Where a business runs into financial instability, one of the most difficult decisions to be made is making employees redundant. There are a number of protections in place for employees in relation to redundancies, including a fair and impartial selection process and being offered alternative positions in the business.
Where larger scale redundancies are anticipated, there are statutory obligations on the employer to enter into collective consultation with their employees, endeavour to find alternatives and consult for a prescribed minimum period.
If an employer has another position available to an employee, as an alternative to making them redundant, the employer must offer that position to them. A “suitable alternative employment” must take into account the experience, skill level, geographic location and have a relative rate of pay to the employee’s current position. Failure to offer a suitable alternative where it is otherwise feasible may entitle an employee to bring an unfair dismissal claim.
If an employer does offer a suitable alternative employment and the employee refuses the offer, they may lose their right to claim Statutory Redundancy Pay (SRP).
When an employee accepts suitable alternative employment, a statutory trial period of four week runs from commencement of the position. During this time, the employer can determine whether redundancy is still warranted and consider a further alternative position. As with the original redundancy, if the employee refuses a further alternative, or provides unreasonable grounds for leaving the role during the statutory trial period, they may waive their right to SRP.
The notice period an employee is entitled to will depend on the length of tenure they have served. Between one month and two years, the redundancy notice period is one week. After two years, the employee’s notice period is equated to one week for each year they have worked, up to a limit of 12 weeks. These notification periods cannot be shortened by contract of employment, but they can be extended.
An employee should receive their ordinary pay within the notification period, in addition to their SRP. If an employer does not wish the employee to work during the notice period, they can request they do not return to work, known as “garden leave”, or provide all notice pay in a lump sum without giving notice, known as pay in lieu of notice.
Appealing a redundancy decision
There is no right to appeal in a redundancy case, but to avoid potentially being considered unfair, the UK’s Advisory, Conciliation and Arbitration Service recommends employers offer a route for appealing redundancy decisions. The appeal should be made to a more senior staff member in management, who has not been involved in making the prior redundancy decision.
Where an employer seeks to make 20 or more employees redundant, they are subject to a statutory obligation to consult the employees as a group and arrive at a potential compromise.
Before commencing a collective consultation, an employer must notify the Redundancy Payments Service (RPS). If the employer anticipates making 20 to 99 redundancies, they will have to notify RPS at least 30 days prior to making them. If the employer anticipates making 100 or more redundancies, they will have to provide notification at least 45 days prior. Failure to notify within these deadlines may result in substantial fines being imposed on the employer.
When consultation begins, the group of employees will be represented by their Trade Union, if they are members of one, or otherwise they will elect on of their group to serve as representatives.
The consultation process must, insofar as possible, discuss means of avoiding the redundancies, the reasoning behind them, whether they can be reduced in number, and what re-training can be offered to employees.
Businesses with 10 or fewer employees are not subject to the obligation to consult collectively, but there remains an obligation to individually consult with employees being made redundant.
Time limits for consultation periods
Depending on the number of employees the employer intends to make redundant, there are statutory minimum periods for consultation. If the employee group includes between 20 and 99 individuals, the consultation must commence at least 30 days prior to the anticipated redundancies. If the group number is 100 or more, the requisite period is 45 days.
Sale of business assets and transfer of undertakings (protection of employees)
Where an employer decides to sell business assets in order to save it, the Transfer of Undertakings (Protection of Employment) Regulations 2006 provide protections for contracts of employment.
If an employee is dismissed for the sole reason of the transfer, this will be regarded as unfair automatically. If the employer substantially alters the terms and conditions of an employee’s contract against their interest, this can constitute grounds for a constructive unfair dismissal claim. Any collective agreements entered into by the employer with their employees must also transfer to the new business entity without being altered unfavourably.
If the employer anticipates making large-scale redundancies in the course of the transfer, they are subject to a statutory obligation to consult. Where 20 or more employees are concerned, the employer must enter consultation at least 90 days prior to the anticipated date. If the group is made up of less than 20, there is an obligation to consult, but no time limit applies.
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Failure to adhere to statutory obligations when considering redundancies may expose a business to costly and time-consuming legal claims, which can negate any attempts to reach financial stability. It can also disrupt a sale of business assets, leading to both financial and reputational harm for an employer.
At Lewis Nedas, our Employment Law Solicitors have over 25 years’ experience advising and representing national and international companies. Our Employment Lawyers have joined the Office Essential Network, which is a specialist organisation aimed at assisting young start-up businesses requiring advice on employment issues, including redundancies and restructuring.