A Small Business Guide to Handling Redundancies Safely
We look at how to limit disruption and legal problems for your business when dismissing employees in redundant positions
No one likes to think about making redundancies, but if you’re running a small business, you might find that you can’t afford not to. At this level, major setbacks can come almost without warning – a sudden economic downturn, the loss of a primary buyer or client – and you may be forced to cut down on your surplus staff in order to stay afloat. Business mergers and moves to new premises can also put you in the unenviable position of having to let people go.
Though making redundancies might be your only option, it is vital that you exercise utmost caution as you proceed through the process – if you’re careless you could find yourself pulled up in front of an employment tribunal, facing huge fines. You must ensure that the procedures you follow are fair, open, and airtight.
Here we address what procedure to follow to avoid any legal difficulties down the line, including how to plan a redundancy process, select who to make redundant and work out how much statutory redundancy pay they’re owed.
What is a redundancy and what protections do employees have when being made redundant?
The most important thing to remember when considering making a redundancy is this; a person is not made redundant, their position is. A dismissal can be considered a redundancy only if one or more of the following occur: the business shuts down, or the business moves location and the employee cannot work at/from this location, or finally if the company has a reduced need for the category of work that the employee does.
Dismissed employees may seek compensation, reward or reinstatement at an employment tribunal if they feel their dismissal came about for any other reasons.
Familiarising yourself with basic employment law will help you avoid falling into any pitfalls when making a redundancy. A few of the main factors to be aware of are that employees with more than two years of service qualify for redundancy pay. Those with less do not, unless they can prove they are the victim of unlawful discrimination.
Also part-time or fixed term employees have the same protection as full-time employees, and that ‘employee-owners’ and ‘employee shareholders’ have different dismissal protection. Finally employees cannot sign away their rights to redundancy payment.
What redundancy process should I follow?
You need to follow a clear and transparent process at all times so always be conscious of the steps you are taking. Start by planning and documenting every stage of the process. If there are any problems, you will need the evidence of having followed correct procedures.
Choose the pool of employees to be considered for redundancy and the criteria you will judge them on. You must discuss these criteria with the employees during consultations – but not the scores that they are given – and must select the employees fairly based upon them.
And try to consult with the parties involved as early impossible. If there are 20+ people involved, consultations must begin 30 days before the dismissals will take effect. If 100+ people are involved, they must begin 45 days before. Failure to consult properly will make employees eligible to claim a ‘protective award’ – 90 days pay to every employee involved.
Make sure to consult with every employee individually. Outline the process of the redundancy, the timescales involved, the pay calculations and any possible alternative work. Subsequent meetings should explain the appeals procedure and offer feedback. Also give notice, this should be in line with the terms of the employee’s original contract.
Finally ensure that you submit the relevant forms on time. If 20+ are involved, an HR1 form should be submitted to the Department of Business, Innovation and Skills 30 days before the dismissals take effect – 45 days if 100+ people are involved.
What can I do to avoid redundancies?
Even if your business gets into a difficult patch, it is important to consider the alternatives to making compulsory redundancies – you are legally obliged to explore the alternatives.
For instance overtime bans, redeployments, transfers, early retirements, freezing recruitment, dismissals of overtime and contract labour – all should be considered before resorting to compulsory redundancies.
Make sure to consult with employee representatives and trade unions. You must discuss how to avoid and limit the numbers or dismissals, with a view to reaching an agreement. Remember, a union is not your enemy – they might help you devise a fairer solution.
How should I select which employee(s) to make redundant?
You are free to select employees to make redundant based on your own criteria – but you must show that these criteria were reasonable, non-discriminating, and applied consistently. Here are several criteria you might consider adopting and others that you can’t.
Safe reasons for making someone redundant
First off, consider the business’ latest hires – LIFO last in, first out. You can make someone redundant based on their performance; however you must be able to show objective measures exist to monitor this so having an appraisal system in place will help with this.
Workers level of skills and experience, and their attendance record can also come into play when choosing an employee to make redundant
Unsafe reasons for making an employee redundant
Your criteria must NOT discriminate against age, class, gender, race, sexuality, marital status, religion, etc. For more information check out our guide to avoiding discrimination here.
Additionally, don’t make employees redundant who are on maternity/paternity leave – consult and wait until she/he has returned to work – and finally don’t choose to make someone redundant based on union membership or for acting as representatives.
You can only offer voluntary redundancies packages in cases of genuine redundancy. When making the offer of the package, you must specify the terms of the package and who can apply for it – explain that you will only accept offers from those in the affected area of the business.
You should also consider offering early retirement packages instead – these are generally preferred by most workforces, but could see you subscribing to a long and costly payment plan that far outstrips statutory redundancy pay.