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How to make people redundant – a step-by-step guide

29 April 2005
How to make people redundant – a step-by-step guide

Handling redundancies is a complex process that often involves difficult decisions and high emotions.

Here is your step-by-step guide to the processes you need to go through to minimise the risk of successful employment tribunal claims. Legal risks include claims for

  • unfair dismissal
  • discrimination
  • unpaid redundancy payments

This article provides an overview of the specific rules an employer must stick to where they are making more than 20 redundancies in a 90-day period, and in piecemeal redundancies. The principles are largely the same. The main message is be as open and even-handed as possible with your employees. Listen to their views and, at least outwardly, keep an open mind throughout.

STEP 1 - Planning the redundancy

First consider whether redundancy is necessary at all.

Identify your reasons - you may have to explain these later, so ensure you are clear. Has there been a decrease in demand? Is the work transferring to another site? Are there necessary changes to the structure or organisation of the workforce? Employers must be able to demonstrate clearly why they felt redundancies were necessary.

Is this a genuine redundancy situation? The statutory definition provides for three types of redundancy:

A. Job redundancy Where the employer's business or the part of it within which the employee was employee has ceased.

A redundancy situation will be easy to recognise where an employer ceases to carry on the business. It becomes more complex where an employer changes the type of business. Then it will be for the tribunal to consider whether the new business is sufficiently different to amount to a cessation of the old business.

B. Place of work redundancy Where the business is no longer carrying on at the existing site.

Usually it will not be difficult to identify where an employee works as it will be the place they report to every day to work, or it will be specified in their contracts.

Difficulties can arise where there is a mobility clause in the contract. A tribunal will then apply a factual test and determine where in reality the employee carried out his duties.

C. Employee redundancy This covers three separate situations:

  • work of a particular kind has diminished, so not as many employees are needed;
  • the requirement for employees has diminished where, for example, an independent contractor will do the work or fellow employees will be able to absorb the work an employee was doing;
  • there has been a reorganisation or new equipment has been installed, so fewer employees are needed.

Sometimes it may be difficult to determine whether changes to a job actually mean that that employee is redundant or whether the job remains in existence and the change is just to terms and conditions and is merely a re-organisation rather than a redundancy.

As a rule of thumb, if the change proposed significantly alters the essential identity of the job or the function an employee performs, it is a redundancy situation.

STEP 2 - Are there alternatives to redundancy?

An employment tribunal may look at this when considering whether an employer has acted reasonably. This should be ironed out while you are in the process of identifying your reasons for redundancy.

Possible alternatives include volunteers for redundancy, a recruitment freeze, an overtime ban or termination of genuinely self-employed contractors or temporary workers.

STEP 3 - What to do once you have identified a genuine redundancy situation

Draw up a timetable setting out time limits and target dates to complete the steps detailed below. Once a decision has been made in principle that redundancies are necessary, the next stage is how and when you are going to let your workforce or particular group of employees know.

STEP 4 - Inform employees

If you propose to make more than 20 redundancies you are required to consult employee representatives. You may also need to notify the Department of Trade and Industry 30 days before the first dismissal is effective. If more than 100 employees are involved, this period increases to 90 days.

Either employee representatives or trade union representatives must be informed by the employer of the following before the formal consultation period can commence:

  • the reason for the redundancy proposals;
  • the number and description of the employees who may be redundant;
  • method of selection for redundancy;
  • method and procedure of carrying out the dismissals;
  • and how redundancy payments are to be calculated.

If you recognise a union in relation to the employee that you propose to make redundant, you must consult with the union. There is a complex process involving the election of employee representatives where there is no recognised union, so it is important to take appropriate legal advice at an early stage.

Even if you are making fewer than 20 redundancies you will need to inform the relevant employees of your proposals. Your communication strategy is key.

Remember: your "surviving" employees will remember how well, or how badly, you dealt with staff.

STEP 5 - Consult with employee representatives

This applies if you are proposing to make more than 20 employees redundant within 90 days. But even if you expect to make fewer than 20 redundancies, consultation is still essential (see below).

The steps you need to take here will depend on the number of redundancies you want to make.

Where more than 100 redundancies are proposed, consultation must take place at least 90 days before the first dismissal takes place. Where there are fewer than 100 employees it must begin at least 30 days before the first dismissal.

What will this involve?

Consultation must be undertaken with a view to reaching agreement with the representatives.

This will include discussing ways to avoid redundancies, reducing the number of redundancies and mitigating the consequences for those employees made redundant. The latter may include enhanced severance payments, retraining or career guidance.

