In this article, we look at individual redundancy as opposed to a collective redundancy when 20 or more employees are being made redundant over 90 days or less. However, it should be borne in mind that in a collective redundancy process, an employer has a duty to carry out individual consultation in addition to a statutory collective consultation.
The statutory definition of “redundancy” encompasses three types of situation: (i) business closure, which is where the whole business closes down; (ii) workplace closure, which might be a department or business unit closing down; and (iii) reduction of workforce, which might be for any number of reasons for example a new technology making an employee’s position obsolete or the responsibilities of one employee being consumed by others.
The whole purpose of the redundancy legislation is to try and prevent redundancies. It is designed to ensure employers follow a procedure firstly to explore alternatives to redundancy (consultation) prior to making any decision but if redundancy is necessary then a fair procedure is adopted. Employers should keep an ‘open mind’ and engage in ‘meaningful’ consultation prior to making any decision about making an employee redundant. In practice, this means that employers should listen and consider suggestions and plans put forward by employees during the consultation period in order to avoid redundancy. However, it is important to note that employers are not bound by suggestions put forward by employees, ultimately, employers are in control of the business and are able to make their own plans and decisions about the business.
Redundancy is one of the five permitted fair reasons for dismissing an employee but if the dismissal is deemed to be ‘unfair’ an employee with two years or more continuous service can make a claim in the employment tribunals for unfair dismissal. Even if a dismissal is genuinely on grounds of redundancy, whether it is fair or unfair to dismiss for redundancy will be looked at by an employment tribunal in the light of a general test of fairness, namely whether the employer acted reasonably in dismissing the employee in all the circumstances (followed a fair procedure).
In certain circumstances, selection of an employee for dismissal on grounds of (genuine) redundancy will be automatically unfair, for example, selecting an employee for a reason connected to pregnancy, or because the employee has refused to sign a working time opt-out agreement.
At the outset of the redundancy procedure and throughout the consultation process, an employer should consider whether it can avoid making compulsory redundancies or reduce the number of compulsory redundancies.
Initial steps that the employer should consider include:
- Suspending or restricting recruitment.
- Reduction or removal of overtime opportunities.
- Not renewing the contracts of contractors.
- Ceasing or reducing the use of agency workers.
If these initial steps are unavailable or are not sufficient, the employer could consider:
- Inviting potentially redundant employees to apply for suitable alternative vacancies.
- Inviting employees to volunteer for redundancy.
- Inviting employees to consider early retirement under the pension scheme.
The employers’ obligation to ‘warn and consult’
Employers are under a legal obligation to warn employees that their positions may be at risk of redundancy and to consult individually about the possible redundancy. Although there is no prescribed timetable to warn and consult, the shorter the consultation period means that the quality of the consultation may be called into question. Generally, employers would be expected to put employees ‘at risk’ of redundancy as soon as they reasonably expected a potential redundancy situation to arise. For example, if a factory is to be closed and relocated at the expiry of a lease, then the employer is likely to know well in advance and have a long period of consultation but if a business had to close due to an unforeseen event outside their control then timing will be dictated by the unforeseen event and a short consultation will be reasonable.
The key components of fair consultation are:
- Consultation when the proposals are still at a formative stage.
- Adequate information on which to respond.
- Adequate time in which to respond.
- Conscientious consideration of the response to the consultation.
Right to be accompanied
Although there is no prescribed right for an employee to be accompanied at a redundancy consultation meeting it is good practice for employers to allow employees to be accompanied at such meetings. Failure to do so may in some circumstances lead to a risk of the dismissal being unfair.
Fair selection involves the fair application of objective selection criteria to a pool of employees. An employer should begin by identifying the pool, the group of employees from which it will select those who are to be made redundant.
Before selecting an employee or employees for dismissal on grounds of redundancy, an employer must consider what the appropriate pool of employees for redundancy selection should be. Otherwise the dismissal is likely to be unfair.
There are no fixed rules about how the pool should be defined and, unless there is a collectively agreed or customary selection pool, an employer has a wide measure of flexibility in this regard. The legal principles are that any pool selected by the employer must be reasonably based. A particular set of circumstances may give rise to a variety of permissible pools and there is no legal requirement that a pool should be limited to employees doing the same or similar work. For example, in one case there was nothing wrong with an employer adopting a “mixed approach”, namely inviting employees to express a preference for roles, then scoring those remaining in the pool who had not been matched with their preferences. Usually an employer will wish to keep the pool for selection fairly narrow even though employees within the pool may want to argue that the pool should be wider, as this will usually lower the risk of being selected. Tribunals may be prepared to characterise a narrow choice of pool as unreasonable. In one case, a printing company was making redundancies in its finishing department. It selected only from a narrow pool of employees who worked on a particular piece of machinery. The tribunal found that the employees who worked on that machine were the most experienced members of the department, and that they spent no more than a third of their time on that machine. They spent the rest of their time doing the same work as other employees (who had not been in the pool). The tribunal held that the choice of pool was unreasonably narrow and the Employment Appeals Tribunal upheld that decision.
