Redundancy - Getting it Right

by Kate Russell

Alternatives to redundancy

Making employees redundant is the act of last resort. If you can avoid the need for redundancy, you may keep necessary skills and good people in the business.

Consultation, effective planning and creative thinking at an early stage can lead to better job security for employees and it can avoid short-term solutions, which may not be best suited to the long-term needs of your business.

Many companies try to avoid the need for redundancies by cutting hours and/or wages. While the intention – to avoid redundancies – is admirable, such a change would be a contractual variation and therefore must not be unilaterally imposed. If it is imposed, there would be a significant risk that the cut would constitute a fundamental breach of contract by the employer, in response to which an employee may resign and complain of constructive unfair dismissal. All such changes must be agreed and evidenced in writing. It’s good practice to make a change in the short term (for example, three to six months) and review periodically. It’s also reassuring for employees to know that if the reduction in wages doesn’t work, then any redundancy calculations will be made on their original pay rather than the reduced pay.

Example

One of my clients wanted to reduce their costs by 20 per cent. They had a very good manufacturing team and didn’t want to break it up unless absolutely necessary. The employer negotiated with the team in two stages. The whole team agreed to consider options other than redundancy and for the whole team to be bound by a majority decision of 75 per cent or more. They agreed that any contractual variation would be reviewed in three months.

The employees agreed to work 90 per cent of their usual week over four slightly longer days and to take a pay cut of ten per cent. The factory would close on one day, giving the employer another ten per cent in cost savings.

The whole arrangement was confirmed in writing and this was an effective variation, binding on both employer and employees.

Take all reasonable steps to avoid compulsory redundancies by considering alternatives, for example:

  • Seeking applicants for voluntary redundancy and/or early retirement
  • Seeking applications from existing staff to work flexibly
  • Laying off casual or contract staff – provided that they are not fixed-term or part-time employees
  • Recruitment restrictions
  • Reducing or banning overtime
  • Reduction or suspension of benefits
  • Filling vacancies with existing employees
  • Retraining employees and then moving them to other parts of the business
  • Allowing employees to take a sabbatical
  • Temporary lay-offs.

Lay-offs

Lay-offs and short time working can be a useful way of handling temporary work shortages. A lay-off is where employees are not provided with work by their employer because there is a reduction in the requirements of the employer’s business for work of the kind which the employee is employed to do and the situation is expected to be temporary.

Short time working applies where the employee works for some of the week, but is laid off for the rest of the week.

Whether an employer is entitled to lay off employees or put them on short time working will depend on the employment contract. If the contract contains an express right for the employer to impose a lay-off or short-time working, the employee will be bound by the term. If there is no such contractual right, the employer will have to obtain the consent of the employee.

If there is a contractual right to impose a lay-off, the rights must be exercised fairly and reasonably. The process to select those employees to be laid off must be fair.

If there is no contractual right to impose a lay-off, the employer should consult affected employees with a view to obtaining their informed agreement to the lay-off. Written consent should be obtained from each individual in writing, making it clear how long the lay-off is expected to last.

An employee with two years’ service who is wrongfully laid off or put on short-time working may resign and claim constructive dismissal. Alternatively, he may complain that there has been an unauthorised deduction from his wages, regardless of his length of service.

If the employees do not consent to be laid off or put on short time, the employer may have to consider redundancy as an alternative.

Claims for redundancy due to a lay-off or short time

Employees may be entitled to claim redundancy payments if they are laid off without pay or put on short time for four consecutive weeks, or for six weeks within a block of thirteen weeks.

To do so, an employee must give written notice of his intention to claim a redundancy payment, submit the claim within four weeks of either the end of four consecutive weeks of lay-off or short time working or the end of the six weeks within the thirteen-week block and terminate his contract of employment by giving the contractual period of notice or one week’s notice, whichever is the greater.

The employer may either agree to the claim, or refuse to do so and serve a counter-notice contesting liability to make a redundancy payment. This must be within seven days after service of the notice of intention to claim, on the ground that he reasonably expects to be able to provide at least thirteen weeks’ continuous employment, without further resort to lay-offs or short time working, within four weeks of the date of service of the employee’s notice of intention to claim.

Most employees are entitled to a statutory guarantee payment for any complete day of lay-off or short-time working (a ‘workless day’).

If the employee is normally required to work less than five days a week, the entitlement cannot be greater than the number of days the employee is required to work per week under his contract. For example, if the employee works three days a week, he will be entitled to a maximum of three days’ payment in any three-month period.

Guarantee payments are paid for up to five days of lay-off or short time in any three month period. The amount per day is based on the employee’s normal daily rate of pay up to a statutory maximum. Any remuneration which the employee is paid in respect of a workless day because of a contractual agreement can be off-set against any liability to make a guarantee payment.

The following employees are not entitled to a guarantee payment:

  • Employees who have worked for their employer for less than a month ending with the day before the workless day.
  • Employees who unreasonably refuse an offer of suitable alternative employment for the workless day or days, whether or not it is work which the employee is employed to perform under his contract of employment.

Where an alternative job is available, employers should not advertise it (even internally) until the employees at risk have been given the option to apply for it. An employee in this situation will still have to satisfy the employer that he is a good candidate for the role, and if he is not, he will be unsuccessful. However, he should be given the right to enter the selection process, if he wishes, as a priority candidate.

Example

Because of a significant decline in orders, the company, Ralph Martindale England, had to take out some costs, reorganising and removing a layer of management.

Mr Harris, group development executive, and Mr Ensor, managing director, were both informed that their roles were at risk. Both applied for the new alternative role of director and general manager. The vacancy was advertised and a third internal candidate applied.

The role was awarded to Mr Ensor on the basis that he had a ‘less insular management style’. Mr Harris claimed his redundancy was unfair as the selection process for the alternative role was not objective.

The tribunal upheld Mr Harris’ complaint. Although there is no requirement to consult with employees on the criteria for the alternative role, the selection process should be reasonable. The decision to appoint Mr Ensor was based on an entirely subjective view, and there was no job description for the new role.

The tribunal also held that the role should not have been opened to other applicants before the company had established that the redundant applicants were not suitable.

Agreeing with the tribunal, the EAT said that entirely subjective criteria are not appropriate when selecting for alternative employment. It confirmed that the tribunal was entitled to form its own view of the overall fairness. The tribunal is the ‘industrial jury’ and is entitled to make up its own mind about what constitutes ‘good industrial practice’ based on its own experience.

This case highlights the importance of ensuring that the selection process for alternative roles in a redundancy is not an afterthought (see Redeployment).

Remember, consulting with employees can help businesses avoid making redundancies.

You should also consider the negative effects of redundancy on those left behind, the so-called survivors. See the topic on Redundancy Survivors.