Agreement must be reached on the following:

  • number and category of at-risk employees;
  • method of selection;
  • procedure as to carrying out dismissals;
  • and how the redundancy payments will be calculated.

Once agreement has been reached you can start individual consultation. However, collective consultation should run alongside this.

Only when both are complete should the company issue formal notices of dismissals to individuals. Complex issues surround whether notices can be given during the 30-day (or 90-day) collective consultation period. The answer depends on the circumstances and you should take specific advice.

If you are making fewer than 20 employees redundant, informing and consulting staff are both still necessary. Consider employees' views on the current situation and their views about selection criteria.

In either case, employers should at least be seen to keep an open mind and be prepared to hear employees' views, both collectively and individually. They should also try to provide as much information as possible and give staff time to consider their options and suggest any alternatives that they can think of.

In practical terms, employers should consider how they will approach the staff that are at risk to begin consultation with them. It may be that the employer will make an announcement by way of a memo or by group presentation or speak individually to people.

Who is told and how will depend on the situation. Either way, employers should consult with staff as early as possible. You will never be penalised for over-communication or consultation.

Failure to consult with an employee on an individual basis will in most cases render a dismissal unfair. Hold meetings with employees who are at risk.

Your language should be that of "if, maybe and proposals", not of "when, will and decision". Explain why the position may be redundant and state that alternative employment has and will be considered and detail what (if any ) is available.

Ask the employee for their input on the company's position and suggestions for alternative work and then allow the employee to go away and think about it. Explain the selection criteria that will be used - be open and receptive to comments about this. Notes should be kept of all meetings with employees and with employee representatives.

STEP 6 - Redundancy selection

Identify the group:

You must be clear about which employees are at risk. Once you have identified the group of employees you must make a selection on a basis a tribunal would regard as reasonable.

It may be that you can argue that a post was unique, so that it would be inappropriate to identify a "pool" of people who might be laid off. You should, however, seek advice to determine any risk. A dismissal on the grounds of redundancy will be likely to be unfair if the tribunal forms the view that the pool from which the employee was selected was too narrow.

When deciding on the pool, consider whether other employees are doing similar work to members of the selection pool? Are employees' jobs interchangeable? Are there agreements with employee or union representatives?

Selection criteria:
As far as possible make selection on criteria that can be objectively checked against records. It is normally acceptable to include a mix of objective and subjective criteria.

Examples of criteria are:

  • technical skills and experience;
  • individual performance and conduct;
  • attendance and disciplinary record;
  • the match of skills and capability with future business requirements.

The selection must be made fairly and in accordance with the agreed criteria. Make sure that the records that you are relying on are accurate.

Where practical use a selection panel to reduce the risk of subjective opinions or possible bias influencing the application of the selection criteria.

Be careful that the use of the criteria will not result in any unlawful discrimination - for example under the Disability Discrimination Act when considering factors such as performance and attendance. Consider incorporating a mechanism such as only looking at absences that are not related to disability, maternity or other statutory or contractual leave.

Alternative employment:

An employment tribunal will, on considering whether a dismissal is unfair, look to see whether the employer considered alternative employment. You must consider whether your employee could be suitably employed elsewhere within the business.

An employee who unreasonably refuses an offer of suitable alternative employment will usually lose the right to a redundancy payment.

That said, the offer of re-employment must be:

  • made by the employer or by an associated employer;
  • made before the contract of employment comes to an end;
  • to re-employ the employee in the same or other suitable employment;
  • provide that the renewal or re-engagement is to take effect within four weeks of the end of the original contract.

If these criteria are not met, the employee will be entitled to a redundancy payment even if he unreasonably refuses.

Note also that where a woman is on maternity leave and a redundancy situation arises and there is a suitable available vacancy, an employer is obliged to offer her this suitable alternative employment as a priority over other staff.

STEP 7 - Individual consultation

Once the selection process has been carried out, inform the employee of the proposal.

Discuss the situation directly with the individual and listen to any comments that they may have regarding the application of the selection criteria to them. As a rule of thumb, a minimum of two meetings should be held, but be flexible as to issues raised that you need to consider. Conclude the consultation by asking if the employee has anything to add or if he/she has any queries.

Confirm the decision in a final letter detailing all the meetings and discussions that have taken place.

If the employee is to be made redundant, state how the payment is to be calculated.

Consider using a compromise agreement in situations where you have taken commercial risks (e.g. to cut short consultation or with a selection process) or where your payment exceeds net notice payments and statutory redundancy payments. Compromise agreements will help in "buying off the risk" of certain claims. You will need legal advice, and for these agreements to be valid, the employee must also get independent advice.

Naeema Choudry is a partner in the human resources group of the national law firm Eversheds.

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