Redundancy rules

Gillian Markland

Gillian Markland

First published in Business columnists by

With the current Economic downturn showing slow signs of improving, how does an employer correctly make redundancies?

Redundancy is one of the most traumatic events an employee may experience and it is no plain sailing for an employer either. Announcement of redundancies will invariably have an adverse impact on morale, motivation and productivity. Therefore handling the redundancy situation in a sensitive and careful manner should help to reduce the negative effects on the redundant employees and those remaining.

Even if an employer has a true redundancy situation, a flawed procedure may result in costly claims for unfair dismissal in an Employment Tribunal at a time when the company can ill afford such additional costs. There are three genuine redundancy situations: (1) the business, or a part of it, may cease to operate; (2) the business could move location; and (3) the need for work of a particular kind may have ceased or diminished.

Once a redundancy situation has been recognised, the company must establish a formal procedure on redundancy. At a minimum the following stages should be considered in most situations: planning, invitation of volunteers, consultation (both collective and individual), identifying a pool for selection, use of an objective selection criteria and considering suitable alternative employment opportunities.

As part of the planning stage an employer should consider measures such as reducing/stopping overtime, retraining or redeployment, short-time working and offering voluntary redundancy. As part of the consultation stage it is important an employer adheres to ACAS’ guidance on handling redundancies in order to follow a fair procedure. Objective selection criteria could include length of service, attendance records, disciplinary records, skills, competencies and qualifications, experience and performance records.

“Last in, first out” as a selection criteria on its own is now risky as a selection method and is not a satisfactory way of retaining the most skilled employees. Do not include criteria which could be seen as discriminatory, such as scoring part-timers lower compared to full-timers.

An employer must also, at all times, consider the possibility of suitable alternative employment for those affected. If this is offered, and the employee unreasonable refuses the offer, then they forfeit their right to a redundancy payment.

The statutory redundancy payment that each employee is entitled to is calculated by using a set formula. The maximum week’s pay is £400 and a maximum of 20 years service can be included in calculating the statutory entitlement. The minimum length of service for a redundancy payment is two years.

If an employer has any doubts about downsizing their workforce they should seek independent legal advice at the early stages.

Gillian Markland is head of employment law at Ingrams Solicitors

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