Small and local businesses have been particularly hard hit by the aforementioned issues. So, if you are an SME considering the possibility of redundancies, you may find the following refresher FAQs useful:

What is redundancy?

Contrary to popular belief, redundancy is actually a form of ‘dismissal’. Therefore, whatever the reason is for a business taking steps towards making redundancies, a business must act prudently and take adequate legal advice beforehand because there is a thin line between ‘redundancy’ and ‘unfair dismissal’. Typically, an employer will consider redundancy an option when trying to reduce business overheads and cost centres. This can range from closing the workplace in its entirety to a smaller scale restructuring or reorganisation of the workforce. Other reasons for considering redundancy may include a business having to re-locate, which many have had to do recently, changing what services or products it provides or when a business has gone bust altogether (also known as going into administration). Although unpleasant, if conducted properly redundancy can be a successful means of achieving these legitimate aims.

How should an employer select employees for redundancy?

There is no ‘one size fits all’ selection process for redundancy. However, as an employer the decision-makers must make their selection carefully and ensure that they are not discriminating against any one group or cohort of individuals. This is where some initial legal advice comes in extremely handy. It is definitely a case of ‘a stitch in time saves nine’.

As a rough guide, the government has set out the following fair selection criteria for redundancy:

• skills, qualifications and aptitude
• standard of work and/or performance
• attendance
• disciplinary record
• employers can select employees based on their length of service but only if it can be justified. If it affects one group or cohort of people more than another this could constitute indirect discrimination.

The government has also laid out an unfair selection criteria which must not be considered when selecting employees for redundancy:

• pregnancy, including all reasons relating to maternity
• family, including parental leave, paternity leave (birth and adoption), adoption leave or time off for dependants
• acting as an employee representative
• acting as a trade union representative
• joining or not joining a trade union
• being a part-time or fixed-term employee
• age, disability, gender reassignment, marriage and civil partnership, race, religion or belief, sex and sexual orientation
• pay and working hours, including the Working Time Regulations, annual leave and the National Minimum Wage.

When should employees be informed about potential redundancies?

It is advised that businesses formally notify the relevant employees that they are ‘at risk’ of redundancy at the earliest opportunity. This notification should be in writing to demonstrate that the employer has given their employees sufficient advance warning of the situation and how it may affect them. Before making employees officially redundant an employer will need to engage in a consultation with them. This consultation is a form of statutory protection setting out a minimum standard for how redundancies should be conducted. The legislation governing this is the Trade Union and Labour Regulations (Consolidation) Act 1992 (TULCRA). Failure to follow the TULCRA procedures can incur serious financial penalties in the form of protective awards of compensation.

What is a redundancy consultation and how is it conducted?

Employers are required to consult with employees about potential redundancies as early as possible. This consultation should involve a discussion of the proposals that have been made with the relevant employees and as an employer it is important to demonstrate that one is actively looking at ways in which redundancies may be reduced or avoided altogether. Suitable alternatives to redundancy should also be considered and discussed during the consultation, for example, if employees would be willing to work part-time rather than full-time or if there are any alternative roles they may be able to take on, even a temporary reduction of salary is an alternative option to consider. It is crucial that employees are given the opportunity to ask questions and raise any concerns they may have throughout the redundancy consultation, as if employees feel that the consultation has been conducted poorly or unfairly an employer may find themselves at the receiving end of grievance proceedings. It is absolutely critical from an evidential point of view that employers demonstrate that they have had due regard to questions and concerns raised during the consultation period.

It is also important for employers to consider whether or not a collective consultation will need to be conducted. Where the proposal is to make less than 20 employees redundant within a 90-day period, then employers need not worry about conducting a collective consultation as the employees will fall under the individual consultation procedure. However, employers intending to make more than 20 employees redundant within a 90-day period will need to enter into what is known as a collective consultation with elected staff representatives. Again, it is vital that a business takes some initial specialist legal advice before embarking on either procedure. It really is a case of ‘a stitch in time saves nine’.

How long should a consultation period last for?

There is no statutory time limit for how long a consultation period must last, however, the number of redundancies being made will have an impact on when the consultation needs to begin. An employer intending to make 20 to 99 employees redundant, will need to start the consultation period at least 30 days before the first dismissal. If the proposal involves 100 or more redundancies then the collective consultation process will need to begin at least 45 days before the first dismissal. However, a word of caution for employers engaging in individual consultations – it is recognised as best practice to give a minimum 30 day period for individual consultations, even if a business is making one or two employees redundant.

How much notice  of termination is required?

Once the consultation period is over, it is necessary to give notice to those being dismissed and agree upon a leaving date. Staff must be given the statutory notice period as a minimum, this is based upon their length of service (however, you will also need to review contracts of employment to ensure that you comply with the terms & conditions in it as well):

• one week’s notice if employed between one month and 2 years
• one week’s notice for each year if employed between 2 and 12 years
• 12 weeks’ notice if employed for 12 years or more

Employers are also required to give staff ‘notice pay’. This is based on their pay rate and the length of their notice period. Unless an employee is on a salary, ‘notice pay’ is formulated on the employee’s average weekly pay across the 12 weeks prior to the beginning of their notice period. If an employee has been paid less during this period because they have been put ‘on furlough’ notice payments are based upon an employees normal salary.

An alternative option available to employers who require their employee to leave the job immediately is to offer the employee ‘a payment in lieu of notice’ (also known as a PYLON) as a replacement for them working the notice period. An employer may choose to also place the employee on garden leave to avoid them going to another competitor during their notice period. Again, you will require specialist advice in order to structure this type of arrangement properly.

What is a payment in lieu of notice?

A payment in lieu of notice (PYLON) clause can be incorporated within employment contracts. This gives employers the ability to terminate the employment without giving any notice and grant a payment to the employee, covering the notice period they otherwise would have worked. It is important to note that an employer must deduct tax and National Insurance from any such payment and will still be required to pay employees the basic pay they would have received for working their notice period. Additionally, any benefits specified in an employee’s contract must be paid, e.g. payments towards their pension or health insurance.

How is redundancy pay calculated?

Any employees who have been working for the employer for two years or more may be entitled to a statutory redundancy payment.

Statutory redundancy pay is as follows:

• half a week’s pay for each full year they were under 22
• one week’s pay for each full year they were 22 or older, but under 41
• one and half week’s pay for each full year they were 41 or older

The maximum number of years’ service which can count towards a statutory redundancy payment is capped at 20 years.

There is a useful tool for calculating redundancy pay on the gov.uk website: https://www.gov.uk/calculate-your-redundancy-pay

If you are considering making redundancies within your business and need help or advice on how to proceed, you can contact our legal advice hub for an initial 30-45 minute free legal advice session on 0203 627 9727 or send us an email at info@hillarycooperlaw.co.uk and a member of our team will be in touch.

If you found this article useful, why not check out the rest of our series on redundancy:

Redundancy and COVID-19 – Key Considerations from the Employer’s Perspective – ‘Cave Dico’ (Latin: Employer Beware!): https://hillarycooperlaw.co.uk/redundancy-and-covid-19-key-considerations-from-the-employers-perspective-cave-dico-latin-employer-beware/

Is the Notion of Redundancy, Redundant?: https://hillarycooperlaw.co.uk/is-the-notion-of-redundancy-redundant/

Redundancy – Deep Diving into choppy waters: https://hillarycooperlaw.co.uk/redundancy-deep-diving-into-choppy-waters/