Redundancy: an employer’s guide

Simon Roberts and Molly-Ellen Turecek from DAS Law look at seven things an employer needs to know about redundancy…

1. Know the notice period

You must give your employee sufficient notice before dismissing them. Notice periods are often contained within an employment contract, but if not, the employee is entitled to a minimum statutory notice period, based on their length of service, as detailed below (these minimum notice periods also apply to staff on probation):

2. Understand fair and unfair reasons for dismissal

Fair

You must abide by certain rules for a dismissal to be considered fair in the eyes of the law. If you do not dismiss an employee in a fair manner then you may face a claim from your employee for unfair dismissal.

If an employee has two years of continuous service for you, they are eligible to bring a claim for unfair dismissal.

Whether a dismissal is fair or unfair depends on the reason for the dismissal, and how the dismissal is carried out. To establish a fair dismissal you must have a potentially fair reason for dismissing the employee. Reasons which can serve as grounds for a fair dismissal include:

• The employee is incapable of doing the job to the standard required (capability);
• Their conduct has been questionable (conduct);
• Redundancy (see below);
• There are legal reasons why they are unable to do the job, such as losing a driving licence (illegality);
• If it is no longer possible to continue employing the person, for example because a customer of the business refuses to work with that person (known as ‘some other substantial reason’).

Unfair

There are a number of reasons for dismissal which are known as ‘automatically unfair’. For example, you cannot dismiss an employee fairly because:

• They are pregnant or on maternity leave, or any reason related to this;
• They take time off for family reasons;
• They act as an employee representative, trade union representative or occupational pension scheme trustee;
• They have joined or not joined a trade union;
• They working part-time or on a fixed-term contract;
• They assert certain statutory rights for example relating to pay and working hours;
• They report on wrongdoing at work (whistleblowing);

Dismissing an employee for any of these reasons will automatically be deemed unfair without the employee needing to be employed for any particular length of time (see below).

For a dismissal to be fair you must act ‘reasonably’ throughout the process and (if there is one), the preceding disciplinary process.

In the case of employees taking strike action, it is automatically unfair to dismiss an employee for taking official strike action within 12 weeks of the action commencing or if it has lasted more than 12 weeks and you haven’t taken reasonable steps to resolve the dispute.

3. Know the dismissal process inside out

For a dismissal to be fair you must act ‘reasonably’ throughout the process and (if there is one), the preceding disciplinary process. While reasonable behaviour in this context is not defined in any statute, for an employment tribunal to find that you have acted fairly you must ensure you:

• Have a reasonable belief that the reason for the dismissal was established;
• Have carried out proper investigations when appropriate (in conduct matters in particular) and best practice is to carry out an investigation meeting;
• Have taken minutes of all meetings and shared with the employee;
• Have given the employee all of the documentation that has been gathered during the course of the investigation and the process including minutes of meetings, witness statements and emails;
• Followed the relevant policies and procedures including any procedures in your own handbook, employment contract and as a minimum the Acas Code of Practice;
• Provided the employee with reasonable notice ahead of any meetings to allow them time to prepare;
• Have considered reasonable adjustments to the process for any employees that are disabled or suffering with mental impairments;
• Informed the employee of why they were being considered for dismissal and listen to their views on the matter before arriving at a decision;
• Allowed the employee to be accompanied at any hearings by a colleague or a trade union representative. In some cases, an employee with a disability or a particularly sensitive issue may request to be accompanied by a friend or family member. There is no legal requirement here but it can be considered;
• Gave the employee a chance to appeal.

Your disciplinary and dismissal policy should at the least accord with the Acas code of practice for disciplinary and grievance procedures. These are not legally binding, but are the best practice guide that an employment tribunal will expect an employer to follow. If an employer does not follow the code and is unsuccessful in defending the claim, a tribunal has discretion to increase the level of compensation awarded to the employee.

4. What if they are sick?

An employee’s ability to do their job may be affected by a long-term illness. It is important to try and work with the employee to ascertain whether there are any alternatives to dismissal. You can try to help them back to work by:

• Getting a medical report from the employee’s GP to gain a better understanding of the employee’s condition, symptoms and limitations;
• Arranging an occupational health assessment;
• Determining whether they are considered disabled under the Equality Act 2010 and making reasonable adjustments to help them carry out their role;
• Consider a reduced working pattern, a change to working hours, a change in the location or department if this would assist. Is there any equipment that could be provided to support the employee?

If reasonable adjustments cannot help the employee to do their job, it may be fair for you to dismiss them, even if they are categorised as disabled under the Equality Act 2010. However, you must still ensure that a fair procedure is followed and you must follow your own policies when it comes to managing ill health at work.

If the employment tribunal finds that an unfair dismissal has taken place then they can order you to reinstate the employee to their old job or to find a new job for them at the company.

5. If they make a claim for unfair dismissal…

If an employee believes that you have dismissed them unfairly, then they can lodge a claim at the Employment Tribunal, who will make a judgment on whether the dismissal was fair or unfair.

