What is collective redundancy?
Collective redundancy is when a business proposes to make 20 or more employees redundant within a period of 90 days. The process is quite strict and there are many costly traps for the unwary company – it is not unusual for botched collective consultation processes to result in six (or even seven) figure compensation awards.
Why would I need to make collective redundancies?
- The company needs to close or move all or part of their business;
- Saving costs, due to a change in customer demand or an efficiency drive; or
- The business needs to reorganise the way that the company is run.
But be careful – in relation to collective consultation, “redundancy” has a wide meaning, which includes any dismissal “not connected with the individual”. This would catch, for example, the employer who tries to change terms and conditions by dismissing and immediately re-engaging staff (even if no jobs are lost)!
What are the changes to the law?
Originally you had to offer a minimum 90-day period for consultation, during which no dismissals could take place. This has now been reduced to 45 days, where 100 or more employees are affected. The period for lodging a form HR1 – A form for giving the Secretary of State advance notice of collective redundancies – with the Department for Business, Innovation and Skills (BIS) has reduced from 90 days to 45 days.
Fixed term contracts, which are due to expire naturally during the same 90 day period, no longer count towards the number of people being made redundant. The 30-day minimum period to lodge a HR1 form and moratorium on dismissals for redundancies made of between 20 and 100 employees remains unchanged.
Who do you inform & consult?
When making collective redundancies, the employer is obliged to consult “appropriate representatives” of the affected employees. This means that you need to identify who
the affected employees will be, and then select their appropriate representatives, for example:
- Representatives of a recognised trade union;
- Directly elected representatives; and
- A standing body of elected or appointed representatives not specifically elected for the purpose of redundancy consultation.
It is important to make sure that representatives have authority to consult for this purpose – if in doubt, ask your lawyer.
Process of Consultation:
The first stage of consultation is to provide the representatives with written information including details of the proposed redundancies.
The following written information must be provided as a minimum:
- The reason for the proposed dismissals;
- The numbers and descriptions for each employee the business proposes to dismiss as redundant;
- The numbers and descriptions of employees whom it is proposed to dismiss as redundant;
- The total number of employees employed at the establishment in question;
- The proposed method of selecting employees who may be dismissed;
- The proposed method of carrying out the dismissals – this should include the period over which the dismissals are to take effect;
- The proposed method of calculating the amount of any redundancy payments to be made (over and above the statutory redundancy payment) to employees who may be dismissed; and
- “Suitable information” about its use of agency workers.
Notifying The Secretary of State for BIS
Employers proposing a collective redundancy are obliged to notify the Secretary of State. If an employer notifies the Secretary of State of 20 proposed dismissals, and then proposes ten more dismissals outside the 90 days, then the employer is under NO obligation to notify the Secretary of State about the additional ten. But don’t forget: failure to provide the notification to the Secretary of State is a criminal offence and employers will be liable to a fine of up to £5,000.
What if you don’t comply?
Failure to comply with any of the rules on information or consultation, or mishandling of the election of representatives, can lead to a financial award made to each affected employee of up to 90 days’ uncapped gross pay – something that didn’t change with the introduction of the new law!
So, how do you make collective redundancy work for your business?
- Maintain honest, good working relationships with employees, unions and all employee representatives;
- Where possible, try to agree procedures for handling redundancies in advance – but remember to allow yourself some flexibility;
- Start consulting as soon as possible and NEVER make the decision that redundancies are ‘necessary’ before consultation has taken place – this can undermine the consultation and lead to a costly financial penalty;
- Put into practice an organisational culture that recognises the emotional impact on change as well as the economic impact; and
- When looking to restructure, make sure that you have long term goals in place and always look to the future.
Richard Turner is a solicitor at Brilliant Law, which offers fixed price legal services to small businesses and start-ups.
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