Deciding to make redundancies is difficult for both employers and employees, and redundancies should always be used as a last resort.
With economic challenges placing increased pressure on businesses, business owners need to be well-prepared for how best to respond “when the going gets tough”.
In line with our Primas HR Hub quarterly focus, our expert employment team will be sharing their insight and advice on some of the support and options available to businesses during these difficult times, providing them with an essential, “just in case” toolkit for any potentially tricky times ahead.
In instances where tough decisions may need to be made relating to the future of your business and employees, it’s crucial to be armed with the facts that will allow you to respond to any such challenges in the right way.
In this blog, we’ll go through some workplace scenarios that businesses may well encounter, together with providing our legal expertise and advice.
Jump to section:
- What is redundancy and how does it work?
- Redundancy process
- Collective redundancy consultation
- Redundancy pay
- Alternatives to redundancy
- Can an employer change contractual terms of employment?
- What are settlement agreements and why are they needed?
- Do employers have to pay their employees’ legal fees for settlement agreements?
- What are the benefits of settlement agreements?
- What are the implications of breaking a settlement agreement?
What is redundancy and how does it work?
Redundancy is a form of dismissal of an employee because you no longer:
- carry out the business for which they are employed
- carry out the business in the place where they are employed
- require them to carry out work of a particular kind
- require them to carry out work of a particular kind in the place where they are employed
For a redundancy to be genuine, you must demonstrate that the employee’s job will no longer exist.
This may be applicable when:
- the business, or parts of the business, has closed
- the types or number of roles needed for certain tasks is changing/reducing
- the business is relocating
Redundancy cannot be used in response to performance or conduct-related issues.
Redundancy should always be a last resort and any alternatives to redundancy, such as changing working hours or arrangements, moving employees to other business areas, or offering any other available roles should be considered; all of which we will explore further in this guide.
There must be a genuine redundancy situation and employers must consult with staff regarding redundancies.
However, it’s important to note that for employers making fewer than 20 employees redundant there are no rules about how the process or consultation should be carried out. The procedure adopted will vary according to timescale, number of people effected, the size and resources of the business.
Any process should aim to ensure there is adequate communication between both the employer and employee and that the employer provides as much information as they can in relation to why the decision has been made – consultation should be meaningful – such as:
- Why the redundancy / redundancies are necessary
- How the business has identified affected staff
- How the employee will be supported during the process
- How long the process is intended to take
- Potential ways to avoid redundancies
- Employees should also be allowed the opportunity to ask questions about the reasons for the redundancy / redundancies and what will happen to their role (if anything) moving forward
Collective redundancy consultation
For redundancies of 20 or more employees at one establishment, collective consultation with recognised trade unions or elected representatives must be undertaken and there are minimum timescales:
- At least 30 days before the notification of redundancies for dismissals of 20-99 employees
- At least 45 days before the notification of redundancies for dismissals of 100 or more
There are a number of steps that must be taken by employers undertaking a collective redundancy consultation:
- Consult with trade union or elected employee representatives. If none are available, consult with staff directly
- Provide representatives or staff with the alternatives that are available and provide enough time for these options to be considered
- Respond to all questions requesting further information
- Provide any affected staff termination notices detailing the agreed leaving date
- Issue redundancy notices following the completion of the consultation
Employers must provide the following:
- The reason for redundancies
- The number of proposed redundancies
- The total number of employees affected
- Details on the selection process
- The procedure to be followed in dealing with the redundancies
- Clarification and method of calculating redundancy payments
Employees may be entitled to a statutory redundancy payment as part of the redundancy process.
To be eligible, an employee must:
- Have two years of continuous service
- Have been dismissed, laid off or placed on short-time working
Employees can also request a written statement detailing the total redundancy payout and how this has been calculated.
Any employee with less than 2 years’ service is not entitled to a redundancy payment but must still be paid notice and any accrued salary/benefits.
Further details about how to calculate statutory redundancy rates can be found on the Government website, alongside information on the options available to businesses that have become insolvent and are unable to pay staff.
If you fail to pay redundancy pay, or an employee challenges the amount, an employee has three months from the official end of their employment to make a claim for payment to an employment tribunal.
You should also always check your policies to ensure that staff are not entitled to contractual redundancy pay, over and above the statutory entitlement and also look at whether staff have been paid more in previous rounds of redundancy (if any).
Alternatives to redundancy
Deciding to make redundancies is difficult for both employers and employees, and redundancies should always be used as a last resort. Therefore, “when the going gets tough” in business, other options should be considered, before making hasty decisions.
There is a big emphasis on employers to ensure that no stone is left unturned in relation to looking at alternative options. In the next part of our blog, we explore the alternative solutions employers can offer.
1. Voluntary redundancy
Businesses can allow employees to put themselves forward for voluntary redundancy before any redundancy consultation process begins. This can often be a more straightforward process than compulsory redundancies, reducing potential animosity between the employer and employee, and mitigating the impact on staff morale, while also saving the company time and money.
Employers can ask if any employees would like to volunteer, or employers can put themselves forward.
