Running a fair redundancy procedure

How can businesses avoid claims for unfair dismissal when making job cuts? Louise Attrup reports

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With the economic situation looking uncertain and advances in AI threatening the viability of certain roles, redundancy exercises are something that many businesses may need to consider. It is essential to follow the correct procedures not only to avoid unfair dismissal claims but also to minimise concern and disruption in the workplace. 

Section 139 of the Employment Rights Act 1996 states that a redundancy, which is a fair reason for dismissal, will occur where:

  1. a business closes altogether;

  2. a place of work or site closes or relocates; or

  3. an employer requires fewer employees to do work of a particular kind.

If a restructuring results in fewer roles of a particular kind, this can create a redundancy situation, even if overall headcount is unaffected. 

In a genuine redundancy situation, an unfair dismissal claim could still follow if a fair process is not adopted. 

Businesses should note that the redundancy rules apply in the same way across the board, regardless of business size, although, where more than 20 redundancies are envisaged within a 90-day period in one establishment, collective consultation is likely to be triggered. Specialist advice is recommended given the potentially large financial penalties for getting that process wrong.

Consultation

Consultation is the cornerstone of a fair redundancy process. Individual consultation meetings with affected employees must start while redundancy proposals are still at a formative stage, and the employee must be provided with enough information about the rationale behind the redundancy, and the time, to enable them to respond and for the employer to consider those responses ‘conscientiously’. In some cases, a week or more will be enough time for consultation, but this will vary according to the circumstances. 

If selection criteria such as performance, skills or disciplinary record are being used to score each potentially redundant employee, employees should be consulted about their scores for each. In Pinewood Repro Ltd (t/a County Print) v Page, an employee’s unfair dismissal complaint was upheld because his employer had not explained why he had received a lower score in some categories than the other employees. There is no general rule that employers should disclose other employee’s scores as part of this process, although in Pinewood it was held that the employer should have provided further information to enable meaningful challenge by the employee, noting that the scoring of all three in the pool had been very close. 

Ideally employers should consult with all employees in an affected pool and do so before the scoring process, as this enables feedback on the criteria itself, and is a less risky approach than only consulting with those employees who have been provisionally selected.

Pools and selection criteria

Where several different roles are at risk of redundancy, employers should include in each pool all roles that are the same or similar. A court will not be overly critical of an employer’s choice of pool (eg, if it decides an employee is in a pool of one because the employee has a unique role) as long as it can demonstrate a thought process, and the pool is within the range of what is reasonable. 

Selection criteria should be as objective as possible. Vague or subjective criteria such as ‘commitment’ will be open to challenge. 

Alternatives to redundancy

Employers have a duty to consider alternatives to redundancy, particularly looking for redeployment opportunities. They should provide employees with sufficient information about any vacancies so they can take an informed view as to whether any are suitable for them.

Vacancies should be ringfenced for ‘at risk’ employees, and before they are thrown open to other internal applicants. In Ralph Martindale and Co Ltd v Harris, a dismissal was unfair when a vacancy was opened up to all internal applicants.

Where an employer needs to decide between more than one ‘at risk’ employee to fill a vacancy, an employee on maternity leave must be preferred for the role, all other things remaining equal. That protection is due to be extended in 2024 to at least cover the period of an employee’s pregnancy, under the Protection from Redundancy (Pregnancy and Family Leave) Act 2023.

Settlement agreements

Consider using settlement agreements, especially when operating a voluntary scheme. Employees who volunteer for redundancy can still bring claims for unfair dismissal, as in White v HC-One Oval Ltd, where an ‘at risk’ employee volunteered to leave, only to then bring a claim that her redundancy was a sham. Employees who have taken enhanced redundancy payments, if the enhancements deviate from the principles of the statutory formula, have also brought claims that the enhancements are age discriminatory.

While a redundancy situation is always difficult, demonstrating that the exercise has been conducted as fairly as possible and keeping lines of communication open could go a long way to reassure employees facing job losses. This will help reduce the risk of productivity dips as well as minimise legal risk.

Louise Attrup is a partner and head of the employment team at Debenhams Ottaway