Employment Law Bulletin - Seven things to think about when making redundancies

We are probably going to be experiencing difficult economic times for a considerable period to come and many employers will be forced to make cutbacks in their staff. So this month we are looking at the issues that an employer needs to consider when making staff redundant. While redundancy is an accepted reason for dismissal, employees with two years’ service or more can still claim that their dismissal was unfair. If the dismissal amounts to direct or indirect discrimination, then there is no minimum service requirement at all. There is also a separate legal requirement to consult employee representatives where the employer is proposing to dismiss 20 or more employees at the same establishment over the course of 90 days or less. No redundancy exercise therefore is completely without legal risk.

But employers who approach redundancy in a transparent way, being honest about the difficulties being faced and open to suggestions from employees, can greatly minimise that risk. Over the years the courts and employment tribunals have developed a range of standards that a reasonable employer will be expected to meet. There is no one size fits all approach, but rather a number of issues that an employer will need to address in the way that best suits its business. Thinking clearly about these issues will help an employer make difficult decisions in a way that is not only legally compliant, but also retains those employees who can best help it succeed.

Here then, are seven key things to think about when making employees redundant.

1. Should you ask for volunteers?

There may be employers who are willing or even eager to be selected for redundancy. Where there are sufficient volunteers then the employer will avoid the process of selection – which can be stressful and upsetting for all affected employees – and also avoid the risk of legal proceedings. Some employers offer enhanced redundancy packages to volunteers in order to avoid having to implement compulsory redundancies – often as part of agreed redundancy procedures negotiated with trade unions. But while a reasonable employer will consider asking for volunteers for redundancy, there is no legal obligation to do so.

One reason not to offer voluntary redundancies is that very often the wrong employees volunteer. Those whose skills and experience will make it easier for them to find new work are probably not the employees that the employer will most want to make redundant. It is important therefore for the employer to reserve the right to refuse any application for voluntary redundancy. This brings its own problems – especially when the employee is being denied what would have been a generous redundancy package. Volunteers who are told that they cannot leave might well feel demotivated and resentful. Those who are selected for redundancy may feel more inclined to challenge the decision when they discover that other employees were willing to leave but were prevented from doing so.

Employers should therefore think carefully about whether asking for volunteers is the best approach for them to take given the particular circumstances that they face. In many cases voluntary redundancies cause more problems than they solve and are best avoided.

2. The pool for selection

Once an employer has concluded that it will probably need to make one or more employees redundant then it will have to decide which employees should be considered. To apply selection criteria fairly there will need to be a clearly defined group – or ‘pool’ – of employees from whom those to be made redundant will be selected.

How wide or narrow that pool should be is a matter for the employer to decide, but it is something to which careful thought should be given. Sometimes the employer may decide that the appropriate pool for selection consists of just one person. This has the advantage of removing the need for a selection process – but the employer needs to be careful. It may be argued that the employer has created the redundancy situation simply to engineer the dismissal of that particular employee. A ‘pool of one’ may be appropriate where that employee is in a unique position in the workplace and his or her work is being discontinued for business reasons. But the employer should consider carefully whether there may be other employees with similar skills who could also be considered as part of the redundancy exercise.

Suppose the need for redundancies arises because one particular product line has been performing badly. It may seem natural that any redundancies should be made from among the employees working on that product, but that may not be the best or most reasonable way to proceed. If the skills of employees working on different products are largely interchangeable, then a wider pool for selection would give the employer the best chance of retaining the most skilled and best performing employees in the workforce. That might mean making an employee redundant from a more profitable product line and moving an employee from the badly performing product to take his or her place. Making an employee redundant from one department when the actual redundancy has arisen in another is often referred to as ‘bumping’. The employee who is dismissed as a result will still have been made redundant - and will potentially be entitled to a redundancy payment. They may feel that it is unfair that they should be selected when it was not their department that was performing badly, but the employer is entitled to base its selection on retaining the workforce that best meets its future needs. As long as it has properly addressed its mind to the issue and reached a decision based on business reasons that it is able to explain, then a Tribunal should find that it was a reasonable approach to take.

3. Selection criteria

The employer also needs to be able to explain the basis on which the selection for redundancy was made in each particular case. This should not be based on purely subjective factors such as who the employer likes the most, but should as far as possible be based on an objective assessment of the attributes of an employee and how they match the future requirements of the employer.

Traditionally selection for redundancy was based largely if not exclusively on an employee’s length of service. The principle of ‘last in, first out’ – or LIFO – has the advantage of being completely objective with no room for favouritism or subjective opinion. However it has a number of drawbacks. First of all, the employees with the longest service are not necessarily the best performing or most skilled employees and so placing too much reliance on length of service might result in the employer losing the employees who could actually be the most valuable to the business. Secondly there is a danger that LIFO could be indirectly discriminatory. For example, many roles that have traditionally been done by men have in more recent years become more accessible to women. That almost inevitably means that women performing those roles will, on average, have shorter service than their male colleagues. Selection based exclusively on length of service could therefore result in women being disproportionately selected for redundancy.

