As an employment lawyer, I spend lots of time scrutinising the finer details of decisions taken by companies. There are almost always grey areas, with room for both sides to put forward credible cases. But even some cut and dried unlawful actions don’t entice admissions from those in the wrong.
Not so in the case of P&O, which issued a ‘hands-up’ response to the very public scrutiny of its sacking of 800 workers. The company’s CEO admitted the company had deliberately opted not to consult, as required by law, on potential redundancies. He went as far as to say he would do the same again, as it was a decision taken to save the business.
So, is forgoing procedure a tactic other businesses should consider?
My answer is: not usually. The reason this isn’t a straight ‘no’ is that a business may be prepared (as P&O clearly was) to take a commercial, as opposed to strictly lawful, approach to the predicament in which it finds itself. If the stakes are as high as P&O suggests its were, where the alternative to taking that commercial decision would be the collapse of the company, the business may be prepared to take the consequences of its unlawful actions on the chin. But understanding exactly what these consequences would be, and weighing up the situation with extreme precision long before deciding how to proceed, would be absolutely essential.
What the law says about collective redundancy consultation
Obligation to consult
UK industrial relations law provides that when an employer proposes to make 20 or more employees redundant at one establishment, within 90 days or less, the employer must consult with staff or their elected representatives for at least 30 days before the first dismissal takes effect (and if 100 or more dismissals are proposed, it’s at least 45 days). The employer must consult about ways of avoiding the dismissals, reducing the numbers of employees to be dismissed, and mitigating the consequences of the dismissals.
Claims for failure to consult will generally be pursued by a trade union, or if the employer does not recognise a trade union, then elected representatives themselves. Legal action for failure to consult may take the form of claims for awards of up to 90 days’ gross pay (‘protective awards’). These awards are not capped at the prevailing statutory rate of pay used to calculate statutory redundancy payments. Protective awards are calculated by reference to a worker’s actual pay. Workers may also consider bringing claims for unfair dismissal if redundancies are not genuine, and there is always the risk of other related claims, such as for discrimination.
Aside from the obligation to collectively consult, an employer must also consult individually – and make a good job of it, if it wants to avoid legal liability and compensation pay outs. This is the touchstone of good industrial relations practice, and if nothing else, the ethical position to adopt.
Obligation to inform the Secretary of State
An employer usually has an obligation to inform the Secretary of State of its intention to make 20 or more dismissals by completing a form HR1. This is for the purposes of the Redundancy Payments Service and to facilitate resources for affected employees, such as access to payment and benefits. (Notably, less stringent notification requirements apply in respect of members of the crew of a seagoing vessel, if registered at a port outside Great Britain.) Failure to inform the Secretary of State by way of an HR1 can give rise to criminal sanctions and unlimited fines.
The potential consequences of forgoing procedure
The potential legal and direct financial consequences of forgoing procedure is one part of the picture. Another is the effects a business’s actions and inactions have on its staff, on potential new recruits, on its clients/customers, its markets, and its overall reputation. Employment law is about more than procedure and process. It’s in place to protect the (often competing) interests of workers and employers. It’s the foundation of good practice. And, while an employer is perfectly able to choose to act in ways that are at odds with, or which blatantly breach, the law and good practice, doing so is risky business.
P&O will have set aside significant sums with which to compensate former staff and thereby mitigate its legal liability. It has been reported that a compensation pot of £36.5m has been made available, and that a settlement has been accepted by all bar one employee.
The P&O story is at one end of the scale. At the other is the small, family business that decides to dismiss an under-performing member of staff without going through the delay and complications of a capability process, offering them a basic pay-off under a settlement agreement. Like P&O, that business is making a commercial decision, contemplated with legal risk in mind and aimed at solving a particular problem. Although vastly different in context, this involves the same, bold act of recognising what the law requires and taking things in a different direction. In some situations (and I have advised many times on making these types of commercial moves) this will work out; the employee accepts the deal and moves on. However, a misjudged conversation, a poor calculation, a reckless act, an aggrieved worker, could scupper even the best laid plan. Such is the precariousness of taking a chance on a ‘less lawful’ route.
For some employers, the question will be: can you afford to take that chance? For others: can you afford not to? Whatever the circumstances, what we must surely avoid is a landscape in which businesses routinely drive a coach and horses through long-established principles of industrial relations best practice.
To speak to us about your employment issues, whether to do with strategic business decisions or a particular issue involving an employee, get in touch with Meredith Hurst or another member of our Employment team on 020 7377 2829.