At the start of 2021, it is clear that the coronavirus (Covid-19) pandemic will continue to have a significant impact on people’s health and the profitability and sustainability of many businesses. Whilst the new vaccines will inevitably facilitate people returning to more normal lives, changing practices and a global recession will continue to make the issue of redundancy a possibility for many industries and businesses, large and small.
Despite the extension of the furlough scheme until 30 April 2021, many employers will be looking ahead to cost-saving measures in the face of changes in demands for, and changes in the delivery of their services. Whilst it was hoped that many of the initial restrictions upon businesses and individuals were short term, this has not been the case and many businesses may need to consider their sustainability, which may result in changes to the workforce. Employers may therefore need to consider reducing staff by redundancies, laying off staff, fewer working hours and/or salary reductions.
Whilst a number of redundancies may be unavoidable, they must be fair and reasonable in all the circumstances.
Phil Storey, solicitor at Bailey Wright & Co sets out the key considerations for employers and employees in this article.
The right not to be unfairly dismissed
An employee who has been continuously employed for a period of 2 years has the right not to be unfairly dismissed. However, redundancy is a potentially fair reason for dismissing an employee.
For a dismissal by reason of redundancy to be fair, an employer will need to demonstrate:-
- There was a genuine redundancy situation; and
- The reason for dismissal was because of that redundancy situation;-
- It acted reasonably in all of the circumstances in treating the redundancy as a reason for dismissing the employee.
This will require fairness:-
- In the consultation with employees,
- Their selection
- Looking for alternative suitable posts that they could be offered.
What is a Redundancy situation?
Section 139 Employment Rights Act 1996 sets out that an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to —
(a) the fact that his employer has ceased or intends to cease—
(i) to carry on the business for the purposes of which the employee was employed by him, or
(ii) to carry on that business in the place where the employee was so employed or
(b) the fact that the requirements of that business —
(i) for employees to carry out work of a particular kind, or
(ii) for employees to carry out work of a particular kind in the place where the employee was employed by the employer,
have ceased or diminished or are expected to cease or diminish.
In summary, a redundancy situation arises when an employer needs to reduce their workforce, close the business in whole or in part, or certain work is no longer needed or has decreased.
What procedures should be followed in a redundancy situation?
There is no set procedure laid down in law for dismissing an employee by reason of redundancy, although the law requires that the procedure adopted must be fair and reasonable in all of the circumstances, and therefore must not be discriminatory.
In general, an employer will not have acted reasonably and a dismissal will therefore be unfair unless it:
- Consults employees about the proposed redundancy. Consultation requires providing employees with sufficient information about the reasons for redundancy, details of the pool of people who are to be considered for redundancy and the selection criteria. An employer must then consider an employee’s responses before decisions are made about a potential redundancy;
- Selects the appropriate pool of employees from which to select those who are to be made redundant;
- Fairly applies objective selection criteria which are not discriminatory; and
- Considers and offers available suitable alternative employment within its organisation.
Some employees also have contractual provisions in their employment contracts which set out additional procedures to be adopted in a redundancy situation.
The procedures may vary dependent upon whether the redundancies are individual or collective. The consultation requirements are set out below.
Consultation – Individual and collective
An employer should engage in individual consultation with those at risk of redundancy. Employers must consider how this can be done practically, particularly if they have employees on furlough or working remotely. Depending on the number of redundancies proposed, additional consultation duties may apply.
Collective consultation is needed if an employer proposes to dismiss 20 or more employees at one establishment’ in a 90-day period. The minimum period of consultation is 30 days, unless there are to be 100 redundancies or more, in which case there needs to be collective consultation at least 45 days before the first dismissal. Collective consultation involves consulting with all appropriate Trade Unions and employee representatives.
A Fair Selection Procedure
In order to adopt and apply a fair selection process it will be necessary to select a pool of staff who are at risk of redundancy and then adopt objective selection criteria to be applied to that pool of staff. Consideration should be given, when selecting the appropriate pool, to whether there is an agreed procedure for identifying the pool which has been agreed by the Trade Union or employee representatives. The employer should consider employees undertaking similar work to decide whether they should also be included in the selection pool – even if at different offices or locations – or those who have interchangeable skills.
