Redundancy - Getting it Right

by Kate Russell

Selection for redundancy

In a redundancy situation, you must follow a fair and transparent procedure when selecting and dismissing an employee who is to be made redundant.

Some employers will have a recognised redundancy procedure, which will be part of the contract with workers, and has been agreed with the trade union at the workplace or with representatives of the workers. In other cases, there may be a procedure which has been consistently used previously and which has not been objected to by the workforce. This will therefore be the procedure that should be followed through custom and practice, unless it is not a fair and/or objective procedure.

Unfair selection for redundancy can make the dismissal unfair. Where you have to select some individuals from a group of people doing the same job, the approved way is to put together a matrix based on a range of objective criteria. You are entitled to keep the necessary skills in the job. Selection criteria must be fair, objective and non-discriminatory. For example, don’t use last in first out, as it tends to discriminate against younger people. You can include things such as attendance, formal disciplinary record and appraisal rating. Be careful when dealing with employees who are on maternity leave. The law affords them additional protection, but you are still required to take a balanced approach and consider the rights of all employees.

The planning stage is probably the most important part of the process. Take your time to get this right. If you do, you’ll probably find that the rest of the programme goes like clockwork. Get it wrong and you may well find you have overlooked something and can be challenged. Redundancy dismissals in certain circumstances can be unfair and/or discriminatory. If you plan the process carefully, you will identify risks and manage them correctly. The key risks and situations leading to them are set out below.

Planning checklist

  • Is there a genuine redundancy situation?
  • Consider the appropriate pool of employees if selection will be necessary.
  • Put together a list of vacancies and alternate employment.
  • Put together a list of FAQs and answers.
  • Notify the Redundancy Payments Service if collective redundancy is necessary (only necessary where 20 or more redundancies are being proposed within a 90-day period).
  • Who is at risk?
  • Why?
  • What’s the supporting evidence?
  • When we will break the news?
  • Where will we do it? Do we need to book extra meeting rooms?
  • Who will do it?
  • Prepare a briefing sheet for managers.
  • Do we have a pool of people from whom we have to select an individual or individuals? Who should be in the pool?
  • What will the selection process be?
  • Establish a proposed set of objective selection criteria if selection will be necessary. What weighting shall I give the various scales?
  • Do I need to prepare a different matrix for each job at risk?
  • How do I include employees on maternity/ paternity or adoption leave/ holiday/ sickness absence?
  • What’s the timescale?
  • Do we ask them to work during all or part of the consultation period?
  • How much notice do I have to give people who are at risk?
  • Will we ask them to work notice or put them on garden leave?
  • Will we enhance their redundancy pay? By how much? What formula will be used?
  • Do we need ‘golden handcuffs’ to ensure a smooth transition?
  • Do we need to consider bumping (transferred redundancy)?
  • Will we offer outplacement?
  • If we are reorganizing, what is the proposal for the eventual structure?
  • What do I say to people who are not likely to be at risk?
  • What do I say to external stakeholders who may be affected?
  • How many meetings should there be?
  • Who will take and write up the notes?
  • Who will write to everyone after each meeting?
  • What selection process will I use when it comes to interviewing for alternative roles?
  • How long will I allow for an ‘at risk’ employee to make an expression of interest?
  • Should I offer voluntary redundancy?
  • How long will we give to employees to try out an alternative role?
  • What do we do about property, such as cars and mobile phones, while the employee is going through the consultation process?
  • Do I need to use a settlement agreement?

Redundancy selection

Unfair selection for redundancy can make the dismissal unfair. Where you have to select some individuals from a group of people doing the same job, the approved way is to put together a matrix based on a range of objective criteria. You are entitled to keep the necessary skills in the job. Selection criteria must be fair, objective and non-discriminatory. For example, don’t use ‘last in first out’, as it tends to discriminate against younger people. You can include things such as attendance, formal disciplinary record and appraisal rating.

In putting a matrix together, try to be as precise as possible. A criterion such as ‘good team member’ is a bit too vague and is quite likely to be criticised by a tribunal if put to the test. However, provided the framework is fair, an employment tribunal should not carry out a re-scoring exercise.

When you put together the selection matrix, make sure that you incorporate a range of relevant, objective criteria. As well as the skills, qualifications, special aptitudes or attributes, you can also include criteria such as attendance, disciplinary record and appraisal rating. In putting a matrix together, try to be as precise as possible. A criterion such as ‘good team member’ is a bit too vague and is quite likely to be criticised by a tribunal if put to the test.

Some criteria may be more important in the job role than others, so you may want to weight different criteria according to their importance. For example, in the case of a data entry clerk, accuracy and speed are the top two criteria and both are weighted 5. Dealing with phone calls is somewhat less important in this role and might merit a weighting of 3.