At the same time there is a general sense that disregarding length of service completely – so that no credit is given to an employee for long and faithful service to the employer – is going too far. It is common therefore for length of service to at least form some part of the selection matrix – perhaps operating as a tie-breaker when other attributes such as skills and performance are equal.

Performance in the job is a perfectly fair criterion to use when making a selection for redundancy – but it needs to be applied carefully. Ideally there should be an objective basis for selection on this ground such as output, sales figures or a performance appraisal record. Employers should avoid scoring employees simply based on their own perception of the employee’s performance without evidence to back up their assessment.

Attendance is also a criterion that needs to be applied with care. It is perfectly reasonable to seek to retain employees with a reliable attendance record but employers should be prepared to make adjustments in the selection when poor attendance has been caused by an underlying condition that may amount to a disability. Care should also be taken to ensure that it is reasonable to view the employee’s past attendance as a reliable indicator of what will happen in the future. An employee might have taken a lengthy period of sickness absence in the past year, but if that was the result of suffering an accident then there may be no reason to think that the absence will be repeated in the future. Another employee may have been absent for less time overall, but show a tendency to suffer short-term unexpected periods of illness with no underlying condition. That employee may be much more likely to have poor attendance in the future and so the measurement of sickness absence needs to be sophisticated enough to take these factors into account.

Other common criteria include disciplinary record, qualifications and experience. These have the advantage of being objective and easy to measure. But they do not always help the employer to choose those employees who are the best match with its future business needs. Often what the employer is most interested in are qualities such as attitude, flexibility, and potential. They can be difficult to measure however, and often involve subjective judgments that can be difficult for the employer to explain. Managers relying on these criteria should be careful to support their assessments with as much objective evidence as possible. For example, an employer scoring an employee low on attitude should be able to point to examples of behaviour on the part of the employee that supports that assessment.

One issue to consider when choosing selection criteria is whether there is any potential for them to operate in a discriminatory way (as with length of service). An employee’s willingness to work overtime might for example be something that the employer wants to take into account, but there is a clear risk that this could seriously disadvantage those with caring responsibilities (who are more likely to be women). If challenged, the employer would have to work hard to persuade a Tribunal that reliance on such a criterion was proportionate in the circumstances.

4. Consultation

One of the key aspects of a fair dismissal for redundancy is consultation. So much so that a lack of consultation may in itself be enough to render the dismissal unfair.

Consultation is not the same as negotiation. It is however a genuine dialogue about the best way forward. In large scale redundancies (20 or more dismissals over a 90 day period) there is a separate legal requirement for the employer to consult employee representatives but even when only one redundancy is being proposed the employer will be expected to consult the employees who are at risk of being dismissed.

For the consultation to be genuine, it must take place when the employer’s proposals are not yet finalised. There must be room for the employer to change its plans based on the response of employees and any alternative proposals they may have. Redundancy should not therefore be announced as a fait accompli. Rather the employer should provide employees with information about the proposed redundancies and invite them to submit their views on the proposals as a whole and also on the way in which the proposals apply to each of them personally. This often means an initial consultation meeting with the workforce as a single group to discuss the need for redundancies generally and the way in which selection will be undertaken. This is then followed by a second phase of consultation where employees discuss their particular position once the selection criteria have been applied.

An employer does not have to accept any alternatives put forward by an employee in the consultation process - but should give them genuine and open-minded consideration. The more the employer can show that it shifted its position in response to the consultation process, the easier it will be to show that the consultation was a genuine exercise.

Where fewer than 20 redundancies are being proposed there is no formal time period over which consultation should take place. Typically however, there would be a period of about two weeks during which discussions took place and the selection was made before employees would be given notice of dismissal for redundancy. This would of course vary with the number of employees in the pool for selection and any procedures the employer might have agreed with trade unions or other employee representatives.

5. Applying the criteria

When the selection criteria have been chosen and the affected employees identified, the employer must then go about the process of applying those criteria to identify the employees who are to be made redundant. That can be largely a paper exercise, with a manager scoring employees under each of the criteria to produce a selection matrix. Those employees who score the lowest will be provisionally selected for redundancy and will then be given an opportunity to comment on or challenge the way in which their scores have been arrived at – usually in a one-to-one interview.

