How to Manage a Fair Redundancy Process
Unfortunately, redundancy may be the only logical step for an employer to take in certain scenarios. Where this is the case, it is essential that the correct processes are followed as failing to do so could present a serious legal risk to your organisation.
This is something a growing number of businesses will likely need to contend with in the near future, with the UK redundancy rate almost doubling in the second half of 2022 after falling to a 27-year low in March to May. While the redundancy rate is currently below pre-pandemic levels, zero growth in the UK economy meant that a recession was only narrowly avoided last year, so 2023 could be an extremely challenging year.
In fact, two fifths of employers could have to deal with restructuring or redundancy as a response to the ongoing cost of living crisis, according to a recent survey carried out by WorkNest.
If you are an employer facing the prospect of making redundancies, it is essential to have the right expert support. In this article, we provide general guidance on the steps to follow for a fair redundancy process and how important this is, but each situation is unique, so this should not be taken as legal guidance.
Please get in touch if you would like to speak to a member of our team about how we can help you to manage a fair redundancy process.
Steps for managing a fair redundancy process
It is important to note that there are very strict requirements that govern the redundancy process in the UK. It is therefore essential that you have suitable policies in place for a fair process and that you follow the correct steps.
Step 1: Explore alternative options
Redundancy may not be necessary in every scenario. It is therefore important that, before you start considering redundancies, your business explores alternative options that would either reduce or avoid redundancies altogether.
This could include:
- Offering voluntary redundancy (following a fair process and avoiding discrimination)
- Changing working hours
- Moving employees into new roles
- Limiting overtime
- Freezing any new hires
Step 2: Create a redundancy plan and process
Your business should have a clear plan in place for proposed redundancies that is shared with all staff. Following this plan will help to demonstrate that the process has been clearly thought out and that you have considered all of the relevant options prior to starting proceedings.
A redundancy plan can cover anything from a record of the previous options you have considered and the number of redundancies you plan on making (subject to consultation) to the appeals process an employee can use.
Step 3: Inform employees
All of the employees affected, not just those who are at immediate risk of redundancy, should be informed of the proposed plans. The risk of redundancy and its rationale, the number of proposed redundancies and what will happen next should all be clearly explained.
For employees who are at risk of redundancy, confirmation of the following should also be provided in writing:
- The risk of redundancy
- The alternative options available to them, such as voluntary redundancy
- The outline of your consultation plans
Consultations with the employees and their representatives should follow, where you try and agree actions moving forward, including whether there should be redundancies at all. This is where you should explain the need for changes, and the criteria for selecting employees, as well as listening to any feedback/concerns they may have.
A collective consultation may be required if you are planning to make 20 or more redundancies and that requires a specific process, including the election of staff representatives and consultation with them within prescribed timescales.
Step 4: Fairly selecting employees for redundancy
It is essential that employees are fairly selected for redundancy.
If you simply need to reduce the number of employees and do not intend to make a whole team or specific group of employees redundant, you may need to set up a selection pool. Selection criteria for redundancy should be as objective as possible, being based on measurable facts that are not influenced by personal opinions.
Step 5: Work out fair redundancy pay
Employees who have worked for your business or organisation for at least the last two full years are entitled to receive the statutory amount of redundancy pay. Higher amounts of pay could be provided depending on the terms of the employment contract or whether an agreement is made for voluntary redundancy.
The amount of redundancy pay that will be due will depend on each employee’s age, weekly pay, and how long they have worked for you.
Step 6: Provide redundancy notice
Redundancy notice can only be issued once the selection and consultation process has finished. You cannot provide less notice than the statutory or contractual notice period, if higher, although the employee’s contract may allow you to make a payment in lieu of notice instead.
Step 7: Follow up options
After an employee is made redundant, it is good practice to set out their options for appealing the process.
A sound appeals process can work in your favour as an employer. In some cases, it can provide you with an early warning that the redundancy selection process may have been unfair/challengeable and give you the chance to correct it prior to Tribunal action being taken.
Why following a fair redundancy process is essential
Employers have a legal obligation to follow a fair redundancy process. If an employee has any reason to believe that the procedure was not fair, they could potentially bring a claim for unfair or wrongful dismissal or even discrimination.
It should go without saying that becoming involved in an Employment Tribunal claim for unfair or wrongful dismissal or discrimination can be very damaging. Even if you win a case via the Tribunal, this will still mean that valuable resources, time and money will have been spent on defending the claim. It can also cause serious harm to your reputation.
While many such disputes can be resolved early with a settlement agreement, it is sensible to take a proactive approach to avoid such a situation. It is common practice to offer employees a settlement agreement during redundancy to head off the risk of a claim. This is something with which our team can assist, protecting employers during redundancy proceedings.
Get expert advice on handling redundancies
Redundancies are likely to present serious challenges for your business. It is essential that you seek expert advice at an early stage so you can ensure that you implement a fair process and avoid being subject to Employment Tribunal claims.
Longmores has an established reputation for offering expert, commercially minded advice for a wide range of redundancy scenarios. We can help you to achieve the best possible outcome under even the most challenging circumstances.