach of contract.

If the employee has been employed continuously for two years, he is entitled to redundancy pay. Statutory redundancy pay is based on the number of years of continuous employment multiplied by the weekly wage, up to a maximum of £260, and a multiplier depending on age.

Redundancy pay up to the first £30,000 is tax-free, as is pay in lieu of notice.

Check list

* Who are the people affected? These are not just the people who are going to be made redundant but all of the people who are affected by the fact that there is a redundancy situation.

* Tell the affected people that the company is going to have to make redundancies. Explain the reasons behind the proposal.

* The consultation period should not generally be less than two weeks.

* Consider voluntary redundancies.

* Adopt objective selection criteria. Care must be taken to avoid discriminating on grounds of race, gender or disability.

* Offer any suitable alternative work to the employees who are selected.

* Make sure the employees are given the correct notice and redundancy pay.

Beware!
The maximum compensatory award for unfair dismissal is £53,300, and compensation for discrimination is unlimited.

Contacts
Paul Whitaker at Rooks Rider Solicitors
Tel: 020 7689 7000
E-mail: lawyers@rooksrider.co.uk

Department of Trade & Industry employment relations
Web: www.dti.gov.uk/er