There is an increasing trend for employers to use an interview with the employee to make the actual assessment of who should be made redundant. Essentially, affected employees are asked to apply for the remaining roles within the part of the business concerned and the employer runs what amounts inn effect to a recruitment exercise. While this approach is well established and is not unfair in itself, it should be approached with care. Performance in the interview should not be allowed to predominate over what the employer knows of the employee’s performance at work. An employee may struggle to articulate qualities that they have amply demonstrated in their work and it would be a mistake to make an employee redundant simply because they do not perform at their best when interviewed. Any interview should therefore be focussed clearly on the selection criteria that have been identified and the employer should make sure that the employee’s actual performance in the job is taken fully into account.

Employees who are selected for redundancy should be told why they were selected and how they were assessed against each of the criteria. They should also be given the opportunity to correct any errors in that assessment. This may involve a formal appeal against their selection, but this is far from being a universal practice and is not a legal requirement. Provided the employee has been consulted about the criteria being used and the employer can show that they have been fairly applied, then this will generally be sufficient.

6. Pregnancy and family leave

In any redundancy exercise it is crucial to ensure that pregnant women and those on maternity, adoption or shared parental leave are not placed at a disadvantage. There is, however, no law against making such employees redundant provided the redundancy is a genuine one and the pregnancy or taking of leave does not in any way influence the employer’s decision. Employers should also be careful that employees who have recently returned from such leave are not placed at any disadvantage in a redundancy selection exercise. Selection criteria based on recent performance in the role can be a particular problem here. The fact that the employee has not been at work must not lead to a less favourable assessment. It may also be problematic to assess an employee’s performance before she went on maternity leave as that may also have been affected by her pregnancy. The better approach is to take a wide view of the employee’s performance based on her overall career history.

Employees who are on family-based leave should also be consulted about forthcoming redundancies and it may be necessary to use one or more of their ‘keeping in touch days’ to attend consultation meetings. Employers should ensure that such employees are included in any related correspondence. If the employer is communicating with the workforce electronically then it will need to ensure that this can be easily accessed by the employee and will be seen at the same time as it is seen by other employees – or at least as soon afterwards as is reasonably possible. The selection process itself must then be carried out in a way that does not place an employee on maternity leave at any disadvantage. If the employer is interviewing employees as part of the selection process, then a different way will need to be found to assess any employee on maternity leave.

Finally, those on maternity adoption or shared parental leave are entitled to preferential treatment when it comes to the consideration of alternative work. If the employee is due to be made redundant, but the employer has a suitable alternative vacancy elsewhere in the organisation then the employee must be offered that vacancy. Note that the employer’s duty is to make the offer of alternative work. This is not just a duty to give the employee an opportunity to apply for it, nor to give the employee’s application fair consideration. If the vacancy is suitable for the employee, then the employer must offer it – even if better qualified or more suitable candidates are available.

7. Alternative work

Quite apart from the specific obligation to those on maternity, adoption or shared parental leave, a reasonable employer carrying out a redundancy exercise will consider whether there is any alternative work available for affected employees elsewhere in the organisation. Employers sometimes make the mistake of not discussing some alternative roles with employees because they believe they will not be interested. They may be lower paid or less senior roles than the one the employee currently has. On the whole, however, it is better to present all the possible alternatives to the employee and have a genuine discussion about which of them might be appropriate.

An employee who unreasonably refuses an offer of suitable alternative work is not entitled to a redundancy payment. But employers should not be too quick to assume that this applies when an employee does not accept the alternative work that they are offered. First of all the offer itself must be ‘suitable’. That involves looking at the terms and conditions of the new role and comparing them to those currently enjoyed by the employee. If the new role involves a significant pay cut, more unsociable hours or a need to relocate then it is unlikely to be regarded as a suitable alternative. The same is true if there would be a significant loss of status or seniority.

Even if the role itself is suitable, the employee’s refusal of it may be reasonable. Reasonableness in this context is judged from the employee’s point of view and the subjective reasons for them refusing the role are taken into account. These may include family commitments that prevent them working further away from home or reasons to do with the nature of the work. Provided the employee can explain why the new role was not right for them, a Tribunal is likely to be sympathetic to their claim for a redundancy payment.

If the employee accepts an offer of alternative work, it is often assumed that this acceptance will be subject to a four-week trial period. In fact this is only the case if the employee is given formal notice of dismissal and the alternative work begins after that notice has taken effect. In those circumstances the employee can resign at any time in the first four weeks of the new role and still claim a redundancy payment.

If, however, the employer and employee arrange for the alternative role to begin before the notice period expires or even before formal notice is given, then any trial period is simply a matter to be agreed between them. If the employee is not happy in the new role and resigns then it may be that there is no dismissal at all – much less a dismissal for redundancy – and that there is no redundancy payment owing. To avoid disputes about an employee’s entitlement, the employer should clearly set out when making the offer of alternative work whether any trial period will apply and what will happen if either party is unhappy with the new role.