Give the employees affected the chance to comment on the unscored scales and the weighting.

If you have this situation, don’t start the redundancy process until the matrix is absolutely right.

Once you have done this, you usually have a good idea of who is likely to stay. Tempting though it is, you must not say anything to the people who are likely to survive the process.

When you score the criteria, make sure that you can justify what you’re saying and are able to provide specific examples to back up your assessment in the case of a challenge.

Example

Mr Nicholls was employed by Rockwell as a field service engineer (FSE) from January 1989 until his dismissal in August 2010. In June 2010, Rockwell decided that it wished to make cost savings in its field service engineering department.

At the time there were 11 FSEs in the UK and it decided that it needed to reduce that number by one. Rockwell set out detailed redundancy criteria based on those which it had used in the past. There were four sections. The first section (10 points) concerned current disciplinary matters. The second (80 points) concerned performance and included a section entitled ‘flexibility’. The third (90 points) concerned ‘skills/ability’. The fourth (400 points) concerned ‘competency in role‘ and involved specific product or project skills. The marking process was carried out by one manager and checked by another, who managed the employees on a day-to-day basis. Mr Nicholls was marked the lowest. He scored particularly badly on ‘product knowledge’ and ‘flexibility’ compared to his colleagues. For example, for ‘adaptable to work on customer projects to meet the project timeframes, working hours and requirements’, he scored 5 out of 20. Also, under the heading ‘administration’ he received 20 out of 40.

Mr Nicholls felt that the dismissal was unfair as certain scores were clearly lower than they should have been. For example, he felt it was unfair that he had been scored poorly for ‘administration’ when a colleague who had scored better was under a PIP for his poor administration, but no concerns had been raised about Mr Nicholls.

On appeal, the EAT found that the employment tribunal had overstepped its role in reviewing the respondent’s redundancy process. The employment tribunal had engaged in a ‘detailed critique’ of the scoring referring to specific items and also had substituted its own view for that of the employer, which it is not allowed to do. The employer’s appeal was allowed.

You do not need to have to have a redundancy selection pool where there is genuinely only one role at risk of redundancy. However, this is only the case if the role is unique in the business.

Example

Sandpiper Books Ltd, a book distributor, asked Mr Halpin, an administrator/analyst to relocate to China to work in a sales role. When he was first posted abroad he continued to perform some of his administrative and analytical work, but over time this was largely divided among staff in the UK. As Mr Halpin’s sale role began to evolve he was spending less time on analytical work and even less time on administration.

After a while, the company decided to close the China office as it was not financially viable. The company proposed to outsource the sales work carried out by Mr Halpin to a local agency. Mr Halpin was consulted and offered part time administrative work in the UK. He rejected this offer and was dismissed on the grounds of redundancy. He submitted a claim for unfair dismissal to the employment tribunal.

The Tribunal rejected the claim, finding that there was a genuine redundancy situation. They concluded that Mr Halpin had been fairly selected in so far as that he was in a pool of one, given his unique sales role in China.

Mr Halpin appealed, arguing that other employees with interchangeable skills should have been included in the pool. The EAT however, upheld the tribunal’s decision. The EAT concluded that limiting the pool to one was a logical decision as there were no other similarly qualified possible targets for redundancy. Moreover, since the decision to adopt a pool of one was reasonably open to the company, the tribunal had committed no error in rejecting Mr Halpin’s claim.

Redundancy selection matrix

See an Example of a matrix for a sales person.

Selection of part-time employees for redundancy

While you can apply the matrix and select part-time employees for redundancy, you should not select a person for a reason connected with his part-time status, even if the part-time status is not the only reason.

Example

Ms Sharma and her colleagues all worked part-time as lecturers for Manchester City Council. Their contracts entitled the Council to vary the number of hours they worked, subject to their being guaranteed one-third of the hours they had worked the previous year. This contractual provision did not appear in the contracts of full-time and some other part-time lecturers.

The Council suffered some funding difficulties. To make savings, it adopted a policy of reducing the contractual hours of many part-time lecturers, including the employees. The Council argued that the reason for the less favourable treatment (that is, the reduced hours) was not exclusively because of their part-time status, but rather the fact that their employment contracts made it possible for the Council to reduce hours without being in breach of contract.

The tribunal rejected the claim, as the reason for the detrimental treatment was not solely on the ground of the workers being part-time. The employees appealed.

On appeal, the EAT found in favour of the part-time employees. The Part Time Regulations are engaged whenever (i) a part-time employee has been treated less favourably than a comparable full-time employee; and (ii) being part-time was one of the material reasons for that less favourable treatment.

