In the current less certain economic conditions, it is an unfortunate fact that many organisations will be considering redundancies as a means to cut costs. This was recently emphasised by John Philpott, Chief Economist at the Chartered Institute of Personnel and Development, who said:

"Many HR professionals will be dusting off redundancy manuals in the coming months to re-discover best practice on trimming staffing levels. But unlike previous bouts of large scale job shedding in the early 1980s and early 1990s, which tended to fall relatively heavily on older staff, redundancy practice in 2008 will have to take care not to fall foul of recently introduced age discrimination legislation."

Adams Solicitors provided an overview of how to manage redundancies within the bounds of the law at our recent ‘Credit Crunch’ seminar, accompanied by a detailed information sheet which was distributed to delegates, of which the information below is an edited extract. If you would like the full information sheet, please contact Kelly Hodson at Adams Solicitors on 020 7182 4500 or email [email protected].

What is Redundancy?
Redundancy is when you dismiss someone because:

• their workplace closes
• there is a diminishing need for a particular type of work

The job must disappear before you make an employee redundant - you cannot replace them.

Making an Employee Redundant
You should take reasonable steps to avoid compulsory redundancies by considering alternatives. Often, by consulting with their employees, businesses have found creative solutions they would not otherwise have thought of. Effective planning can lead to better job security for employees and it can avoid short-term solutions not suited to the long-term needs of your business.

However, If there are changes in the way your business operates, or a reduction in your levels of business, you may find that the jobs of some of your staff become redundant. When this happens, you need to make sure you act correctly.
It is recommended that you make provision for redundancy procedures in your employee contracts. However, even if you don't, there are specific procedures that you must follow.

If you are proposing to make 20 or more employees redundant within 90 days, you must consult the employees' trade union or other elected representatives and consult with the employees as individuals. If you propose making fewer than 20 employees redundant, you must still consult the individual employees and it's good practice to consult their representatives if they have any.

If you have an information and consultation (I&C) agreement in place, you have a duty to inform and consult employees or their representatives on - among other things - changes to the workforce. This means that you may have to inform and consult on any proposed redundancies.

However, you do not have to inform and consult at the same time under both the redundancy and the I&C legislation - you can choose instead to "opt out" of your I&C agreement and consult under the redundancy legislation only.

In redundancy situations, the statutory dismissal and disciplinary procedures only apply when you are thinking about making fewer than 20 employees redundant.

Under the standard procedure, an employer must write to each employee setting out why it is thinking of making them redundant and inviting them to a meeting to discuss the proposed dismissal. The employee has the right to appeal against any subsequent decision to make them redundant.

Failure to follow the procedure when it applies will make any dismissal automatically unfair.

If you don't provide the employee with work throughout a complete day during which they would normally be required to work, they are entitled to a statutory guarantee payment. The maximum payment is five days in any three months.

Employment tribunals have ruled that it is the employer's responsibility to show that an offer, if suitable alternative work is available, has been made to the employee. You should therefore put any offer in writing and, by law, you must make the offer before the employee's current contract ends.

The offer should show how the new job differs from the old. The new job must either start straight after the end of the old job or within four weeks. Employees who accept an offer of alternative work are allowed a four-week trial period to see if the work really is suitable.

Employees who unreasonably refuse an offer of suitable alternative employment may lose any entitlement to redundancy pay.

The selection criteria your business adopts should be set out in your written procedures. They must be objective and applied consistently so that employees are not unfairly selected. You must be careful to avoid any discrimination.

Among the variety of criteria that can be used to select employees for redundancy are:

• Skills, qualifications and aptitude - these can help keep a balanced workforce.
• Standard of work performance - with this method, you need to provide supporting objective evidence, for example from the business' appraisal system.
• Adaptability - it may be important for your business that employees accept different types of work as needs change - but ensure that your basis for assessment does not discriminate.
• Attendance/disciplinary record - you must apply this method consistently, and be sure your records are accurate and that you understand the reasons for absences. For example, you must not include absences for maternity, paternity or adoption leave.

Certain selection criteria are automatically unfair including:

• trade union membership, non-membership or activity
• legal industrial action lasting up to eight weeks, or longer
• certain employee representative reasons
• actions taken on specified health and safety grounds
• reasons associated with pregnancy, maternity, paternity, adoption and parental leave
• reasons relating to regulations on part-time workers

You should analyse your proposed criteria to guard against accidentally discriminating against employees. For example, if you operate a "last in, first out" policy, you may contravene age discrimination laws in relation to younger employees who may be considered to be at an automatic disadvantage.

Consultation must start in good time - when redundancy proposals are in their formative stage - and at least:

• 30 days before the first redundancy where there are 20 to 99 proposed redundancies
• 90 days in advance where there are 100 or more proposed redundancies

If you are making 20 or more employees redundant in one place of work within a 90-day period, in addition to consulting with individual employees, you must tell employee representatives or any trade union, if relevant, and the Department for Business, Enterprise and Regulatory Reform (BERR) by letter.

