In recent weeks, several prominent organisations have announced mass redundancies, underscoring the ongoing economic challenges faced by businesses. Dyson, the renowned technology company, recently revealed plans for up to 1,000 job cuts, citing shifts in market dynamics, and evolving business strategies. Similarly, Manchester United, one of the world’s most valuable football clubs, has made headlines with its own round of redundancies, reflecting broader financial pressures within the sports industry.
As these developments highlight the increasing prevalence of workforce reductions, it is crucial for employers to understand their legal obligations when it comes to handling redundancies. Failure to adhere to these requirements can result in significant financial, reputational and operational risks.
WHAT ARE REDUNDANCIES?
Essentially, redundancy occurs when an employer needs to reduce its workforce because a specific job role or a number of jobs are no longer required. Under the Employment Rights Act 1996, redundancy can arise in three types of situations, (1) business closure, (2) workplace closure, and (3) a diminished requirement of the business for employees to do work of a particular kind.
There are many different factors for which a business might need to consider making redundancies, for example, economic downturns, technological advancements or organisational restructuring.
It is also important to distinguish redundancy from other forms of dismissal. Unlike dismissals based on an employee’s performance or conduct, redundancy specifically relates to the role being redundant, not the individual. For instance, if a company introduces automation that replaces a particular job function, the role, not the person, becomes redundant. That said, performance or conduct could form part of the process for selecting which employees will be made redundant (more on this below).
WHAT MUST EMPLOYERS DO?
Employers must follow several key principles to ensure that the redundancy process is legally compliant and fair. Failure to do so can lead to claims of unfair dismissal and other legal challenges.
Here are 5 key principles:
1. Genuine Redundancy Situation
Employers must demonstrate that the redundancy is legitimate, meaning that there is genuinely a reduced requirement for that role and there is a valid business reason for the decision. Common reasons include business closures, relocations, or a reduced need for specific roles.
An employer should have sufficient evidence to support the business reasons for proposing redundancies.
2. Meaningful Consultation
Consultation with employees is fundamental when assessing the fairness of any dismissal for redundancy. Therefore, failing to warn and consult with affected employees before dismissing them is very likely to be unfair.
Employers are required to engage in a meaningful consultation process with affected employees and where there are fewer than 20 redundancies, this should be conducted on an individual basis only. For 20 or more redundancies, see comments below. To ensure a proper consultation, it is important that employees are notified that they are at risk and informed of any redundancy proposals. This involves sharing relevant information, such as the reasons for redundancies, the number of employees affected, and the selection criteria. The consultation should allow employees to discuss the proposals and suggest alternatives.
There is no minimum period of time for a consultation to be meaningful or effective where less than 20 employees are concerned. The length of each consultation period should be determined on its own merits, ensuring it is sufficient to be considered meaningful and effective.
3. Fair Selection Process
The selection process for redundancy must be fair and transparent. Employers must identify the pool from which employees will be selected (if any), especially where employees perform the same or similar roles. Fair selection involves the fair application of objective and non-discriminatory selection criteria such as skills, qualifications, and length of service. Any bias or unfair treatment can result in legal claims.
4. Exploring Alternatives
Employers should consider suitable alternative employment to ensure that a fair and reasonable redundancy process has been followed. This may include offering alternative employment within the organisation, reducing working hours, or considering voluntary redundancies.
If, at the time of dismissal, an employer has failed to give consideration to whether suitable alternative employment existed in the business, it is likely an employee will argue their dismissal was unfair.
5. Statutory Redundancy Payment
Employees with two or more years of continuous service are entitled to statutory redundancy pay if they have been made redundant. The amount is calculated using a formula based on the employee’s age, length of service, and weekly earnings.
WHEN DOES COLLECTIVE CONSULTATION APPLY?
If an employer proposes to make 20 or more employees redundant within a 90-day period, collective consultation rules apply. This is particularly relevant in cases like Manchester United, where the club’s new ownership plans to reduce staffing levels by 250 employees.
In such cases, employers must:
- Inform and consult with appropriate employee representatives of the affected employees as well as on an individual basis. An employer must first identify the affected employees and then consult with their employee representatives, such as trade unions or elected representatives. If there are no such representatives then an election process should be undertaken to nominate these representatives.
- Consult over a minimum period. The consultation must begin at least 30 days before the first dismissal takes effect if 20 to 99 employees are affected, or at least 45 days in advance if 100 or more employees are affected. An employment tribunal may award up to 90 days’ pay for each employee where an employer has breached its duty to inform and consult properly on a collective basis.
- Notify the Secretary of State on Form HR1. This is required where an employer is proposing to make more than 20 dismissals by reason of redundancy at one establishment within a 90-day period. The notification periods vary depending on whether the employer is proposing to make 100 or more dismissals or fewer than 100. Failure to provide the notification to the Secretary of State is a criminal offence and can result in significant penalties.
CONCLUSION
The recent redundancies at major organisations like Dyson and Manchester United are a stark reminder of the economic pressures businesses face today. For employers, it is crucial to understand the requirements of conducting a fair and transparent redundancy process and be prepared with the relevant information to ensure a meaningful process.
By understanding the key principles of redundancy and the requirements for collective consultation, businesses can manage these difficult decisions in a way that minimises disruption and upholds their legal responsibilities.
To discuss any of the points raised in this article, please contact Ramona Bakshi or fill in the form below.
