Legal

The HR perils of reorganising a business

27 Feb 2019 By Robert Maddocks

Robert Maddocks explains the issues people professionals should bear in mind when their company decides to restructure

Reorganisation v redundancy

When considering whether to carry out a reorganisation, an employer should also consider the possible overlap with redundancy. Like redundancy, reorganisation can be a fair reason for dismissal (‘some other substantial reason’), but redundancy, and the legal test in defining it, is restricted to the circumstances when there is a closure of a business or worksite, or when there is a lessening need for employees to carry out work of a particular kind. 

A reorganisation can give rise to a redundancy situation where there is a reduced requirement for employees, but, outside of that, they are more typically associated with situations where work needs to be redistributed or there is a need to change terms and conditions of employment. 

Why does it matter? 

The most obvious point is that an employee with over two years’ service dismissed for redundancy is entitled to a statutory redundancy payment. This could be quite a significant payment for employers to take on, particularly for long-service employees, those TUPE transferred to the business on enhanced terms, or those with enhanced redundancy payment terms.

It may also be the case that an employee would prefer to have the label of ‘redundancy’, so they can claim on an insurance policy to maintain mortgage payments.

Strategic considerations

Before starting a reorganisation process, and where the circumstances allow (ie where the legal tests for redundancy would not be met), an employer may want to refer to any changes in work arrangements as being a reorganisation rather than a redundancy. 

Dismissal for reorganisation avoids the need for a statutory redundancy payment. There may be some benefit in the business still making a provision for payment of the statutory redundancy payment (ie ring-fencing a sum). Then, should there be complications in dismissing the employee, this fund could be used as compensation in any future settlement negotiations with that employee. 

Why carry out a reorganisation?

The most common reasons are due to a decline in business, improving efficiencies in working practices or processes, bringing in new people for new skills and expertise, reallocation of work, or cost savings to the business. 

Preparing for a reorganisation

It’s all in the planning. A tribunal will not normally consider whether a reorganisation was avoidable or whether it has been caused by poor business judgement. Providing there is a valid justification for the reorganisation, the reasons for the business being in that situation are not ordinarily overly scrutinised. 

However, an employer should not use reorganisation as a pretext for dismissals for performance or misconduct. A well-set out rationale of the need for the reorganisation, and justification for the dismissal, where applicable, should be carried out at the planning stage to avoid any accusations from disgruntled employees of a possible unfair dismissal. 

Carrying out a reorganisation 

Situations for company reorganisations vary, but the most relevant steps to consider are:

Set out the business need for the reorganisation and/or change in terms and conditions. Include justification for dismissal, if needed;

Consider the terms of employment or any other contractual arrangements with the employees which could be affected by the re-organisation;

Look at whether individual or collective consultation is needed. Collective consultation is required where an employer is proposing to make 20 or more employees redundant at one establishment within a period of 90 days or fewer (this includes terminating contracts and offering new terms as part of a restructure). An employer is required to consult with elected representatives or the trade union, and notify the Secretary of State with an HR1 form;

  • Hold a meeting with the employees to explain the need for the reorganisation. Where possible, obtain employees’ consent for any changes needed;
  • Where no consent is obtained during consultation, give employees an opportunity to comment and deal with any points raised;
  • At the end of the consultation process, dismiss and re-engage on revised terms;
  • If in doubt, seek legal advice or support from a professional with experience in carrying out re-organisations.

Robert Maddocks is an associate employment lawyer at HRC Law

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