If your employees don't have any representatives, they can elect new ones specifically for the consultation.

If they don't belong to a union and choose not to elect representatives, you must give the relevant information straight to them.

If you have an information and consultation (I&C) agreement in place, you have a duty to inform and consult employees or their representatives on - among other things - changes to the workforce. This means that you may have to inform and consult on any proposed redundancies.

However, you do not have to inform and consult at the same time under both the redundancy and the I&C legislation - you can choose instead to "opt out" of your I&C agreement and consult under the redundancy legislation only.

By law, you don't have to consult with representatives if making fewer than 20 people redundant. However, you must consult your employees individually in order to prevent unfair dismissal claims. Statutory discipline and grievance procedures govern this consultation process. 

At the start of the consultation, you must provide written details of:

• the reasons for redundancies
• the numbers and categories of employees involved
• the numbers of employees in these categories employed at the establishment
• how you plan to select employees for redundancy
• how you will carry out redundancies
• how you will work out redundancy payments

Consultation does not have to end in agreement, but it must be properly carried out with a view to reaching agreement, including ways of avoiding the redundancies or minimising their effect.

Employees qualify for redundancy payments if they have worked for you continuously for at least two years up to the date of dismissal.

These qualifying conditions also apply where they are laid off or put on short-time working and wish to apply for redundancy payments.

Some people do not qualify for redundancy payments, unless their contract contains special provisions, including non-employees, eg partners, self-employed workers and some directors

Redundancy payments are available to people regardless of age, except when the person is being retired.

New procedures for retirement being introduced mean that employees have the right to request a postponement of retirement. People who continue working beyond retirement will normally be able to qualify for redundancy payments if they are made redundant before the new retirement date.

People being made redundant have certain rights including the right to:

• suitable alternative employment wherever possible
• a trial period in another job you offer them without losing their right to redundancy payment
• reasonable time off on full pay for job-hunting or to arrange training
• not be unfairly dismissed (except employees with less than one year's service, unless they are selected for redundancy on grounds which are regarded as automatically unfair)
• legal minimum levels of redundancy pay
• a written statement of the amount of any redundancy payment and how you worked it out

Redundancy pay is based on:

• the employee's age
• the employee's amount of continuous service - up to a maximum of 20 years
• the employee's weekly pay - up to a limit of £330 where the employee's employment ends on or after 1 February 2008

Currently, the overall maximum statutory redundancy payment is £9,900.

People who have worked for many years in the same job or workplace can find redundancy a traumatic experience - even if they have received a redundancy payment above the legal minimum.

Where possible, you should try to find ways of helping employees come to terms with their situation. The practical and financial help you offer will of course depend on the size of your business and the seniority of any employee being made redundant.

It is good practice to do your best to help employees find alternative employment. To do this, you could:

• Contact the local Jobcentre Plus to find out about suitable vacancies or training.
• Set up interviews onsite for redundant employees. You could consider using a specialist outplacement agency - outplacement counselling and retraining is tax deductible in respect of all redundant employees, including part-time workers.
• Contact other local employers who may have vacancies.
• Offer guidance on job application forms and interview techniques.
• Offer advice on how to search and follow up suitable vacancies in the press.
• Highlight the importance of being prepared to consider a wide range of jobs.
• Consider re-employment if business picks up, where this is appropriate.

You can also help with financial issues:

• Provide clear information on the financial effects of redundancy - amount of redundancy pay, effect on pension payments and state benefits.
• Point out the need for the employee to discuss the financial implications of redundancy with their family as early as possible.

If you have the budget, you could consider offering individual counseling. Alternatively you could train personnel managers, if you have them, to carry out this task.

However fair your selection criteria for compulsory redundancy, you need to ensure they are not applied carelessly or in error, and to be aware of situations in which employees may be able to claim unfair dismissal.
An employee can claim unfair dismissal for:

• unfair selection
• lack of consultation or notice
• failure to offer suitable alternative employment

Selection will also be considered automatically unfair where the main reason for dismissal is given as redundancy, but the circumstances apply equally to other employees who have not been selected and the dismissed employee was selected for an automatically unfair reason.

Similarly, selecting an employee for redundancy based on poor performance or attendance without being able to provide comparative information for everyone in the same area may be seen as unfair.

A claim for unfair dismissal can also be made if you do not take reasonable steps to look for other work in your organisation, or if you and the employee cannot agree on what constitutes a "reasonable alternative".

Whether other work will be considered suitable depends on a number of factors, including pay, job status, location, working environment and hours of work.

Financial problems

If your business would become insolvent as a result of making the statutory redundancy payments, assistance is available from the Department for Business, Enterprise and Regulatory Reform Redundancy Payments Directorate and Insolvency Service, though you will be expected to repay the debt as quickly as possible. The directorate can also help if you become insolvent and fail to pay the employer's contributions into an occupational or personal pension scheme or owe pay in arrears.