In deciding the case, the EAT departed from the earlier Scottish EAT ruling of Gibson v Scottish Ambulance Service. In the Gibson case, the court held that the part-time nature of the worker’s status had to be the sole reason for the unfavourable treatment. The later EAT in Sharma held that this approach was wrong.

This decision extends protection in relation to part-time workers in line with other types of discrimination law, where the discriminatory factor need not be the sole, or even the main, factor influencing the employer. It just needs to be a material factor.

Pregnant employees or employees on maternity leave

The pregnant or recently pregnant employee is the best protected employee in UK employment law. As with part-time employees, you can select a pregnant employee, so long as you can very clearly and objectively show that the selection is not in any way related to her pregnancy. The Equality Act 2010 provides that no account shall be taken of ‘special treatment’ afforded to women in relation to pregnancy or childbirth, where a claim of sex discrimination is brought by a man. These provisions are to be interpreted as meaning treatment accorded to a woman so far as it constitutes a proportionate means of achieving the legitimate aim of compensating her for the disadvantages occasioned by her pregnancy or her maternity leave.

Employees will not usually be made redundant during maternity leave. It would be more usual to advise them of what is happening in the workplace, but to allow them to complete their maternity leave.

However, if there is really no alternative but to consider making a woman on maternity leave redundant, she is offered special protection.

She must be offered any suitable alternative vacancies. She does not have to apply or be interviewed for any suitable alternative vacancy, but should be offered it in priority to her colleagues. If a suitable alternative vacancy exists and she is not offered it, she may have an automatic claim for unfair dismissal. It is for the employer to determine what constitutes a suitable alternative vacancy, taking into consideration the employee’s circumstances (see Simpson v Endsleigh Insurance Services Ltd [2010]). This special protection is only available to women on maternity leave. As soon as the employee returns to work that particular protection ends.

Suitability is looked at from the employee’s point of view, so if the job offered is on less favourable terms and conditions, including the location and hours of work, or is very different from what the person was doing before, it is not likely to be regarded as suitable. If you offer the employee a suitable alternative vacancy and she turns it down unreasonably, she will lose her right to a redundancy payment.

Failure to consult with an employee because she is on maternity leave may be sex discrimination.

The selection of a woman for reasons related to her pregnancy or maternity leave, even if they are not the sole reason for the selection, will be both an automatic unfair dismissal and direct sex discrimination.

Employers faced with a situation where a female employee will suffer an apparent disadvantage for pregnancy related reasons should consider whether the ‘special treatment’ that it might adopt to redress the balance goes no further than what is reasonable and proportionate in the circumstances. This will involve an assessment not only of the positive impact on the female employee of such treatment, but also the corresponding negative effect on her colleagues in order to, as the EAT put it, strike ‘the right balance’. If the employer goes too far in favour of the woman, this may result in a male employee suffering discrimination.

Example

Mr De Belin was one of two associates working in Eversheds’ Leeds office as part of their Real Estate Investor Team. The other associate was Ms Reinholz. In September 2008, it was decided that one of the two associates in the team would have to be made redundant. Mr De Belin and Ms Reinholz were scored against various performance criteria. One of those criteria measured the length of time between the completion of a piece of work and the receipt of payment from the client. The measurement was performed as at 31 July 2008. Mr De Belin ’s figure was 238, giving him a score of 0.5.

Ms Reinholz was absent on maternity leave at the measurement date: she had in fact been away since 10 February 2008. This meant that the measure could not be taken for her as at that date, since she had no client files. In accordance with what was said to be the company’s general policy for redundancy candidates who were absent on maternity leave or sabbatical, Ms Reinholz was given the maximum score for this criterion, which was 2. Mr De Belin was selected for redundancy; but the closeness of the result meant that if Ms Reinholz had not been given the maximum score on the measurement, there would either have been a tie or she would have scored less than Mr De Belin and would have been the one selected for redundancy.

Mr De Belin raised a grievance complaining that the measurement process was unfair. He suggested alternative approaches, including measuring Ms Reinholz based on the actual figures available before she went on maternity leave. The company accepted that the result might appear unfair, but rejected Mr De Belin’s proposals, stating that their approach was required by law in order to ensure that R did not lose out by her maternity absence, and thus to avoid the risk of a sex discrimination claim from her.

The EAT did not accept that it was reasonable for Eversheds to take the view that it had no alternative to maintaining a maximum score, unrelated to any actual merit, for an at risk employee who was absent for pregnancy related reasons. When it became clear that the score would be decisive in the choice between her and Mr De Belin, the alternative scoring process which Mr De Belin had suggested was more proportionate and would therefore have been lawful.