Introduction - unfortunately, thousands of UK small businesses are making staff redundant, in order to reduce staff overheads, in the face of recessionary pressures. Employers are reacting quickly to doom and gloom newspaper headlines, by reducing payroll costs. However, employers should seek the latest legal advice (as statutes and case law changes over time), and think very carefully before making anybody redundant. This article summarises the practical and legal principles of redundancy and other processes that reduce headcount expenditure.
What is Employment Redundancy? - The phrase redundancy means that the job ceases to exist, causing a member of staff to leave the business. Redundancy concerns the business need for a job role, not the relative success or failure of an individual working in that particular role. Redundancy can be devastating for workforce morale - not least for individuals unexpectedly finding themselves back in the job market. It creates uncertainty amongst the remaining members of the team, in which the redundant person worked. Making an employee redundant also wastes the business investment in recruiting and training that individual in the first place. In difficult economic times, employees can protect themselves by taking out redundancy insurance, in the form of income protection plans. From a business perspective, redundancy is a reasonable ground for dismissing employees, as long as it is done using the statutory procedures, in a fair and non-discriminatory way. Failure to make an employee redundant without following the proper procedure may result in a employee claiming unfair dismissal at an employment tribunal. As an employer, you must be able to prove that either:-
- The job has disappeared
- There is less need of the job to be carried out;
- Technology or systems have replaced the job; *
- There is a genuine business need to reduce the overall number of jobs across the organisation;
- The business is moving or shutting down completely;
* In situations where organisations are using technology to replace humans, it is more complicated deciding which jobs need to be made redundant. To be fair during the process, the organisation must have (or plan too):-
- Cease activities upon which the job is designed to support;
- Discontinue use of the physical location where that job is based;
- No longer require the employee to do that type of work. In other words, the job itself must become redundant and not the employee.
Technology is replacing human jobs in industry sectors such as manufacturing, construction and information technology. Domestic workers are suffering as cheaper foreign labour and jobs being 'off-shored', lead to company wide cutbacks. In these situations, there are various methods in deciding who should lose their job, in situations where across-the-board cuts need to be made. Firstly, traditional workplaces have used a ' last in, first out' principle, to provide clarity and supposed that fairness. Secondly, employers may request for voluntary redundancies, (which may be attractive to some older workers nearer retirement age, seeking a nice payout settlement). If traditionally there has been a usual 'custom and practice', non discriminatory method for selecting employees, it is sensible to stick to that arrangement. Trade union organisations who may represent the rights of workers, will also need to be consulted throughout the process, and any disputes potentially mediated by the Advisory, Conciliation and Arbitration Service (ACAS).
If an alternative job exists elsewhere in the business, as an employer, you must consider whether the employee being made redundant, could do the alternative job instead. If the employee agrees to undertake the alternative job, (which may be based on alternative terms and conditions), a four-week trial period must be offered. After the trial, if the employee refuses to accept the alternative, then it is possible grounds for dismissal without paying redundancy. Always seek professional legal advice to clarify each individual situation to see what is 'reasonable' and lawful.
Redundancy Notice Periods - to avoid being sued for wrongful dismissal, proper notice periods should be provided to the employees you plan to make redundant. The length of the notice period depends upon the amount of time they have worked within an organisation, their age, and and any conditions in their employment contract. During the notice proved, the employee is entitled to reasonable time off in order to search for a new job, by visiting recruitment agencies or going to a job interview. The statutory redundancy notice periods are as follows:-
- at least one week’s notice if the employee has been employed between one month and two years;
- one week’s notice for each year if employed between two and 12 years;
- 12 weeks’ notice if employed for 12 years or more.
Grounds for Unfair Dismissal - the law protects workers employment rights by providing protection against a dismissal in certain circumstances. If a worker is dismissed under such circumstances, a claim for an unfair dismissal may be brought by the employee against the employer. It is unfair to make an employee redundant because:-
- The employee is a member of a trade union;
- Perceives there is a health and safety risk and subsequently refuses to work;
- The employee has demanded their statutory right to a minimum wage or paid holidays;
- The employee requests to work flexible hours, or is pregnant or is on maternity leave;
- A range of Discriminatory factors such as age, race, sex, disability, religion or sexual orientation.
Statutory Redundancy Payments - employees who are going to be made redundant and have had at least two years of 'continuous' service, are entitled to a Statutory Redundancy Payment. This statutory payment is calculated based on the age of the employee, their age and years of service. The rate an employer is obliged to pay, changes annually according to changes in UK employment law. There are some exceptions and exclusions to this statutory entitlement. As an employer, you should consult your solicitor or person responsible for human resources, to clarify each individual situation. The payment represents a form of compensation to help the employee get back on their feet and seek alternative employment. Employees who have worked less than two years are only entitled to the contractual notice period or money in lieu of their notice period. As well as the statutory redundancy payment, if the employee has not had all the holiday they are entitled to, by the date their work is scheduled to end, employers must pay the employee in lieu that holiday entitlement. As a caring and good-natured employer, you may choose to offer more than the statutory minimum to help the employee you are making redundant.
Alternatives to Redundancy - employers naturally want to avoid making valued employees redundant. Any redundancies send a worrying message to the remaining workforce, (that their jobs are unsecure and the company is struggling). All the original money spent recruiting and training the staff is wasted. To make matters worse, should economic conditions pickup in future, the employer will have to spend money again recruiting and training new members of staff. However, there are some alternatives to making employees redundant, which may retain skills, keeping valued employees happy, while partially reducing staff related overheads. The main ones are as follows:-
- Freeze discretionary pay rises, over time and other benefits. This can only be achieved if employees do not have these guaranteed contractual rights built into their employment contract.
- Allow employees to take a sabbatical, which represents an agreed period of unpaid leave. Following the end of the period, employees rights are fully preserved and they could return to work. This helps reduce staff costs in the short term, while avoiding redundancy and retains valued and senior members of staff.
- 'Lay Off' employees or put them on a 'Short Time Working' basis. These processes are defined under the employment rights act 1996 (ERA). Short time working can only be implemented where, as a result of reduced hours of working, the employee will earn less than 50% of their normal weekly pay. If the reduced hours equates to less than 50%, and a change in the employee's contractual terms and conditions will need to be implemented. In both cases, employee agreement must be sought. Also the employer must have an express contractual right to implement short time working or lay the employee off. Lack of contractual rights or agreement would be tantamount to a breach of contract, leading to a possible constructive dismissal claim by the employee. Employees may still be entitled to receive a redundancy payment situation where short time working or lay off lasts:-
- In excess of 4 weeks or more, consecutively
- 6 weeks or more (of which 3 ruin consecutively) within a 13 week period