7 pitfalls to avoid when making redundancies

As the coronavirus job retention scheme enters its final phase and the prospect of a return to normal business seems distant for many companies, employers are unfortunately having to contemplate redundancies.

‘Getting the redundancy procedure right is crucial. Employer mistakes can render their procedure unfair and so open the door for an employee to bring a claim before an employment tribunal,’ explains Elizabeth Bartle, a partner in the employment team with Ingram Winter Green in London. ‘There has already been an increase in claims, particularly in regard to unfair dismissal relating to redundancy.’

“Getting the redundancy procedure right is crucial.”

Here are some common misunderstandings and mistakes for employers to avoid.

Pitfall #1 – Failing to count voluntary redundancies towards the trigger for notification and collective consultation

The obligation to notify the Secretary of State and inform and consult with recognised employee representatives or trade unions kicks in when you are proposing to make 20 or more employees redundant at one establishment. If any employees have volunteered for redundancy, they must still be counted.

If you omit them from the calculation and do not notify the Secretary of State, this is a criminal offence. Likewise, if you do not collectively consult when you should, you could face claims for up to 90 days’ actual pay for each affected employee.

Pitfall #2 – Failing to consult with employees out of the workplace

An essential element of a fair redundancy is individual consultation, so do not forget about employees who are not in the workplace due to furlough leave, maternity/paternity leave, sickness absence, or homeworking.

You must still consult with them, even if you have concerns that they may find it too stressful.  We can help you find the most appropriate way to do this and can advise you on how to handle the discussions.

You may need to schedule more time in your redundancy process and adjust your scoring to ensure that absent employees are not at a disadvantage.

You may also need to make adjustments to your process for disabled employees.

Pitfall #3 – Believing that ‘last in, first out’ is a fair selection approach

The approach of ‘last in, first out’ was once seen as a fair and uncontroversial selection criterion. However, it’s a blunt tool and may result in losing your best performers. It also now carries the risk of age discrimination claims as younger employees are more likely to be the last ones in.

Pitfall #4 – Holding interviews instead of selection assessments

Making an employee apply for their own job is a risky way to select employees for redundancy when you are just reducing the number of existing posts and the remaining jobs remain largely the same.

An employment tribunal is likely to find this selection process to be unfair. Instead, you should use selection criteria and an assessment process.

However, it may be safe to use an interview process where the available jobs are new or have been significantly redesigned.

Pitfall #5 – Concealing assessment scores

One area for individual consultation is the employee’s assessment scores. To ensure that this consultation is meaningful, the employee needs to know:

  • their own scores;
  • the break point (the score above which their job would be safe);
  • within which quartile they scored; and
  • the anonymised scores of the other employees in the pool.

Data protection rules only prevent you from disclosing these if individuals could be identified from the anonymised scores.

Pitfall #6 – Treating employees on family-friendly leave equally

Having selected employees for redundancy, you must offer them any suitable alternative roles in your business.

Make sure that you give priority to any employee you are making redundant while on maternity, adoption or shared parental leave. They have the right to be offered to be  any suitable alternative roles before other employees.. If you do not do so, the redundancy dismissal may be unfair.

You must actually offer them the job; they do not have to apply, even if other redundant employees would make better candidates. The job must then be held open for the employee until they return to work.

Pitfall #7 – Using furlough pay to calculate notice and redundancy pay

For many employees, statutory redundancy pay is calculated using average pay figures from the last 12 weeks.

Under new rules introduced on 31 July 2020, employers cannot base statutory notice and redundancy pay on reduced pay received during furlough leave. Instead, employers must calculate these payments using the full pay an employee would have received if they had not been furloughed. A week’s pay for these payments is currently capped at £538. It is likely to increase from 6 April 2021.

How we can help

Speak to us as soon as you are considering making any employees redundant to ensure that you follow the correct procedure from the outset. We can help you negotiate the many hurdles and tricky issues. With our advice, you can avoid jeopardising your business with a costly and disruptive employment tribunal claim.

For further information, please contact Elizabeth Bartle in the employment team on 020 7845 7443 or email elizabethbartle@iwg.co.uk.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.