Pool of one
It has been held to be fair to place employees in a pool of one in the following cases:
- An export manager who covered a particular geographical territory, even though there were eight export managers covering other territories who could also have been included in the redundancy exercise.
- An employee who had been posted to China from the UK business, when the employer decided to outsource the Chinese work.
- A golf club steward who was the only employee carrying out that role.
Employers must think carefully when considering the choice of pool. The starting point is usually to consider which particular kind of work is ceasing or diminishing and which employees perform that kind of work.
Factors that are likely to be relevant to identifying a pool are:
- What type of work is ceasing or diminishing.
- The extent to which employees are doing similar work (possibly even those at other locations).
- The extent to which employees’ jobs are interchangeable
- Whether the employer “genuinely applied” its mind to the composition of the pool.
- Whether the selection pool was agreed with the union or employee representatives.
A sensible starting point for drawing up the pool is what the employee actually does, having regard to their day-to-day activities and the terms of their contract. However, the reality of the situation should be looked at, rather than what the contract says in theory about what the employee may be required to do. Having said that, an employer may also need to consider the issue of interchangeable skills (see below).
Interchangeable skills may need to be considered
Identifying a pool is more complicated when employees are multi-skilled and do different types of work, or can be required to do so under their contracts of employment. In such cases, employees are more likely to object to being labelled as redundant, particularly if they can point to other employees, not in the pool, with whom their skills are interchangeable. Depending on the circumstances, it might not be reasonable for an employer to identify one employee as being in the pool, simply because he is doing the particular kind of work disappearing, and ignore another employee doing different work, where the first employee could just as easily do that other work. The following considerations should be borne in mind:
- Where the employee has previously done other work (other than the kind of work disappearing), this should alert the employer to the fact that his skills may be interchangeable with other employees and so a wider pool may be called for.
- Where the work is “low-skilled”, the skills are more likely to be regarded as interchangeable.
- Where the employee can point to another employee with interchangeable skills who also has less service than them, this may strengthen the argument that the other person should be included in the pool.
Notwithstanding the above, it may be perfectly reasonable for an employer to confine the pool to those doing the same or similar work to one another.
There is no general obligation on an employer to consider bumping, but in some circumstances it may be unreasonable not to do so. For example, in one case it was unfair to dismiss a fitter, while retaining another employee to be a packer, without considering whether the fitter could have been transferred to the packing work.
In order to be reasonable, the redundancy selection criteria should, as far as possible, be both objective and capable of independent verification. This means that the criteria should be measurable, rather than just being based on personal opinion in order to avoid claims of bias, for example where there has been a personality clash between the selecting manager and the employee at risk of redundancy.
Potentially fair selection criteria include:
- Performance and ability.
- Length of service.
- Attendance records.
- Disciplinary records.
Where possible, the criteria should be measured by reference to personnel records covering such things as performance and attendance. Where such records are patchy or do not exist, the employer will have to do its best to measure employees, but this will make it all the more important for there to be more than one manager involved in the process and for there to be evidence of the reasoning applied.
Examples of criteria that have been rejected by tribunals as too vague, imprecise or subjective a basis for selection include:
- Employees “who, in the opinion of the manager concerned, would keep the company viable”.
- Employees who were “best suited for the needs of the business under the new operating conditions”.
- “Costs savings” (a comparison with who cost most in terms of overheads but generated least revenue).
Subjective criteria may be acceptable if applied objectively
There have been a few cases in which subjective selection criteria have been held to be acceptable, although subjective criteria must still be applied in an objective manner.
- “Company values”, although arguably subjective, was accepted by a tribunal as a valid criterion. However, on the facts of the case it not been applied in an objective and transparent way and the employee had not been assessed fairly against those values. The employer had only recently introduced the company values and had not applied them universally, reflected in the fact that not all employees (including the claimant) had received training about them.
- “Employee trajectory and future potential”.
- “A degree of judgement” may be appropriate in some cases, provided they can be “assessed in a dispassionate or objective way”.