Unless the employee was dismissed for an automatically unfair reason as mentioned above, they must have worked for you for a minimum amount of time in order to be eligible to do so. This is shown in the table below.

Certain groups of people are not eligible to claim unfair dismissal. These are:

• The self-employed
• Independent contractors
• Members of the armed forces
• Employees who have already reached a settlement about the dismissal with their employer through ACAS
• Those employed under an illegal contract
• Taking part in official industrial action, unless the reason is automatically unfair (see above)
• Police staff, except in cases relating to health and safety or whistleblowing
• Those who have signed a settlement agreement with their employer
• Workers on fishing boats who are paid out of the profits made by the boat.

If the employment tribunal finds that an unfair dismissal has taken place then they can order you to reinstate the employee to their old job, or to find a new job for them at your company, thought in practice this is rare.

The employment tribunal can also order compensation to be paid. This will be made up of a basic award and a compensatory award. The amount of the basic award depends on factors such as the employee’s age, gross weekly pay and length of service. The basic award is the equivalent to a statutory redundancy payment.

An employee who is dismissed for gross misconduct generally forfeits their right to notice or a notice payment.

The compensatory award compensates the employee for the money lost due to losing their job, and is capped at £88,519 or a year’s gross salary, whichever is lower, for dismissals that took place on or after 6 April 2020. If the employee was dismissed between 6 April 2019 and 5 April 2020, the cap was £86,444 or a year’s salary, whichever was lower. These limits do not apply to cases relating to health and safety and whistleblowing. Compensation for dismissals here are uncapped.

Constructive unfair dismissal

Even if your employee resigned from your company, they may still be able to make a claim against you if they feel that your actions have forced them out or made their position untenable. This is known as constructive dismissal. Examples of situations which may lead to a claim for constructive dismissal include:

• Non-payment or late payment of wages;
• Changing working conditions without asking the employee;
• Harassment or insulting language.

Wrongful dismissal

You may be guilty of wrongful dismissal if you dismiss an employee in breach of the rights under the employee’s contract of employment. This most commonly occurs when the employee is not given the notice stated in their contract or the procedure laid down in the contract for dismissal is not followed properly.

Even if no notice period is stated in your employee’s contract, they may still be able to base a claim on their statutory right to notice as set out above. An employee who is dismissed for gross misconduct generally forfeits their right to notice or a notice payment.

6. The rough guide to redundancy

Redundancy is when you dismiss an employee or employees because you no longer need anyone to carry out that particular work perhaps due to changes in the business such as a restructure or a downturn. If the role that an employee did is no longer available because the business or workplace closes down, this usually leads to a redundancy situation too. The employer will firstly need to show that the reason for the redundancy is genuine and the reasons mentioned above can be deemed as genuine.

Your employees have certain rights in relation to redundancy. As well as possibly being entitled to redundancy pay (both statutory and contractual), they have the right to reasonable time off to look for a new job or arrange training and to not be unfairly selected for redundancy.

If you select someone for redundancy for any of the following reasons, then you may face a claim for unfair dismissal and/or discrimination:

• Gender
• Marital status
• Sexual orientation
• Race
• Disability
• Religion or belief
• Age
• Membership or non-membership of a trade union
• Health and safety activities
• Working pattern (e.g. part-time or fixed-term employees)
• Maternity leave, birth or pregnancy
• Paternity leave, parental or dependants leave
• Their exercise of their statutory rights
• Whistleblowing (e.g. making disclosures about wrongdoing)
• Taking part in lawful industrial action lasting 12 weeks or less
• Taking action on health and safety grounds
• Doing jury service
• Being trustee of a company pension scheme.

Even if you can show that the reason for the redundancy is genuine, you will also have to show that you have followed a fair procedure when you select the employees who will be made redundant. Common fair ways of selecting employees for redundancy include:

• Firstly asking for volunteers;
• Consider the pool of roles that are to be considered for redundancy;
• Devise an objective selection criteria to help you select employees for redundancy and one that is relevant to the pool;
• Provide guidance to accompany the selection criteria to ensure consistency is applied;
• Use previous appraisals, 1-1 evidence, assessments and supervisions as well as management feedback and indicators to assist with scoring against the selection criteria;
• Consider whether there have been any previous disciplinary issues;
• Consider skills, qualifications and experience as criteria.

Consultations

Any member of staff that you choose to make redundant will be entitled to consultation on the matter, where they can discuss the reasons for their selection and any alternatives. If a selection criteria and scoring exercise have been carried out, you should share the employee’s performance with them.

If you are making more than 20 employees redundant then the consultation should take place with a representative, either from the trade union or elected from the workforce. There is also an obligation to report the redundancies to the Secretary of State for BEIS where more than 20 employees will be made redundant.  In addition to this, there is also a minimum consultation period where more than 20 employees will be made redundant. There is no minimum consultation period if less employees are to be made redundant, the consultation period should just be long enough for the employees to receive meaningful consultation.

