Handling redundancy: a checklist to help startups
In my last article, I explained how to make changes to an employee’s terms and conditions of employment, including the types of situation when you might need to do that. For example, if reducing someone’s working hours or making a major change to their role.
Employers must consider alternatives before going down the path of redundancy, but unfortunately, the consequences of COVID-19 have left some with no choice. And for many founders and business owners, it will be their first experience of this and what can feel like a daunting process.
Below, I’ve put together a quick reference checklist to support startups. If you follow these steps, you can be reassured that you have approached redundancy in a fair and proper way, and this will reduce the risk of repercussions.
More information on each point can be found in our redundancy guidance on Ellis Whittam’s ‘Back to Business Hub’ (accessible via our free Coronavirus Advice Hub), along with further guides covering particular scenarios. This can be a complicated topic so before starting any redundancy exercise, it’s best to seek advice from your Employment Law Adviser.
1) Is there a redundancy situation?
There are three circumstances that can lead to a redundancy situation:
- Employer closure
- Site closure
- Reduced requirement for employees to carry out work of a particular kind
When a business changes owner, its employees may be protected under the Transfer of Undertakings (Protection of Employment) regulations (TUPE). So, check whether this applies to your situation.
2) How many employees are affected? Do you need to collectively consult?
If you are proposing to dismiss 20 or more employees on redundancy grounds in a 90-day period, then you must collectively consult.
3) Do you want to consider volunteers?
There is no requirement or obligation to seek volunteers in a redundancy process. However, if you have employees who are willing to do so, this can reduce or even eliminate the amount of work needed. There is no obligation to accept someone’s request to take voluntary redundancy - this may be relevant if a valued or experienced employee comes forward who you don’t want to lose.
If you accept a voluntary redundancy request, a meeting should still be held with them to discuss what this means and to go through what they will receive - they will be entitled to the same as someone who was selected for redundancy.
4) Consider your pool for selection - identify those at risk
While it’s very important to consider fully who should be included in the pool for selection, there is a degree of discretion afforded to employers. The test is whether the decision on the pool was within the range of reasonable responses. Generally, the main issue will be whether the pool is too wide or narrow.
If there is a recognised Union, you should discuss the pool with them.
Warning affected employees of the proposed redundancy and consulting on the proposal is fundamental to the fairness of any redundancy dismissal.
The key components to a fair consultation are:
- Consultation when the proposals are still at a formative stage.
- Adequate information on which to respond.
- Adequate time in which to respond.
- Conscientious consideration of the response to the consultation.
The consultation process will normally include:
- An announcement to those at risk.
- Initial consultation on pooling and selection criteria, if applicable.
- Consultation meetings with those who remain at risk after any selection process has been undertaken to discuss the outcome of the scoring exercise and alternatives to redundancy, including alternative employment.
- A final meeting for those who are being dismissed as redundant.
- While there is no legal obligation to offer an appeal, it’s sensible to do so.
Also, check whether there is, for example, a redundancy policy which sets out what process must be followed. Further guidance is on our Advice Hub.
6) If selecting from a pool, establish what selection criteria to use
The selection criteria used should be as objective as possible - it should be measurable rather than based on personal opinion. As with the pool for selection, there is a certain degree of discretion for employers.
Potentially fair selection criteria include:
- Performance and ability.
- Length of service (when used with other criteria).
- Attendance records.
- Disciplinary records.
You must take care to ensure that selection criteria is not discriminatory. For example, taking into account disability related absences is likely to amount to disability discrimination. If there is a recognised Union, the selection criteria should be discussed with them. Also, check whether you have an existing redundancy policy in your employee handbook which sets out what criteria must be used.
7) If roles are changing, can you use a competitive interview process?
It may be that job roles are changing to such an extent that you will be entitled to treat affected employees as redundant and invite them to apply for the new roles as part of a competitive interview process.
If this applies, it’s possible to rely on more subjective selection criteria. However, care should be taken to try and make the selection process as objective as possible in order to reduce the risk of unfair dismissal and discrimination claims.
8) Is bumping appropriate?
Bumping is the process of moving a potentially redundant employee (A) into another role, and dismissing the employee currently performing that role (B). This is still a redundancy dismissal, even if there is no actual or anticipated reduction in the requirements for employees to do B's work. There is no obligation to bump.
However, it may render a dismissal unfair to not consider it especially where a senior employee may be capable of carrying out the role of someone more junior.
9) Are there alternative roles available?
While this might perhaps be unlikely for small organisations, it’s necessary for employers to consider alternatives to redundancy, which will include making at-risk employees aware of any available alternative employment. An offer of alternative employment that differs from the at-risk role can be made subject to a 4-week trial period.
If alternative employment is offered to an at-risk employee and: 1. that employment is deemed suitable, and 2. the employee unreasonably refuses the same, they may lose the right to a redundancy payment.
Employees on certain types of family leave whose role is redundant will be entitled to be offered available alternative employment ahead of other employees. Not to do so will render the dismissal automatically unfair.
If you are part of a group of companies, there is no absolute obligation to search for available vacancies in the other group companies. Whether not searching renders a dismissal unfair will depend on the circumstances - factors such the degree of control the employer business has over the other group company will be relevant.
10) Notice of termination - work notice or PILON?
When terminating someone’s employment, they will be entitled to notice. What this is will depend on how long they’ve been employed and what their contract of employment says.
If the contract allows, you may be able to make a payment in lieu of notice (PILON) or place them on garden leave rather than require them to work. It is important to check the terms of the contract - if there is no such contractual right, you can seek agreement from the employee.
11) Calculating redundancy pay
Employees dismissed on grounds of redundancy with two or more years of continuous service are entitled to a statutory redundancy payment. This is calculated based on age and length of service.
Check out the government calculator, here, to assist with this. An employee may also be entitled to contractual redundancy pay – check the contract.
As you can see, there is plenty to think about. You can find more resources to help you to understand this process and different scenarios via our Coronavirus Advice Hub. When the time is right, seek Employment Law advice to help you.