In a case where a pool were competing for new jobs, a subjective interview process and a failure to provide clear, objective criteria against which the candidates would be assessed, did not mean the dismissal was unfair. Although the procedure was not necessarily the one the Employment Appeals Tribunal would have chosen, there were checks and balances in that there was a five-member panel each scoring the candidates independently, and the ET had not misdirected itself.
- “Last in first out” (LIFO) used on its own could be considered as age discrimination so it is more likely to be viewed as acceptable if used as part of a balanced set of criteria or as a “tie break” where all other factors are equal.
- Performance and ability. In assessing the performance of each employee, the employer should refer to written records, such as performance appraisals, rather than relying on a manager’s personal opinion at the time of the redundancy selection exercise. It will be difficult for the employee to challenge the employer’s reliance on appraisals, particularly where they have agreed with comments made in the appraisal. How easy it is to measure performance will depend on the role in question. In some jobs, such as those involving sales or productivity targets, performance is inherently easy to measure. In other jobs, assessment of performance will require a subjective analysis of the qualities and the skills of the person. In some cases it may be preferable to break down performance into subcategories, each of which can be assessed separately. Provided the manager (or managers) in question can justify their subjective assessments, they will carry weight. The employer should not make the mistake of shying away from making subjective assessments altogether if the role in question calls for a subjective assessment to be made.
- Attendance records.Consideration should be given to whether any particular periods of absence should be discounted. For example:
- Absence for pregnancy-related illness, maternity or other family-friendly leave should be discounted.
- Where an employee’s absence is connected with a disability, selection for redundancy on grounds of attendance record may amount to disability discrimination on the basis that the employer should make a reasonable adjustment in this regard.
The period over which attendance is assessed may also be significant. While this is a question for the tribunal to decide, the period should be substantial, particularly where long-serving employees are concerned. The employer should be satisfied that the period in question provides a snapshot which puts those in the pool on a reasonably level playing field.
Discriminatory selection criteria
Selection criteria may discriminate against employees either directly and/or indirectly. Any redundancy selection criteria that discriminate directly on any of the protected characteristics (sex, maternity or pregnancy, marital status or civil partnership, age, race, disability, sexual orientation, gender reassignment, or religion or belief), or on grounds of fixed-term or part-time status, will generally result in a finding that a dismissal is unfair (in addition to a finding of unlawful discrimination). Criteria that have an indirectly discriminatory effect are also likely to render dismissals unfair if the employer is unable to demonstrate an objective justification for the adoption of such criteria.
Employees should be consulted about scores
The employer should disclose individual scores to the employee, explaining how they were arrived at, and give the employee a chance to challenge the individual markings as part of individual consultation.
The duty to look for alternative employment
A dismissal is likely to be unfair if, at the time of dismissal, the employer gave no consideration to whether suitable alternative employment existed within its organisation. The duty on the employer is not to make every possible effort to look for alternative employment but to make reasonable efforts. An employer will not necessarily be expected to look throughout the whole group for vacancies.
If an employee accepts an offer of alternative employment, it might be subject to a statutory trial period. If the employer refuses to allow the trial period, any subsequent redundancy dismissal could be unfair and the same could be true if the employer, in breach of contract, refuses a contractual trial period entitlement.
- Initial meeting, warning of redundancy
The employer should meet with all the potentially redundant employees to explain how many jobs are at risk of being redundant and the reasons for this. In particular:
- Redundancy should be presented as a possibility only at this stage (to avoid any claim that the decision has already been made).
- The employer should also explain the alternative to redundancies that it has considered and why these do not appear to be viable. The employees should be asked to let the employer have any suggestions they have of to avoid redundancies. The employer should confirm that it will continue to look at ways to avoid redundancy, including offering employees alternative roles within the organisation.
- The employer can consider asking for volunteers for redundancy at this meeting.
The employer should explain the selection criteria it intends to use for selecting the redundant employees, if redundancies are unavoidable, and ask for any comments on them. The content of the meeting should be confirmed in writing to each potentially redundant employee.
After an initial meeting with relevant employees and any individual meetings where appropriate, the employer will need to mark each of the potentially redundant employees according to the selection criteria. It is best if two managers separately undertake the scoring exercise for each individual to help ensure that the marks are objective.
- Invitation to consultation meeting
Once the markers have established the identities of the potentially redundant employees, the employer should write to each of them advising of their provisional selection for redundancy and inviting them to a consultation meeting. It is recommended that they should be allowed to be accompanied by a trade union representative or colleague at this meeting. The letter should be reasonably detailed and should set out:
- The reasons for the redundancy.
- The individual’s scores and how they were arrived at.