For employers, it’s important to consider the business needs as a whole before offering voluntary redundancy; will this mean that the business may lose key staff? how easy would the individual be to replace? What specialist skills or experience do they bring? Could the business feasibly continue without them?
Employers may have a dedicated voluntary redundancy process in place that must be followed so policies should be checked.
If an employer does offer voluntary redundancies, they may wish to incentivise people to put themselves forward. This can be discussed, negotiated and agreed upon with the employee in question.
Employers should also provide the following information to an employee who wishes to take voluntary redundancy:
- An explanation of the process
- An overview of what the voluntary redundancy package includes
- An understanding of what happens concerning benefits, bonuses or commission
- Details of their notice period
- What will happen with any leftover annual leave
2. Reducing days and/hours
An employer may want to introduce a reduction in hours or days worked on a temporary or permanent basis. There would need to be consent from any employee prior to them doing so.
It may be possible to move individuals whose roles are no longer needed to other areas of the business if they have transferable skills. This could be on a temporary or permanent basis, which would mean that there is no need for redundancy and the change may help the business with demand. Training may be given to ensure that individuals have all they need to make the move and are equipped to perform the new role(s). These changes would need to be agreed with any employee.
4. Job Shares
It may be possible to offer job-shares, where 2 or more employees split a full-time job between them, on agreed hours/days. This would cut costs for a business and mean that people do not lose their job.
“Lay-off” means asking an employee to stay at home or take unpaid leave in cases where there is not enough work.
Employers should check whether employment contracts allow for this before asking an employee to take any time away from work.
A common alternative to a lay-off is also short-time working, whereby an employee works reduced hours or is paid less than half of their typical week’s pay. Laying off employees or asking them to undertake short-time work can be good alternatives and may avoid redundancies.
A lay-off is where a member of staff is off work for at least 1 working day. Short-time working is where their hours are cut.
Before opting for lay-offs or short-time working, employers should also consider options for their staff, such as taking annual leave or taking unpaid leave.
Companies must check if they can make a lay-off/put in place short-time working before offering this to staff. They can check the following to ensure this is permitted:
- Employment contracts
- A collective agreement between the company and a recognised trade union
There is no limit for how long employees can be laid off or placed onto short-time working however, they can apply for redundancy and claim statutory redundancy pay if it has been 4 weeks in a row, or 6 weeks in any 13-week period.
There are lots of other options which can also be considered, as well as the above examples, such as career breaks, secondments, retirement or banning overtime.
Can an employer change contractual terms of employment?
Changes to the terms of a contract of employment must be agreed by both employers and the employee in question.
Employers should give notice, carry out consultation and clearly communicate the reason for any proposed changes, listen to potential alternative suggestions made by the employee and consult with the employee or their chosen representation (trade union or elected employee) to negotiate this. It’s well worth talking to staff to understand their future plans; some may be considering retirement or making plans that may mean they would welcome changes to their working pattern, role or hours. Opening a two-way conversation will reduce potential animosity with employees and may help employers find a solution quicker.
Once a change to contractual terms has been agreed with the employee, the employer should update their employee’s contract. They should also write to their employees within a month of the agreement to inform them of what has been changed.
It’s advisable for employers to include a flexibility clause in their employment contracts, which gives employers the right to change conditions of employment at any time.
What are settlement agreements and why are they needed?
A settlement agreement acts as a legally binding contract between an employer and employee detailing certain terms that both parties mutually agree on.
Usually, it would record that an employee’s employment is going to be terminated, and that they are paid some form of compensation as a result. They would waiver the right to bring any claims following their employment being brought to an end.
Do employers have to pay their employees’ legal fees for settlement agreements?
It’s standard practice for a proposed settlement agreement to contain a clause confirming that the employer will contribute towards or pay the employee’s legal fees in obtaining advice on the agreement.
Contribution to legal fees differ from case to case and are dependent on the complexity of the agreement.
What are the benefits of settlement agreements?
Agreements will settle any and all employment-related claims that the employee could seek to bring if an agreement is not reached. This means that there will be no liability going forward for an employer in relation to Tribunal or Court claims as a result of the employment being terminated.
Most settlement agreements are typically agreed upon within a few weeks. Whereas an Employment Tribunal claim may last many months and often provide a fresh start for both parties.
Once agreed upon, a settlement draws a line under the employment relationship allowing both the employer and employee to “move on”.
It’s common practice for settlement agreements to contain a clause that prevents the employee from discussing the terms of the contract. This means that employers can rest assured that details of the case will be kept confidential, and that the reputation of the business will remain intact.
What are the implications of breaking a settlement agreement?
As settlement agreements are legally binding, either party can bring a claim for breach of contract in the Civil Courts, if the terms of a settlement agreement are breached.
As part of our dedicated Primas HR Hub, we’ll be sharing our employment team’s “just in case” toolkit for businesses who may be faced by challenging scenarios and difficult decisions in the future.
Led by Head of Employment Law David Walton and Partner Danielle Ayres, we want to arm HR professionals and business leaders with the information they need to navigate tricky situations in the right way.
Our next Primas HR Hub roundtable event is taking place in Manchester on Thursday 28th September. Spaces are limited, so please sign up ASAP by emailing firstname.lastname@example.org.