The selection criteria should be objective, where possible, and should avoid any potentially discriminatory factors, for example, an employee’s attendance record, length of service or disabilities. (see below) A set of criteria is generally adopted based upon skills and performance which should try to avoid including more subjective elements. Using a selection matrix containing a number of separate selection criteria rather than just one reduces the risk of the potential discriminatory impact of any particular element of the assessment.
Alternative Employment
An employee who is selected for redundancy should be offered any suitable available vacancy, even if it is at a lower salary or at a lower grade than their current post. The employer is required to consider suitable alternative employment until the end date of the employee’s notice period.
Coronavirus Job Retention Scheme / Furlough
Although cases of unfair dismissal due to redundancy during the Covid-19 pandemic have not yet reached hearings in the Employment Tribunals, it is not necessarily unfair for employees to be made redundant rather than furloughed. However, a redundancy dismissal may be unfair if an employer did not properly consider alternatives, including retaining the employee on furlough.
Redundancy and discrimination
Redundancy selection criteria must be fair, objective and must not be directly or indirectly discriminatory.
Specific groups, such as women who have disproportionately taken on caring responsibilities or disabled employees who had to shield, may have taken time off work due to Covid-19 and could be unduly affected (and therefore potentially discriminated against) by selection criteria involving:-
- Unpaid leave during the pandemic
- Working part-time
- Sickness during the pandemic
- Having been furloughed
Additionally, length of service criteria may unlawfully discriminate against younger people who may have shorter employment service or women who may have had a career break due to pregnancy/childcare.
Absence records may discriminate against certain employees, for example:-
- A woman who was absent due to maternity or pregnancy related illness,
- A disabled employee who needed time off due to their disability, or
- A person who has taken time off to care for a disabled relative (discrimination by association because of disability).
If absence criteria are to be used,, this should be as part of a number of other criteria. An employer should consider which absences are to be included and remove those which disproportionately, and unfairly, affect a particular group of people.
Automatically selecting employees for redundancy purely on the basis that they have been furloughed is likely to constitute indirect discrimination based on sex, disability or age if they were furloughed because they have caring responsibilities or are shielding for health reasons. Consideration should also be given to whether furlough might have been applied disproportionately to any particular group subject to protection from discrimination under the Equalities Act 2010 (e.g. race, gender).
Employees who are not entitled to bring a claim for unfair dismissal or a redundancy payment e.g., those without the required 2 years minimum continuous employment, may still be able to bring a claim for breach of the Equality Act if they were dismissed or they were treated less favourably due to a protected characteristic.
Redundancy Payments
Employees being made redundant are entitled to:
- redundancy pay (if they have been employed for 2 years or more)
- their contractual notice period (or pay in lieu on notice)
- any accrued but untaken annual leave (or pay in lieu).
Redundancy payments are calculated by reference to age and length of service:-
- half a week’s pay for each year of employment up to age of 22;
- one week’s pay for each year between the ages of 22 and 40;
- one and a half week’s pay for each year over the age of 41.
There is a maximum of 20 years’ service which can be taken into account and a statutory maximum limit on the week’s pay (currently £538 per week)
Some employees have enhanced contractual redundancy provisions in contracts.
Any calculation of statutory redundancy pay, or statutory notice pay must ignore any reduction in wages as a consequence of the employee being furloughed.
Insolvent Employers
If an employer becomes insolvent and ceases trading, an employee is still entitled to redundancy pay but it is necessary to claim it from the Government’s Insolvency Service instead. The employee can claim the same amount that they would have been entitled to if the company was still trading e.g. paid notice period and holiday pay.
If you need further advice or believe that you been treated unfairly, please contact Phil Storey on 0121 270 1566 or phil@baileywright.com.
Phil Storey
Bailey Wright & Co