It should make clear that the selection for redundancy is subject to consultation at the meeting, that no final decision to dismiss them has been made at this stage but that there will be time for consideration (and further investigations, if necessary) afterwards, with a further meeting being scheduled after that. The employee should be given sufficient time between receipt of the letter and the meeting to enable them to consider their response.
- Consultation meeting (with each individual)
At the meeting, the employer should consult with the potentially redundant employee about their scores, the proposal to select them for redundancy and the terms of the redundancy. If they have decided not to bring a work colleague or trade union representative with them, the employer should confirm with them at the beginning of the meeting that they are still happy to proceed without a representative. Their response, particularly in relation to their scores, should be considered and discussed at the meeting. The employer should also make a detailed note of the meeting.
- Follow up
The employer should follow up any suggestions the employee has made to avoid their redundancy, and consider any representations they have made in relation to the scores. If, on further consideration, the employer decides to increase the employee’s scores, it will need to check the scores of the other employees in the pool to see if the employee in question still falls below the cut-off point for redundancy selection. Once a final position has been reached, the employer will need to send a letter inviting those employees who are now below the cut-off to a further consultation meeting.
- Can the employer offer alternative employment?
It is important to consider any alternative employment vacancies which are available, not only in the company, but also in any associated company as soon as the employer is aware that redundancies may need to be made. At this stage in the process the employer needs to be in a position to confirm whether any other roles can be offered to the employees and be able to provide details of the roles to them. It may be that, in order for the employee to be suitable for such posts, some retraining is necessary. If there are any available posts on a lower grade with less responsibility, the employer should also discuss these with the potentially redundant employee, even though the employer may feel certain that they will not accept the offer.
It may be possible to offer alternative employment to an employee who has been selected for redundancy before the termination of their employment is confirmed and they are given notice of dismissal. However, the duty to look for alternative employment continues after notice has been given and until the employee leaves.
- Meeting (with each individual) to confirm outcome
The employer will need to meet those employees with the lowest scores and who have therefore been identified as the employees to be made redundant at a further individual consultation meeting. Again, it is recommended that the employee should be allowed to be accompanied by a trade union representative or work colleague. At each meeting, the employer should confirm to the employee that they have been selected for redundancy.
The employer should go through the redundancy package with them (which should include any enhanced redundancy payment, if appropriate) and inform them of their right to appeal against the decision. Again, the employer should make a detailed note of this meeting.
- Written confirmation of redundancy dismissal
After the meeting, the employer should write to each of the redundant employees concerned setting out the decision to make them redundant and notifying them of their right to appeal the decision. The letter should confirm whether the employee will be working out their notice, spending it on garden leave, or receiving a payment in lieu. It should also set out in writing the calculation of their redundancy pay. If the employer has a policy in relation to appeals, the employer should make sure that this procedure is followed. It is usual to set a period of time within which the employee must make their appeal (for example, within five days). If possible, the appeal should be to a higher level of management than the original decision-maker.
If the employee wishes to appeal, the employer should invite them to an appeal meeting. It is recommended that the employer should allow a colleague or trade union representative to accompany the redundant employee at this meeting. Following the meeting, the employer should write to the redundant employee informing them of the outcome of the appeal and confirming that this is the final decision. The letter should also confirm the basis for the calculation of payments made to the employee, including the statutory redundancy calculation.
- Time off to seek alternative employment
An employee who is given notice of dismissal by reason of redundancy has a right to take a reasonable amount of time off with pay during working hours to seek alternative employment or to arrange training for future employment, provided they will have two years’ continuous service at the termination date.
There is no definition of what amounts to “reasonable”. However, the right to be paid is capped at 40% of a week’s pay (equivalent to two full days’ pay for an employee who works a five-day week).
General points to consider during the redundancy process
- Ensure there is someone available to answer any employee queries. Redundancy is an uncertain time for employees and it is helpful if the employer can arrange for someone to be available throughout the consultation period to answer any queries raised by employees as and when they arise.
- Consider other support for employees. On a larger scale redundancy exercise, consider producing “Question and Answer” sheets for employees to assist the consultation process. Also, explain to employees that they have a right to time off to look for alternative work and consider speaking to the local job centre and offering assistance with their CVs.
- Consider a settlement agreement. If the employer is proposing to make an ex-gratia payment to employees in addition to any statutory or contractual entitlement, it is sensible to consider making such payments conditional on their entering into a settlement agreement, so that the employees have no further claims against the employer. However, employers should note that a settlement agreement requires the redundant employees to obtain independent legal advice in relation to their dismissal in order for the settlement agreement to be legally binding. For further information on settlement agreements: https://www.thomasmansfield.com/employees/settlement-agreement/
Neill Thomas Partner, August 2020