Human resources

Making redundancies fair

By Kirsty Banford of Berwin Leighton Paisner
An employee who has more than 1 year's continuous service is protected by law against being unfairly dismissed.
If a claim for unfair dismissal is made, in order to successfully defend the claim, an employer will need to demonstrate that the employee was dismissed for a 'fair' reason. The 'fair' reasons are set out in the relevant legislation (the Employment Rights Act 1996 (the 'ERA'). Fair reasons include capability and performance, conduct and redundancy.
In the context of a redundancy, an employer will need to show that there is a genuine redundancy situation, which satisfies the definition of redundancy (as set out in the ERA). In summary there will only be a genuine redundancy where:
  • the employer has ceased or intends to cease carrying on the business for the purposes of which the employee was employed by him; or
  • the employer has ceased or intends to cease carrying on a business in the place where the employee was employed; or
  • the requirements of the employer's business are such that the requirement for employees to carry out the work of the particular kind carried on by the employee have ceased or diminished; or
  • the requirements of the employer's business are such that the requirement for employees to carry out work of the particular kind carried on by the employee have ceased or diminished at the place where the employee works.
A tribunal will expect evidence from an employer to demonstrate that one of the above situations apply. In the event that the employer cannot show that there is a genuine redundancy, the dismissal will be unfair and the employee is therefore likely to succeed in any tribunal claim that he brings.

Has a 'fair' procedure been followed?

An employer will not only have to demonstrate that the redundancy was genuine, but that a fair procedure was followed in carrying out the redundancy. A 'fair' procedure will require the employee to satisfy all of the conditions set out below.
i) The employee was fairly selected for redundancy
The basis of redundancy selection should always be objective, clear and uniform. This will not be a problem where an entire section of a business is closing. However, where particular individuals are being selected from a section where other employees are being retained and the work being carried out is to continue, selection criteria must be adopted and applied fairly and objectively.
Examples of selection criteria are length of service, performance, attendance, skills etc. An employer should be able to point to independent data to back up its decision, for example performance appraisals (particularly if performance is being compared) and other relevant factors such as sickness and absence records (except in the case of a disabled employee- see below), length of service etc. It is not normally appropriate for decisions to be made by one individual alone as this may result in selection being overly subjective.
It is not permissible for an employer to select an employee for redundancy because he or she is a part-time employee, for any health and safety related reason, because the employee asserted a statutory right or raised a concern under the Working Time Regulations 1998, because the employee was pregnant or took maternity leave or because the employee was a member of a trade union or was a trade union representative. In any of these reasons could apply, the dismissal will be automatically unfair.
ii) The employer has fully consulted with the employee
In addition to adopting a fair selection process, there is also an obligation to have a period of individual consultation prior to the implementation of the redundancies. There is no set period for the consultation. It is most frequently used to seek volunteers (which do not have to be accepted) and to consider alternative options such as redeployment, etc.
During the consultation interview the employer should explain to the employee why the redundancy is necessary, how the selection process works and how they were scored in relation to the objective criteria. The employer should use the interview to identify precisely the extent to which the employee would be willing to consider lower pay or a different job (if there is anything available).
iii) The employer has considered whether suitable alternative employment exists
An employer is also obliged to consider whether any suitable alternative vacancies exist within the company or any group company. This obligation means that the employer must actively make efforts to ascertain what vacancies, if any exist. Even where an employer considers a job to be unsuitable, the position should nevertheless be suggested, even if it is unlikely that the employee will accept.
An employee who is redundant will lose his right to a statutory redundancy payment if he unreasonably refuses an offer of suitable alternative employment. If an employee is offered an alternative post, they are entitled to take up the position on a four-week trial basis. They can decide during that period that they do not wish to accept the post and take their statutory redundancy payment (see below) instead.

