Redundancy and the law

In the current challenging financial climate, you may find yourself in the unfortunate situation of having to make redundancies.

Before you do so, there are procedures which must be followed; make a mistake and you risk substantial financial penalties.

Alan Massenhove,  a solictor with 16 years experience practicing corporate; commercial and employment law, gives his advice ensuring you follow a legal redundancy procedure.

A redundancy situation arises where there is a dismissal of an employee caused by:

• a business closure
• a workplace closure or
• a reduced requirement for employees.

Possible Problems

The most problematic situation is where there is a reduced requirement for employees, often arising after a business reorganisation or restructuring, or as a result of a downturn in business.

There are subtle and subjective factors involved which derive from a focus on a requirement for employees rather than a requirement for work. For example, a redundancy situation can still arise when the amount of work remains the same, or even increases, provided fewer employees are required to carry out that work.

Conversely, changes to the way work is carried out will not necessarily amount to a redundancy situation if the actual requirement for employees remains the same.

Employers are often best placed to make commercial decisions affecting their business. In an acknowledgement of this, in the absence of blatant error or unreasonableness, the law is often hesitant to challenge an employer's judgement.

Play Fair

Redundancy is a potentially fair reason for dismissal, which means that an employee who is dismissed by reason of redundancy may be unable to claim unfair dismissal.

However, the employer must have acted fairly and reasonably throughout. In particular, the employer must:

• take all reasonable steps to avoid redundancy
• warn and consult the affected employees
• objectively and fairly select employees for redundancy and
• take all reasonable steps to minimise the impact of redundancy.

Employers frequently fail to be objective and fairly select employees for redundancy. Where a selection is to be made, the correct pool of employees must be established from the outset.

This tends to be a department or a group of employees carrying out similar work. Employees on long-term sick leave or maternity leave must not be overlooked.

Once the pool has been established the employer must apply relevant, objectively reasonable and verifiable criteria such as:

• skills
• qualifications
• training
• experience
• attendance
• time keeping
• disciplinary record
• flexibility
• performance

Don't Discriminate

Discrimination must be avoided and the criteria must be fairly applied to each employee. Any failure at any stage may result in an unfair dismissal.

In some circumstances, it may be reasonable to dismiss an employee to create a vacancy into which another otherwise redundant employee can be redeployed.

This practice is known as 'bumping'.

The obligation on an employer to offer a redundant employee any suitable alternative jobs extends to offering vacancies within associated businesses, but

does not extend to creating new positions.

Special Rules

Special rules apply to employees on maternity or other family-friendly leave, who have a statutory right to be offered any suitable and appropriate alternative employment taking effect immediately and on terms no less favourable than their current terms.

Any failure to comply with this obligation is likely to result in an automatic unfair dismissal.

An employer must consult with affected employees at every stage, especially during the selection process, and must give each employee every opportunity to put forward suggestions as to how redundancy can be avoided. All such suggestions must be given due consideration.

Any failure to properly consult may result in an unfair dismissal.

Even where all the necessary steps have been correctly followed, an employer must still comply with the statutory dismissal procedure before proceeding with the redundancy.

Compliance is a legal requirement where employees have at least one year of continuous employment.

Numbers Matter

Special rules apply where an employer is proposing to dismiss 20 or more employees over a period of 90 days or less, known as a collective redundancy situation.

The term dismissal in this context has a wide application, and collective redundancy situations can sometimes arise inadvertently.

Employers should be wary, because the penalties for non-compliance with the special rules are harsh. In particular, an employer may be ordered to pay a protective award of 90 days gross pay for each of the 20 or more affected employees.

There are also special, and complicated, rules that apply where the employer is insolvent.