A question of necessity

Adam Bernstein
Wednesday, September 23, 2020

The human body is an organic marvel, able to cope with so much. But Covid-19, as a new virus from which there is very little immunity, has wrought havoc. And not just on people, but on personal freedoms, businesses and economies. It has thrown governments into a state of flux and stalled so much growth.

It has left many companies teetering on the edge of commercial viability, and unfortunately, a good number of those are being forced to take evasive action by making redundancies in order to survive. Their immediate problem is how to follow the rules while making the process as smooth as possible for all.

A legal perspective

The law is very prescriptive in this area. In particular, Gaynor Beckett, a solicitor at the BPIF says that “the statutory definition of redundancy identifies three sets of circumstances: business closure, a workplace closure and diminished requirements of the business for employees to do work of a particular kind”.

Of course, there are situations, outside of crises, in which redundancy is used by businesses to legitimately reorganise their business model.

Mark Stevens, a senior associate at VWV, makes the point that “redundancy situations do vary significantly and there is not a one-size-fits-all approach that can be applied to all circumstances”. His advice to employers is to identify whether proposals to reduce a workforce amount to a genuine redundancy situation.

For him, the starting point of the process is to establish the business case which supports the need to reduce employee count. “This,” he says, “usually consists of a problem or issue that the organisation is seeking to address and proposals for doing so.”

As he explains, “establishing this is important in demonstrating that there is a genuine redundancy situation and will assist the organisation in communicating its proposals and decisions to staff and demonstrating that the organisation has followed a fair process.”

The actuality of redundancies are fact sensitive which can lead to uncertainty for employers. And as Beckett points out, “sometimes dismissals are labelled as redundancies when they are in fact some other substantial reason (SOSR) dismissals. But, in an unfair dismissal case, where the employer is unable to establish redundancy as the reason for dismissal, it may still be able to avoid a finding of unfair dismissal by proving that there was some other substantial reason for the dismissal”.

But no matter the origin of any dispute, Beckett advises employers to step into the tribunal’s shoes and consider the matter from its perspective. This means looking at the terms of the contract of employment, what happened in practice, and clauses relating to job duties and place of work; making a comparison of the actual work performed by the ‘old’ employee and the ‘new’ employee, both in terms of actual duties carried out and the skills required; and analysing whether the requirement for employees to do a particular kind of work has diminished or ceased.

The next stage, according to Stevens, is to consult with employees: “The exact form that the consultation will take will depend on a number of factors, including the number of redundancies being made and whether the employer has a specific redundancy procedure in place.” The detail is on gov.uk under redundancy.

When consulting, Stevens recommends discussing the rationale for the proposed redundancies, ways of avoiding or reducing redundancies and mitigating the consequences of redundancies, any alternatives to redundancy, any voluntary redundancy package and the proposed scoring criteria for at risk employees.

Moving the process on, Stevens advises that those employees who have been provisionally selected for redundancy should be privately consulted. He adds that “best practice is to allow an employee to be accompanied… this is not, however, a legal requirement.”

Pool time

No employer wants to defend an unfair dismissal claim and so Beckett recommends that “the ‘pool’ from which workers are selected to be made redundant is identified correctly and the selection criteria used are objective and fairly applied”.

If she were to run the process, she would look at any agreed (union) procedures in place governing which employees should be included in a pool; anything agreed as part of the collective consultation process; the results of discussions with recognised unions or elected employee representatives; and the type of work that employees carry out where employees can interchange jobs with others.

More fair selection criteria are offered by Stevens and includes qualifications, relevant experience, unexpired disciplinary records, performance and ability if evidenced. He offers a caveat though – that “care should be taken to ensure that the criteria are not indirectly discriminatory. The staff in the selection pool should be scored against the objective selection criteria”.

And discrimination is a worry for Beckett too. She points to the commonly used ‘last in, first out’ but says that “managers should be cautious about using length of service as a selection criterion, so not to breach the Equality Act 2010 Age discrimination legislation.” Her argument is that it is potentially discriminatory against younger employees who are more likely than older employees to have less service, skills and knowledge.

She also says consideration should be given to any reasons for absence, excluding pregnancy, and says that there is a potential risk of a discrimination claim where absence is for a disability-related reason.

But while many think of a pool containing employees plural, Stevens says that it can be singular, especially where compulsory redundancies are necessary: “Selection for a pool can also be made by identifying discrete jobs – a pool of one where the individual is selected by reason of the post that they fill.”

Ultimately, selection criteria must be objective and fair. On this Beckett urges employers to remember that “employment tribunals have made it clear that employers should seek to establish selection criteria that do not depend solely on the subjective opinion of the person who is selecting employees for redundancy, but which can be checked objectively against such things as attendance records and efficiency at the job”.