Unfair and wrongful dismissal

In the event that an employer is unable to demonstrate a genuine redundancy and/ or that a fair procedure has been followed, an employee may be able to succeed in a claim for unfair dismissal. If successful, the employee will be awarded a basic award (which is worked out in the same way as a redundancy payment, and is not paid again if the employee has received a statutory redundancy payment) and possibly a compensatory award.
A compensatory award is aimed at putting the employee in the position that he would have been in had he not been unfairly dismissed. For example, if it takes the employee six months to find another similarly paid job and the employee's take home pay was £2,000 per month, his net loss is £12,000. The employee would also be able to claim compensation for loss of benefits. If the employee is still suffering ongoing loss at the time of the tribunal hearing, future loss may also be awarded. However much loss the employee can show the tribunal may not award more than £52,600. An employee is under a duty to look for other work in order to mitigate his loss and credit may be given for any payments made by the employer on termination or any benefits received whilst the employee was out of work.
If an employer fails to pay an employee in respect of any notice pay due, the employee can also claim damages for wrongful dismissal. However, to the extent that this overlaps with compensation for unfair dismissal, the employee will not receive the same compensation twice.

Has the employee been discriminated against?

It is unlawful to discriminate against an employee on the basis of sex or race or in relation to any disability that he may have. An employee will be directly discriminated against if an employer selects an employee for redundancy after taking into account any of the above factors.
Where an employee successfully establishes discrimination on grounds of sex, race or disability, he or she will be able to seek compensation from an employment tribunal. Unlike unfair dismissal claims, there is no ceiling on the award that a tribunal can make in those circumstances. Further, any award made may include an award for injury to feelings.

Has the employee received the right payments?

Employees who are selected for redundancy who have more than two years' service are entitled to a redundancy payment calculated with reference to their week's pay (capped at £250 per week), length of service and age. Employees are also entitled to receive notice or pay in lieu of notice (broadly, one week per full year of service up to a maximum of 12 weeks' pay or whatever is set out in their contract, whichever is the greater), and to compensation for loss of other benefits (for example pension, car, private health care etc).
At the discretion of the employer, the notice pay can sometimes be paid without deduction of tax if it is not worked and if there is no contractual provision allowing the employer to pay in lieu of notice (or no custom and practice to do so). An employer may also exercise its discretion to make a more generous payment if it so desires. Particularly in these circumstances, an employee may be required to enter into a compromise agreement (which will involve the employee taking legal advice on the payments offered to them). 

Has the employer complied with the duty to consult collectively?

In addition to the considerations set out above, if 20 or more employees are to be made redundant at an establishment of the employer within a period of 90 days, the employer must notify the Department of Employment at the earliest opportunity, and consult with either elected employee representatives or a recognised trade union.
This requirement includes consultation on the following matters:
(i) avoiding the dismissals;
(ii) reducing the numbers of employees to be dismissed; and
(iii) mitigating the consequences of the dismissals.
Consultation must be undertaken by the employer with a view to 'reaching agreement' with the appropriate representatives. For the purposes of consultation the employer must disclose in writing to the appropriate representatives the following information:
(i) the reasons for the proposals;
(ii) the numbers and descriptions of employees whom it is proposed to dismiss as redundant;
(iii) the total numbers of employees of each description;
(iv) the proposed method of redundancy selection;
(v) the proposed method of carrying out the dismissals; and
(vi) the proposed method of calculating the amount of any redundancy payments (other than statutory redundancy payments).
Dismissals cannot take effect until expiry of a specified 'protected' period commencing with the date of notification to the Department of Employment and the Trade Union if appropriate. During this period, consultation must be entered into with individual employees and their trade union or employees' representative, if there is one, with a view to reaching agreement. In the case of 20 - 99 redundancies the relevant period is 30 days and where there are more than 100 redundancies proposed, the period is 90 days.
If the employer fails to comply with these consultation requirements, the Tribunal may make a 'protective award' in favour of an employee or a group of affected employees. The 'protective award' will be whatever a tribunal considers just and equitable in the circumstances and is subject to a maximum award of 90 days' pay per employee.