Is redundancy the answer if the economic climate is affecting your business?

As we begin the new year, employers will welcome opportunities to grow and develop their businesses. Whilst we would hope that 2023 will be prosperous for commercial activity, given the current economic pressures on business owners, compounded by external factors, such as the fallout of Brexit and cost of living crises, employers may also be looking at ways to reduce their current overheads. If an employer considers that they must reduce their employee headcount to cut their monthly outgoings, they must ensure that they are acting in accordance with the law when doing so.

Generally speaking, this type of issue will give rise to a redundancy process. Where an employer is proposing to make staff redundant, they must ensure that a meaningful consultation process is followed with either the individual employee or elected representatives, depending on how wide the proposal is and how many employees are at risk of redundancy.

Key questions employers ask employment lawyers when considering making redundancies

Q: My business is going through a difficult spell and I don’t know if I should be thinking about redundancies – when is redundancy the right option?

A: Redundancy isn’t always the answer but in some situations it is. A redundancy situation arises where any of the following apply:

  • Business closure
  • Workplace closure
  • Reduction in work coming in or an expectation of a reduction in work coming in (e.g. loss of customer or contract)
  • Reduced need for staff due to automation or change in the way you do things.

Where an employer has staff with more than two years’ service, they must be careful as those individuals will have the right to claim unfair dismissal. This means that to bottom out any claim relating to the fairness of the reason for dismissing an employee, and/or the process followed prior to doing so, the employer will need to demonstrate (1) that there was a robust business case as to why they had identified a need to make redundancies and (2) that a fair and proper process was followed.

Q: I am considering starting a redundancy process as I need to reduce our headcount. What do I need to do?

A: It is important for any business considering a redundancy process to have a clear understanding of what is needed before they start the process. Unfortunately, a lot of small businesses get it wrong. They simply decide to make redundancies without any process and end up in the Employment Tribunal as a result.

It is called a “process” because employers need to follow a certain number of minimum steps in order to demonstrate that any resulting dismissals have been fair. Employers need to ensure that they have a robust business case, setting out the reason(s) for proposing to make redundancies.

A fair redundancy process will involve several consultation meetings with the affected employees, initially as a group announcement, and then a series of individual one to one consultation meetings. There may be a requirement to consult with elected representatives, rather than the individual employees, depending on how many employees are at risk of redundancy.

In most cases, it will also be necessary to carry out a selection process to identify which employees are to be made redundant.

At every stage of the consultation process, the affected employees should be given the opportunity to respond and comment on the proposal firstly, to make redundancies in general and secondly, to make them redundant in particular. This is crucial to demonstrating a fair consultation process.

In addition, for a consultation to be “meaningful”, if an employee at risk of redundancy makes suggestions during any consultation meeting which could potentially avoid their role being made redundant, or avoid them being dismissed by reason of redundancy, the employer is expected to consider the suggestion, and to be able to demonstrate that they have done so, rather than dismiss it out of hand.

Q: How long should the redundancy process take?

A: With the above in mind, depending on how much of a challenge the employee(s) put forward to the proposal, it is difficult to give a definitive timescale as to when the process should end and the employer can reach an outcome. That being so, generally speaking, the consultation process will usually take around 14 days if it is done properly. However, if you are looking to dismiss 20 or more employees within a period of 90 days, it is necessary to engage in “collective consultation” with either a recognised trade union or elected employee representatives before an individual consultation process is commenced.

For further information about the nature of the consultation process, the ACAS guide can be found here.

Q: When will staff be entitled to a statutory redundancy payment?

A: Firstly, it is necessary to establish whether the “staff” are employees or workers. Only employees are entitled to a statutory redundancy payment. Employees with two or more years of employment with the organisation who are dismissed by reason of redundancy will be entitled to a statutory redundancy payment. This is calculated in accordance with a statutory formula, based on length of service, age and current weekly pay. The current weekly pay amount is capped by the Government, although this cap changes each April. Employers should ensure that they have applied the correct cap to any calculation.

Whilst staff with less than two years’ service with the organisation can still be made redundant and dismissed for this reason, they are not legally entitled to a statutory redundancy payment and it may not be necessary to follow a redundancy process as it is necessary to have two years’ service in order to make a claim for unfair dismissal. That said, you should be careful not to dismiss such staff in circumstances where they may be able to make another type of claim, for example, if they believe that they have been dismissed because of their age or gender.

Q: What obligation(s) does an employer have to offer “suitable alternative employment” to redundant employees?

A: In the event that redundancy is confirmed, an employer is expected to consider whether it can offer the redundant employee(s) suitable alternative employment. If there is employment that is both suitable and alternative, the employee must accept the role if it is offered to them. If they unreasonably refuse the role, they may lose their right to a statutory redundancy payment. Similarly, if an employer fails to offer suitable alternative employment to a redundant employee, it may be found to have unfairly dismissed the employee.

In most situations, the position will be a little less black and white and employers and employees are likely to agree a trial period in any new role to see if it suits both parties for the employment to continue. At the end of the trial period, both sides will likely agree whether the employment can continue or whether the employee should be allowed to leave the role with their statutory redundancy payment.

Employers should also be careful in the event that they are making pregnant or employees on maternity leave redundant. Special rules apply in this situation and any suitable alternative employment must be offered to that employee before anyone else.

Q: In disciplinary dismissals, employees are given a right of appeal. Does a right of appeal exist in relation to redundancy dismissals?

A: This is a bit of a moot point, even amongst employment lawyers. Our view is that a right of appeal should always be given. However, other well qualified lawyers may disagree: their view is that a redundancy situation is different to a disciplinary situation in that an appeal process will have the effect of unsettling the remaining workforce in circumstances where, providing a proper consultation process has already been undertaken, there has already been adequate checks and balances throughout the process. Before taking a view on whether or not it is appropriate to give an employee the right to an appeal, advice should be taken.

Q: I have heard about “bumping”, but I don’t really understand what it means or when it might apply, please can you clarify?

A: “Bumping” arises where an employer determines that a redundancy situation has arisen because a specific role is to be removed but determines that, rather than the occupier of that role being made redundant, another employee should be made redundant to make space for that employee to remain within the business. Employers have to be careful to use bumping carefully as it is easy to get this wrong. A good example of bumping working well for a business is where, for whatever reason, it is determined to remove a more senior or more junior role and either the senior employee is made redundant to make way for the more junior employee or vice versa.

Q: One of our employees has asked if we are operating a voluntary redundancy scheme. Is this a good idea and/or do we need to do this?

A: Voluntary redundancy schemes can be useful where a business is looking to reduce numbers across the board and is looking for a way to reduce the amount of process involved in getting the numbers down. Such schemes are generally only attractive to employees where the redundancy payment is enhanced by the employer and they will generally only be attractive to employers where there is a generally high level of productivity across the workforce, and thus relatively little to be gained by going through a selection process. Voluntary redundancy schemes are not mandatory and are therefore entirely at the discretion of the employer.

To arrange a no obligation confidential chat with a member of BTO’s employment law team, please email or call us on Glasgow: 0141 225 5291 / Edinburgh: 0131 222 2951.

This update contains general information only and does not constitute legal or other professional advice.

Dawn Robertson, Partner & Accredited Specialist in Employment Law: / 0131 222 3242 / Connect with Dawn

Pauline Hughes, Solicitor: / 0141 221 8012 / Connect with Pauline