Making the cut

It’s easy for individuals to exhibit bias and so Beckett indicates that it is “good practice to have two people, both of whom know the individual employees concerned, carry out the assessment.”

From there she suggests a matrix to attach a certain weight and score to each criterion, usually on a scale of one to 10. The matrix gives each employee being considered for redundancy a final score on which the redundancy decision is based with the lowest scores leading to provisional selection for redundancy.

Of course, the most harmonious solution is to seek volunteers, but as Beckett details, “employers are not under a legal obligation to seek volunteers for redundancy, even if it is good practice to do so”. However, sometimes employers offer enhanced redundancy payments as an incentive. But she suggests that “employers reserve the right to turn down requests, to avoid an imbalance in the workforce or a loss of employees with particular skills and experience”.

Rarely will redundancy be welcomed and it’s for this reason that Stevens recommends that once redundancies have been confirmed, “that those staff who are made redundant should be given a right to appeal their dismissal. If an employee does appeal, the employer should invite them to an appeal meeting with the decision-makers being individuals who were not involved in the original process”.

Redundancy comes with cost and Stevens has seen these become substantial. As he explains, “an organisation will need to take into account how long a redundancy process will take, notice due to the employee, accrued but untaken holiday entitlement and redundancy payments due on termination of employment”. He adds that staff made redundant will be entitled to their contractual notice and a statutory redundancy payment if they have more than two years’ continuous service with the business. The amount of the statutory redundancy payment is calculated on the basis of an employee’s gross weekly pay, presently capped at £538, their length of service and a multiplier based upon their age.

Getting the process wrong

As noted earlier by Stevens, some redundancies will be automatically unfair. The concern for employers is that employees know their rights and aren’t afraid to enforce them, especially since the quashing of tribunal fees in July 2017. Apart from the disruption these cases cause, as Beckett has seen, they “usually run over three days and can attract legal costs of £15,000. Compensation for a successful unfair dismissal case is capped at 12 months earnings unless it is career loss case and age discrimination is pleaded under ‘last in, first out’; here compensation is awarded at what an employment judge feels is just and equitable”.

Discrimination compensation is based upon injury to feelings and falls into three bands ranging from £900 to £45,000. From experience, Beckett’s sees most awards sitting between £7,000 and £15,000 but adds that “the assessment is absolutely fact-specific on a case-by-case basis”.

It’s no understatement that the worst part of redundancy is not knowing, so Beckett recommends talking to employees straight away, although not before planning what to say, having a consultation plan in place and taking good advice. As she says: “When employees know they are going to lose their job, and market prospects are poor, goodwill often goes out of the window.”

But on top of all of this are penalties that attach to a failure to consult collectively where required. Stevens highlights the risk since “mistakes could mean a tribunal awarding a protective award of up to 90 days’ pay in respect of each employee where there has been a failure to collectively consult and a fine for failing to notify the secretary of state appropriately”.

There is one key point that Beckett wants to get over - that “the legal process has not been changed by coronavirus or the Coronavirus Act 2020.”

Stevens agrees and draws attention to furloughed employees who may say that they should not participate in a consultation during a period of furlough. His response is that “the government’s guidance does state that employers can make a furloughed employee redundant while they are on furlough or afterwards”.

Even so, employers need to be careful; furloughed staff are unlikely to be regularly checking work emails, in fact they should be discouraged from doing so. The organisation will need to consider how best to contact those staff.

It’s all in the delivery

Beckett knows that “making people redundant is not pleasant. Invariably there is a painful or difficult reason in every case – perhaps their wife is pregnant, or they’ve just moved to a new house... The list is endless”. She believes that those with the responsibility should tell employees that they are being made redundant in the ‘best’ way possible. She continues: “This task goes beyond job description and into people’s real lives. You have to get this right because it will have a great impact.” Nevertheless, she’s of the view that “you also need to be honest and straightforward and you must do it as soon as possible”.

Finally, from a legal perspective, Stevens says it is very important not to assume the consultation will go the employer’s way until the end of the consultation period. “An employer should not,” he says, “refer to any employee as redundant before the consultation outcome, nor should it infer any such decision is inevitable. Pre-judging the outcome of the consultation process can render any resulting dismissals unfair as it is evidence that the organisation did not genuinely engage in the consultation process with a view to avoiding redundancies, if at all possible.”

To finish

Coronavirus has probably made the bitter Brexit row seem like golden days of old. But we are where we are and while redundancies are an evil necessity, employers should have an eye to how the process is conducted. Not only is it expensive and demoralising for those that remain, employers risk losing talent to rivals.

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