Pay and Benefits

It may surprise you to know that UK businesses, in the year to March 2010, paid former employees £4.5 billion in redundancy payments. The average payment was £9,375 (this does not include contractual elements) and 480,000 people were made redundant.

It is worth reminding ourselves of a few basics. A redundancy situation occurs when the requirement for employees to carry out work of a particular kind ceases or diminishes, or will cease or diminish.

 

If you have 20 or more employees who may be affected, the business is in the realm of collective redundancies – there are then special consultation procedures which must be put in place; but for all other redundancy situations, businesses must simply follow a fair procedure.

 

No doubt the first step will be to establish whether or not there is a redundancy situation and if so, the supporting business case. It is important not to cast this in stone, as in almost all circumstances the employee will have the right to make representations about the business case before it is ratified. In saying this you will not need to “prove” your case, but simply take into account any representations.

 

Once the proposed changes to the business have been identified, it will need to turn its mind to consultation. It is always worth remembering that consultation should commence before any final decisions have been reached – as an aide memoir, always use the word “proposed” in relation to any changes. The matters to be discussed include the need to make redundancies (namely the business case), the selection criteria and the basis upon which they have been selected, possible alternatives to redundancy and alternative employment.  

 

In the event that redundancies occur, subject to any contractual redundancy arrangements (and, of course, notice periods and accrued holiday), employees with more than two years’ continuous service have the right to receive statutory redundancy pay calculated by reference to their length of service (maximum of 20 years) and a week’s pay (subject to a statutory cap, which is currently £400). For each full year of service a multiplier will be applied based upon the employees’ age at the time of that service – half for periods up to 21 years; one for 22 years to 40 years; and one and a half for 41 years and above.

Handled correctly, it is amazing how quickly the “survivors” adjust to life without their colleagues. Mishandle a redundancy procedure and you are likely to face an unfair dismissal claim. Add into the equation a possible discrimination angle, and you move from a compensatory award of up to £68,400 plus the statutory redundancy payment, up to an unlimited amount of compensation.

 

There are sometimes temptations to deal with underperformance or other issues under the guise of a redundancy process; be very wary of doing this. Get it wrong and generally there is no second bite at the cherry – tribunals will be loathe to make a finding that “while you made a complete horlicks of the redundancy exercise, we believe that it’s okay because the employee wasn’t really performing all that well anyway”.

A “standard” redundancy procedure can be tough enough, but businesses are often faced with a number of additional complications, including “pooling”. If the business has two or more employees who undertake the same or similar roles, then those employees are pooled for the purposes of redundancy selection. If you have a pool you then need to apply selection criteria. Ask yourself what work is disappearing and who undertakes that work – remember to look beyond job titles and examine what tasks an employee actually does.

 

Businesses also have a duty to consider “bumping”, namely can the employee whose role is redundant undertake someone else’s role which is not redundant. This can be quite a complicated exercise, leading to some businesses considering a number of redundancies to use a cascading method. For example, after certain senior managers have been identified for redundancy, consider if they can take middle managers’ roles and so forth down the food chain.

 

If faced with a pooling situation, the business will need to devise and apply appropriate scoring criteria. These criteria should be as objective and measureable as possible, but be careful not to rely on potentially discriminatory criteria such as length of service (although this may be justifiable in some instances, it would not be if, for example, you discount periods of maternity absence). Subjective criteria such as experience and flexibility can be used alongside objective criteria, but it is risky to rely upon these criteria alone.

 

Also consider alternative employment. Where the role is deemed to be a suitable alternative, the affected employee has the right to be offered that job. Do not fall into the trap though of asking yourself if someone else could undertake it better – that is not the test.
Collective redundancy is another potential complication. If a business proposes to make 20 or more employees redundant at one establishment within a period of 90 days or less, it will be required to conform to a statutory consultation process. Even if a business does not then go on to make 20 redundancies, the collective process will still apply (remember the law asks if you were “proposing” to make 20 or more employees redundant, not if you actually did).

 

The collective process will involve the election of employee representatives, and no redundancy terminations can take effect for at least 30 days; or 90 days where the number of proposed redundancies is 100 or more. Failure to comply with these processes will not only render a dismissal unfair but expose a business to a protective award of up to 90 days' pay per affected employee.

 

Contrary to popular belief, an employee who is pregnant or on maternity leave can still be made redundant provided that the pregnancy or maternity leave is not the reason for their selection. The business will need to ask itself if any redundancy decision can be postponed until the end of the maternity period – if so, no decision should be taken until the employee returns. Remember, an employee who is made redundant while on maternity leave has the right of first refusal for any suitable alternative positions ahead of any other redundant employee.

The reality of today’s world is that very few of us can hope to remain in just one or two jobs for the whole of our working lives. Indeed, those entering into the job market for the first time will probably have an expectation of having numerous jobs in their lifetime. It is therefore questionable whether or not redundancy has the same stigma it used to a few years ago.

 

As HM Revenue & Customs’ own figures show, redundancies are here to stay. They are a mechanism by which the business manages its staffing levels. Seen in this light, get the procedures and messages right and the world will carry on.

David Israel is a Partner and Adam Grant is a Solicitor at Wedlake Bell LLP