Business Law & Compliance
How to legally make employees redundant
5 min read
27 August 2015
Tata Steel’s decision to make 250 people redundant at its Llanwern steel works to cut costs will have an emotional toil on both employer and employees. It should make every boss consider how they would react if they were faced to cut costs because of ailing demand or a lost contract – and here's a guide on how to do it.
Rafia Ahmad, an employment solicitor at legal firm Backhouse Jones, has said a redundancy exercise can be fraught with pitfalls, so getting the procedure right is of paramount importance.
“If an employer contemplates redundancies within the business, they will need to consider the following steps in order to ensure a fair dismissal,” she said. “If a procedure is carried out incorrectly, an employer could face a claim in the employment tribunal for unfair dismissal. If a claimant employee wins their claim, they could receive compensation for anything up to £78,335 – so it is important to get the procedure right.”
As a starting point, it is important to understand that a redundancy consultation period must be adhered to prior to any potential dismissal. If an employer is proposing to dismiss less than 19 employees, the employer can consult individually with employees and there is no prescribed consultation period although it is recommended that the consultation period is reasonable and not rushed.
If an employer is looking to dismiss more than 19 but less than 99 employees, they will need to go through a collective consultation process which lasts 30 days during which no dismissals can take place. Collective consultation is when the employer must consult with either the recognised union (if there is one in place) and/or elected employee representatives. The election process for representatives must be fair and open. If there are more than 99 roles at risk of redundancy, the period of consultation will be 90 days and again it must be a collective consultation.
Selection pools and criteria
If an employer has a number of employees all carrying out the same work, i.e. you need to reduce your driving staff from ten to five drivers, in order to select those at risk of redundancy fairly, the employer must show that it has pooled those drivers in a selection pool (because they carry out the same roles and/or have the same transferable skills).
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Once the pool is formed, the employer will need to apply a scoring process using objective selection criteria such as attendance; disciplinary record; time keeping; skills/qualifications etc. Those employees with the lowest scores are then placed at risk of redundancy and subject to a redundancy consultation process.
Many employers find this process difficult and often make mistakes when turning their minds to the correct pools and the fair application of selection criteria.
What is consultation?
Essentially, the purpose of consultation is to consult with the employees on how and whether the redundancy can be avoided, the reasons why the employee is at risk, discuss the selection criteria and scores if relevant; any suitable alternative roles; and any potential payments due if the employee is made redundant. Consultation will only be meaningful if it happens at a formative stage rather than when there is a fait accompli.
The employee who is provisionally selected must be given the opportunity to provide feedback on their scores and any other issues discussed during the meetings. It is good practice to allow employees to be accompanied by a work colleague or trade union representative to a consultation meeting.
If at the end of the consultation process no alternative role can be found, the employee should be informed that their employment is terminated by reason of redundancy. They should be provided with a letter to confirm dismissal and they should be paid any notice, accrued but untaken holiday and statutory redundancy pay (if they are entitled to any).
The consultation period can be stressful for both the employee and employer. Before embarking on a redundancy exercise, it is vital to get legal advice about the procedure with the aim of avoiding finding yourself on the witness stand of the employment tribunal.