As we see the 12th rise of interest rate in a row by the Bank of England (its highest rate since 2008), along with increasing bills and rising living costs, resilience and budgeting have become vital issues for businesses. We are now seeing waves of redundancies. One of the recent is Vodafone cutting 11,000 jobs globally over three years due to underperformance. Redundancies present challenges to both employers and employees. Whilst this is not a happy topic, it is a reality for some businesses. Through this article, we hope to provide guidance on effectively dealing with redundancies. We will focus on strategies for employers to navigate this difficult and unpleasant process while ensuring fairness and compliance with regulations when considering making employees redundant.
Redundancy generally means an employee is dismissed because their role is no longer needed. However, there must be a genuine business justification for the proposed redundancies. Common reasons include business reorganisation, economic challenges, technological advancements, or decreased demand for products or services.
The employer should be extremely cautious when implementing redundancy as their employees are entitled to statutory rights, including fair selection and a fair process (see below). The employer should always give proper notice, offer a forum to talk through the process, give clear timelines, and offer alternative employment or voluntary redundancy options where possible. Opening a transparent dialogue early can help facilitate a smoother process.
What should the employer do?
The employer should establish fair and objective selection criteria for determining which employees will be made redundant. They must create a fair selection process and pool of employees to consider. Common criteria include skills, qualifications, performance, length of service, disciplinary records, and redundancy scoring matrices. They need to avoid any form of discrimination or bias in the selection process, ensuring that decisions are based on legitimate business reasons and comply with employment laws and regulations.
For example, the employer cannot only create a pool of women or those over a certain age. Documenting the selection process and maintaining transparency can help prevent claims and disputes against the employer in relation to their redundancy process.
What happens next
Employees may accept new or renewed employment as alternatives to redundancy payments. However, this is subject to specific legal requirements. In addition, the employer may provide training opportunities to reskill their employees for different roles. If redundancy is inevitable, the employer should explore alternative options to redundancy and further support to employees. These can include:
- offering voluntary redundancy
- early retirement schemes
- reduced working hours
- job sharing
- access to counselling services
- access to services for job hunting
- job search resources
- outplacement support
- retraining opportunities
They should also consider whether there are suitable alternative roles within the organisation to which affected employees could be redeployed. They need to provide support and training for these if necessary. In addition, the employer can consider giving their employees reasonable time off and/or contribute towards their costs to help them find other employment. Such measures can help retain valuable employees and/or mitigate the impact of redundancy on its employees, as well as preserve the employer’s brand and goodwill, especially to its customers and any future hires.
In certain cases, the employer is required to consult with trade union representatives or other elected employee representatives before redundancies are made, e.g., 20 employees or more are to be made redundant or there is a works council agreement or a collective agreement with a recognised trade union in place. Failure to conduct mandatory consultation may result in legal actions being taken against the employer, e.g., protective awards. Therefore, the employer should engage in timely and transparent communication with their employees to foster trust and minimise risks.
Similar to termination, the employer must also give minimum notice periods to their employees in case of redundancy (from one week’s notice if the employees were employed between one month and 2 years to 12 weeks’ notice if the employees were employed for 12 years or more). This is subject to contractual terms agreed between the employer and employees.
Redundancy is a strictly regulated process that can be extremely complex depending on the size and composition of the employer’s workforce. The employer should conduct individual consultation meetings with affected employees to discuss their situation. An agenda could include the proposed redundancy and any alternative options available. The meeting allows employees to provide input, ask questions, and raise any concerns they may have. The employer should also provide written confirmation of the redundancy decision, including details of any redundancy packages, notice periods, and other entitlements to their affected employees. Therefore, the employer should consider seeking legal advice and support to ensure compliance and minimise risks of claims and disputes at the start, if not before the process begins.
How to calculate redundancy payments?
Calculating redundancy payments is not always as easy as it may sound. Below are some of the factors that the employer should consider when determining redundancy payments:
- Payment in lieu of notice is only permitted if the employment contract permits this, which is subject to normal tax deductions;
- The compensation element must meet the statutory minimum requirements, i.e., employees working for 2 or more years are normally entitled to statutory redundancy pay, which is calculated based on the employee’s age, length of service and any enhanced payments set out in the contract or staff handbook (if applicable);
- Money can be allocated to staff pensions if the payment is going above the national tax-free element;
- All usual holiday leave, salary, bonuses and expenses must still be paid subject to tax deductions;
- Any shares vesting must still be addressed fairly under the existing terms;
- Legal costs are often paid as a contribution by the employer when agreeing a settlement agreement with the employee, which gives both parties comfort legally.
How can employers avoid redundancies?
Restructuring your business may relieve some financial burdens. Consider selling off parts of the business, reducing overheads such as leases, or outsourcing rather than hiring. However, the law regarding employment rights and tax must be carefully navigated. We also recommend the following:
- Stay informed about emerging trends, technologies, and best practices in your sector; try to adapt to changing circumstances and be flexible;
- Don’t procrastinate with debtors. Make sure you follow up and keep your payment terms consistent with your processes. Charge late payment fees and interest; this keeps cash flow consistent.
The last resort?
Redundancy poses challenges for both employers and employees. It can be an extremely difficult, unpleasant, and complex process. Employers should consider engaging experienced employment solicitors to help them understand their rights and obligations and to navigate the process to protect business and individual interests.
Karen Holden is the Managing Director & Founder of A City Law Firm who practise both commercial law and litigation, having been admitted to the roll in 2005. If you require further advice or assistance, please do not hesitate to contact [email protected]
A City Law Firm Limited is a leading entrepreneurial law firm in the city of London, with a dynamic and diverse team of lawyers. It was awarded most innovative law firm, London 2016 and Business Law firm 2017. They specialise in start-up business law, the tech industry, IP and investment.