Lessons in how not to carry out redundancies have received a lot of media coverage. The Accident Group reportedly informed employees by text message that they were being made redundant with immediate effect. This was followed by a story in which an ABN Amro employee discovered his imminent redundancy from the parking attendant when he tried to leave the car park and found that his pass had been deactivated. Stories such as these have attracted critical comments from trade unions and the Department of Trade and Industry – and not least from the redundant employees themselves.
Given the recent uproar about these incidents, what are the legal duties of employers when making multiple redundancies? And what other benefits can employers achieve by playing it 'by the book'?
Unless the employer is closing its whole business, it will need to select which employees are to be made redundant. Selection should be carried out using fair and objective criteria, which ideally is easy to measure objectively. Criteria often used include skill and knowledge, seniority, length of service and experience. Care should be taken to ensure that the criteria do not have the effect of selecting disproportionate numbers of women or ethnic minorities. Employers should also look carefully at how employees who have been absent through illness or maternity leave score against the criteria, and consider whether any of the criteria should be weighted to counter any disadvantage caused by their absence.
Where an employer is making 20 or more redundancies in 90 days or less, there is a duty to consult employees on a collective basis using trade union representatives, or elected employee representatives if there is no trade union. The minimum periods for consultation are 30 days for 20-99 redundancies and 90 days for 100 or more. Consultation with representatives should include discussion on ways of reducing the number of redundancies, the selection methods and the amount of redundancy payments. If an employer fails to consult on a collective basis, employees can claim a protective award of up to 90 days' pay each.
Whatever the number of redundancies, the employer should also consult with employees individually and make reasonable efforts to find suitable alternative employment for the employee within the organisation.
If an employee is unfairly selected for redundancy, is not properly consulted individually, or if the employer makes insufficient efforts to find suitable alternative employment, the dismissal is likely to be unfair. Employees with at least one year's service can claim unfair dismissal, for which compensation consists of a basic award of up to £7,800 and a compensatory award of up to £53,500. An employee who is selected for reasons relating to race, sex or disability, or for having blown the whistle on any wrongdoing, can claim unlimited compensation.
From a legal perspective, there are clear advantages to following proper process when making redundancies. This reduces the risk of liability for protective awards and unfair dismissal. Also, fair and transparent selection and proper consultation make claims for unlimited compensation for discrimination or whistleblowing less likely to succeed, as there will be evidence of other objective reasons for selection.
Many employers prefer not to consult on a collective basis for a number of reasons. Some see a perceived stigma attached to openly making a large number of redundancies, and prefer to try to dismiss employees quickly and quietly. Employers also fear a loss of control if they consult representatives on the selection criteria, in that they may not be able to pick who they want to be selected. The collective and individual consultation process also takes time, which can be an unattractive prospect.
An increasing number of employers appear to be trying to buy out the collective consultation obligation by entering into compromise agreements, and attributing an amount of money to the failure to consult collectively. The claim for a protective award cannot be compromised (claims for unfair dismissal and discrimination can) and probably cannot be bought out, because the protective award is a penalty for employers rather than compensation for employees.
Some employers, for commercial reasons, choose not to follow the collective consultation process, and may also dispense with individual consultation, but pay employees in excess of their legal entitlements in return for a waiver of claims. While this approach suits many employers, those who do carry out the full process often find that there are a number of other benefits, aside from reducing the risk of legal liability.
Employees who are made redundant generally tend to feel less aggrieved if they have had a say in a fair and transparent process. This makes them less likely to bring claims or disparage their former employer. In the long term, a proper process is more likely to retain the goodwill and motivation of those employees who remain after the redundancy programme, which is something that can often be overlooked. After a redundancy programme, the organisation needs to move forward positively, and this is easier if employees have seen their friends and former colleagues treated fairly, rather than if they had disappeared suddenly and without explanation.
Last but not least, an advantage to following due process is that employers can avoid harmful publicity, which has recently put others firmly in the headlines.
Anna West is an employment lawyer at Fox Williams