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As the Job Retention Scheme comes to an end, employers will be making difficult decisions about the future of their workforce. The legal definition of redundancy is when an employee is dismissed due to the closure of the business, the closure of the workplace where the employee was employed or reduced requirements of the business for employees to do work of a particular kind.
Redundancy is one of the fair reasons for dismissal in law. However, in order to dismiss fairly employers are under an obligation to follow a fair procedure. In this article, I consider what redundancy rights employees are entitled to and the procedures that employers should follow. I have also included some bitesized videos briefly explaining the different stages of the redundancy process.
Statutory redundancy payment
An employee with at least two years’ continuous service with their employer and who is made redundant is usually eligible for a statutory redundancy payment.
Statutory redundancy pay is calculated according to the employee’s age, length of continuous service and earnings (up to a maximum of £538 per week) with an overall cap of £16,140.
Employees with at least one month’s continuous service are entitled to statutory minimum notice.
The statutory minimum period of notice that the employer must provide to the employee depends on the employee’s length of service, as set out below:
- 1 month – 2 years: minimum notice is 1 week
- 2 – 12 years: minimum notice is 1 week for each year worked
- 12 years or more: minimum notice is 12 weeks
Employees must receive the statutory minimum notice if the contractual notice is less notice but are entitled to the contractual notice if it is greater than the statutory minimum notice.
An employer may reserve the right to end the employment and pay the employee a sum equivalent to their salary for their notice period (instead of the employee working their notice). The employee may be asked to work part of their notice and be paid for the remaining period of their notice. The payment in ‘lieu of notice’ clause in the employment contract could allow the employer to pay basic salary only or sums for benefits too, such as for pension contributions and private health care insurance.
The employer may have a contractual right for the employer to be placed on garden leave during the notice period. The employee would then usually not be required to attend work but would still receive their usual pay and be provided with their normal benefits for the notice period. There may be other garden leave provisions, such as the employee not being allowed to contact other employees or clients.
Generally, employees need to have at least two years’ continuous service to be able to bring an unfair dismissal claim. In order to defend an unfair dismissal claim, an employer needs to show a fair reason for dismissal, such as redundancy, and a fair process must be followed too. Conducting a fair process would normally include consulting with the employee before making a decision, searching for suitable alternative roles and carrying out a fair selection (in certain cases).
An employee at ‘risk of redundancy’ should be given the reasons and rationale for the proposed redundancy and provided with an opportunity to put forward their response. Alternatives to redundancy should be considered.
If an employer is proposing to dismiss as redundant 20 or more employees from one establishment within a 90-day period, the employer must also carry out collective consultation.
If an employee is doing a unique role carrying out a selection process may not be necessary. However, where employees are carrying out the same or similar roles and there is a headcount reduction, for example, usually it will be necessary for the employer to follow a fair selection process. The criteria for selection should be as objective as possible.
Searching for suitable alternative roles
Employers are under an obligation to search for suitable alternative roles. An employer does not have to create new roles but must make a proper search for existing suitable roles within the organisation and, in some cases, within group companies as well.
Pursuing a claim
Employees who have been unfairly dismissed could bring a claim in the employment tribunal. Any claim must usually be filed with the employment tribunal within 3 months (less a day) from the last day of employment and that is subject to the rules for extending time for early conciliation with ACAS (the Advisory, Conciliation and Arbitration Service). Before proceeding with a claim an employee must follow the ACAS early conciliation process.
Depending on the circumstances, employees may have other claims too, such as for discrimination, and should seek legal advice at the earliest opportunity.
The maximum compensatory award for general unfair dismissal claims is the lower of 52 weeks’ pay or £88,519.
The following questions were put to me by Law Simplified for further insight:
What immediate points should be considered in a redundancy situation? Please briefly outline some pointers you would share
Even though employees with less than two years’ continuous service cannot usually bring unfair dismissal claims, employers should always follow a fair process. First, employees could bring certain unfair dismissal claims which do not require two years’ continuous service, such as for whistleblowing. Second, employees could bring discrimination claims, which again have no minimum length of service requirement. Third, for collective consultation claims it is irrelevant whether affected employees have less than two years’ service. And last, but not least, following a fair process is important in terms of employee relations and for the reputation of the business.
What is the position on furloughed employees and notice pay?
Do you pay employees their full contractual pay for notice or the reduced furlough pay that the employees have been receiving? In certain situations, there could be legal grounds for only paying employees their furlough pay for their notice period. Depending on the wording of the furlough agreement, the employment contract may have been varied, which could give employers scope only to pay at the reduced rate. Also, only when the employee is entitled to no more than one week’s greater notice under their contract of employment than the statutory minimum notice period and certain criteria have been met, are employees entitled to statutory minimum pay based on a week’s pay.
However, employers would be wise to pay their employees full pay for the contractual notice period. There could be legal arguments for full pay, which may well find favour with an employment tribunal. Also, paying out the reduced rate is likely to create low staff morale across the business and if picked up by the media might even end up being a PR disaster.
What is the situation with consultation, especially where the business is still operating virtually?
Employers must continue to meet their consultation obligations. Employers do not necessarily have to consult with staff in person and could consult with employees through online meetings, for example through Zoom, Skype or Microsoft Teams. If collective consultation is required, consultation with employee representatives could be done remotely too. Whether individual or collective consultation is being carried out, it is important to ensure that the appropriate technology is in place and those involved in the consultation process are able to use the technology.
Due to these unprecedented times, many employees are at risk of being made redundant. It is therefore wise to be aware of redundancy rights and the process employers should be following. Employers need to ensure that they are complying with their responsibilities throughout the redundancy process – not only to avoid unfair dismissal and discrimination claims but also to uphold employee relations and maintain a respectable reputation for the business.
This guide is intended for guidance only and should not be relied upon for specific advice.
Personal website: www.mattgingell.com
YouTube Channel: https://www.youtube.com/channel/UCK-__2_RK7EPailaB5yISug