Redundancy pay

Statutory redundancy pay should be paid to those who have been working for their current employer for two years or more. Employees may also be entitled to any enhanced redundancy payments.

For the length of the consultation, the following minimums exist:

Certain caps do however apply to redundancy pay. Length of service is capped at 20 years, while the maximum redundancy pay per week is £538 (from 6 April 2020). A maximum amount of a statutory redundancy payment is £16,140.00 from 6 April 2020).

The GOV.UK website offers a helpful employee redundancy calculator. However, you will not have to pay this to your employee if you offer to keep them on or you find them suitable alternative employment

Notice periods

As an employer you are obliged to give employees a minimum notice period before their redundancy takes effect (see above). These are known as statutory notice periods and depend on the employee’s length of service with your company.

Payment in lieu of notice

Instead of asking an employee to work for you during the notice period, it is possible as an employer to dismiss the employee immediately and make a payment to them for the notice period, providing there is a provision for this in their contract. This is known as a PILON clause (payment in lieu of notice clause).

Settlement agreements

Upon the dismissal of an employee, that employee and their employer can enter into what is known as a Settlement Agreement. Through a Settlement Agreement the two parties can settle any employment claims that may be made by the employee after they leave or reach an agreement in contemplation of any claims being brought.

By entering into a Settlement Agreement the employee waives their right to make any claims, such as unfair dismissal.

Settlement agreements can be beneficial for employers as it means that they do not have to worry about any later repercussions of dismissing the employee, such as having to attend an Employment Tribunal. They can also be much simpler and stress-free to arrange than a claim that has to go through the courts or an Employment Tribunal. It is advisable to issue a Settlement Agreement where a substantial redundancy payment is being made or where a sum in excess of the legal requirement is being made to the employee.

Before reaching a Settlement Agreement with an employee, it must be ensured that they have received legal advice from an independent adviser first. This adviser should be a qualified lawyer, a trade union representative or an advice centre representative.

You should acquire a certificate from the adviser confirming that they have given advice to the employee on the terms and effect of the agreement. The advice will also confirm that the adviser has the necessary insurance.

Whilst not a legal requirement, is expected practice for an employer to provide a reasonable contribution to the cost of the employee’s legal fees. What is deemed reasonable is dependent on the seniority of the employee and the nature of the business. The contribution typically ranges from £350.00 - £750.00 plus VAT.

Examples of terms that a settlement agreement may contain include:

• An amount of compensation offered to the employee;
• Assurances given by both the employer and employee;
• Confidentiality;
• The parties refrain from making disparaging and/or derogatory remarks about the other whether in writing or orally;
• Indication that all terms have been accepted by the employee and that they will not take legal action in future;
• A letter of reference which can be used by the employee in future job applications;
• An agreed announcement in some cases;
• A ‘non-compete’ clause which places some restriction on the type of jobs the employee is able to apply for in the future and an extension of the contract of employment;
• Payment of tax;
• Confidentiality clause – i.e. that the employee cannot disclose some or all of the details of the Agreement or the termination of their employment to anybody.

Taking time off to find a job

If, by the time their employment ends, the employee has been working for you for at least two years, they have the right to take a reasonable amount of time off in your notice period, in order to look for a new job or to sign up for training which will help them find employment.

What is considered ‘reasonable’ will vary on a case-by-case basis; there are no rules covering this, and you will have to reach an agreement with your employee.

Unless their employment contract states otherwise, you only have to pay your employee 40% of one week’s wage for any time they take off to find a job during their notice period. So, if they usually work five days a week and they take six days off during their notice period for job-hunting, they will only be paid for two of those days – 40% of their five-day working week.

7. Don’t forget legal expenses insurance

Our commercial legal expenses insurance (LEI) products could help you avoid expensive legal proceedings by providing you with unlimited legal advice regarding employment disputes. It could also take advantage of free or discounted access to hundreds of easy-to-customise legal documents, contracts and letters.

Should you eventually be taken to an employment tribunal, however, commercial legal expenses insurance could also provide cover for legal costs. There are some things that we don’t cover though.

Our policy wordings have a full list of exclusions but here are a few examples:

• Claims that do not arise directly in connection with the insured business;
• Legal problems that start before the date cover begins;
• Civil cases where the lawyer we appoint for you does not believe that they will be more likely than not to win their case;
• Costs incurred without our expressed acceptance.

If you are considering making people redundant, or believe that you will soon be facing redundancy, the first thing to do is to call our Legal Advice helpline (the number will be in your policy wording) as we will hopefully be able to mitigate the issue and avoid the need for a claim. The legal advisers can help provide guidance on how to manage the situation which could help avoid a formal dispute, while our DAS Businesslaw & DAS Householdlaw online resources provide access to customisable legal documents that can also help avoid a legal battle. Nevertheless, if the situation has already reached the formal stage then our helpline can also advise on the steps you have taken so far and what to do next.