What is redundancy?
Let’s start with the basic question of what actually is redundancy. Redundancy has a proper meaning in law.
The circumstances which meet the statutory definition of redundancy are set out in section 139(1) of Employment Rights Act 1996. To summarise, the statutory definition of redundancy identifies three sets of circumstances:
- Business closure (closure of the business altogether)
- Workplace closure (closure of one of several sites, or relocation to a new site)
- Diminished requirements of the business for employees to do work of a particular kin
Many businesses feeling the impact of coronavirus may see one of the above, most likely the latter – sales have dropped and the pipeline isn’t there, and so you need to look at losing staff.
However, it’s not as simple as picking the couple of staff that you don’t like as much as the others and getting rid. You need to follow a fair and reasonable process.
A redundancy process
It should be stated at the start that the aim of a redundancy process is to try to avoid redundancies being made.
There are a number of steps, meetings and letters to do a process properly and fairly. And fundamentally, no decisions on which specific staff will be made redundant should be made until the completion of the process – or else it’s all a sham and an employment lawyer like me will see through it and sue your ass.
Here’s a rough outline of a process:
Step One – Hold a meeting with all affected employees
- Meet with all of the employees who might be made redundant (as a group)
- Explain the reason for potential redundancies, how many jobs are at risk, the ways of avoiding redundancy.
Step Two – Invite affected employees to their 1st consultation meeting
Step Three – Have 1st meeting with employee individually
- Go through a redundancy selection form with the employee
- Selection form sets out objective criteria for selection – not just opinion
Step Four – Have a 2nd meeting with employee individually
The second meeting is primarily to discuss any concerns and to discuss any alternatives to redundancy and see if the employee has any options to bring to the table.
Step Five – Decision Time – make a decision based on the data from the selection process
Step Six – Confirm the decision in writing (probably at another meeting).
What will I need to pay employees being made redundant?
All employees being made redundant will need to be given their contractual or statutory notice period (statutory notice being 1 weeks’ notice for each complete year worked up to a maximum of 12 weeks). They can be asked to work this, or more usually, a payment in lieu of notice (PILON) is made. This payment is taxable for PAYE and NI.
They will also need to be paid:
- Accrued but untaken holiday pay
- Statutory redundancy pay
- Any enhanced redundancy if in contract
There’s a redundancy pay calculator here.
This is all a bit of a faff – what happens if I don’t follow the process?
If you do not follow a fair process and make an employee (or more than one) redundant and dismiss them, then you are likely to be faced with a claim for unfair dismissal.
Given the lack of process followed, it is likely that any tribunal compensation award paid to the employee will be increased by up to 25%.
There is a way to shortcut the redundancy process which I recommend all the time. It is by entering into a settlement agreement with the employee.
What is a settlement agreement?
A settlement agreement is legally binding contract between employer and employee used to terminate employment and in return:
The employer usually pays more than the statutory redundancy pay as compensation
The employer usually pays a contribution towards the employees legal costs of getting advice on a settlement agreement.
The employee agrees to terms such as waiving any rights to sue the employer, along with confidentiality provisions and more besides.
There is therefore an extra cost to factor in with giving a settlement agreement to an employee. However, they give certainty that no claims will be made against you and also are a quick and easy way to “make redundancies” without necessarily following a fair or reasonable procedure.
I should say though, that if you do not follow any procedure and just select employees on a subjective basis, you could end up paying more than you thought if that employee gets advice from a settlement agreement solicitor.
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