Redundancy – a guide for employers

Redundancy happens when an employer needs to reduce the size of its workforce, or a role is no longer needed within a business. It can be a stressful event for employees and should be handled sensitively to ensure fair treatment of those affected and to try and maintain morale of the remaining workforce.

Redundancy legislation is complex and it’s vital that employers fully understand their obligations, the right procedures to follow and the rights of the affected employees.

Building your business case for redundancy or restructure

The first and most important step in the redundancy process is drafting your business case for the change. Clarifying and being specific about the need for the change will make it much easier to articulate to those affected.

Thinking about the situation in a broad context will ensure you’ve considered all angles:

– What’s the problem we need to solve?

– How/why does the existing structure not meet this need?

– What other options have we tried already to address this need?

– If the need is cost saving what other cost reductions methods have we tried?

– How can we meet the need by reducing/changing/restructuring roles?

– What timescale do we need to achieve this in?

Different scenarios for redundancy and restructure

Every business will have different reasons and needs for restructuring or redundancies. The nature of a business may change (e.g. manual roles becoming automated), or it takes a new direction (new markets or products), or it simply is no longer commercially viable operating as it is. In extreme cases the organisational design of the business is so flawed that the whole structure needs a re-think.

These are some of the most common scenarios:

– Reducing the number of roles that are the same or similar

– Removing a line of middle management

– Removing individual roles that no longer fulfil a necessary function

– Closure of a department or location within the business

Identifying which roles are affected by a restructure

A good tip for correctly identifying the roles affected by the change is to compare the old structure with the proposed new structure and carry out a gap analysis. Consider whether the existing role has disappeared altogether (which would be a redundancy situation) or has only been tinkered with.

Minor role changes such as a small variation in duties, new area of focus, or a reporting line change are not normally a redundancy situation and can be implemented without the formalities of the redundancy process. As a rule of thumb if 80% of the role is unchanged there is not redundancy situation, and the changes can be introduced in a different way.

Redundancy consultation periods

Consultation periods for redundancy are determined by the number of roles affected within the business. For more than 20 but less than 100 roles, the consultation period is 30 days. If more than 100 roles are affected, it is 45 days.

The period of consultation is measured from the date certain information is provided to those affected or their employee representatives until the date the first person leaves the business. If 20 roles or more are affected during the subsequent 90 days, the business is obliged to undertake collective consultation.

Collective consultation on the redundancy process

Collective consultation means consulting with representatives of those who are affected by the business case and the proposal for change. Having a representative group to speak to in a collective consultation process is extremely useful in a large-scale redundancy scenario as it reduces the overall number of people the business needs to consult with directly on the key issues before starting to implement the redundancy process with affected individuals. This can happen in several ways:

Trade union

A trade union must be consulted where one is recognised for the roles affected, if this doesn’t apply for some or all of the roles affected, then an elected group should be considered instead.

Elected group of employee representatives

This could be an existing group that the business already consults with internally, or a new group elected by the affected employees specifically to manage the redundancy consultation process. 

The number of representatives can be dictated by the employer, but the aim should be to ensure that all individuals feel represented by someone who understands their role and contribution to the business.

If the business invites affected employees to elect representatives and they fail to do so, the business can then consult directly with the employees affected.

The role of representatives in collective consultation

Collective consultation is a two-way process that involves the employer consulting with those affected to reach an agreement by making proposals and discussing them with the representatives. 

The role of the representatives is to engage with the business on the proposals, seek feedback from those affected and present a collective view in response to the proposals. The representatives can make comments, suggestions and counter proposals and the employer should consider these and either alter its proposals or explain why the feedback has been rejected. 

The purpose of redundancy consultation

Gaining agreement on the key issues is the best way to manage risk and it’s important to work through the consultation process fully. Although agreement between the business and the representatives isn’t required, consultation should be conducted with seeking agreement in mind. The goal of consultation should be to try and avoid or reduce the number of redundancies needed and to mitigate the consequences of them where possible.

Entering into consultation only to pay lip service to the obligation to consult when business decisions have already been made can result in unfair dismissal claims, employment tribunals and potentially costly compensation awards.

The collective consultation process

Collective consultation starts with the employer providing specific information to the employee representatives. This is called a “section 188 letter” and usually contains the following:

– The reasons for the proposed dismissals (the business case)

– The numbers and descriptions of employees proposed to be made redundant

– The total number of employees of any such description employed at the establishment in question

– The proposed method of selecting the employees for redundancy

– The proposed method of carrying out the redundancies including agreed procedures and a detailed timeline for the process

– The proposed method of calculating the redundancy payments to be made (over and above the statutory redundancy payment)

– “Suitable information” about the employer’s use of agency workers

Similar information also has to be disclosed to the government by submission of a form called an HR1.

It’s also good practice to consider (and if appropriate consult on) whether a voluntary redundancy programme is an option to make the changes identified in the business case, and if it is possible to agree how this will be managed.

Once collective consultation has established the key impact of the proposals, how the redundancies will be carried out and the timescale, the next stage in the process is to undertake individual consultation with those whose roles are at risk of redundancy.

Individual consultations on redundancy

Individual consultation is always required, even where there has been no need to collectively consult. All those entering individual consultation should be clear on the possible implications of the process, understanding that their role is at risk of redundancy and therefore potentially they are. We recommend a letter confirming this.

We would advise an employer to consult with the individual across 2 or 3 meetings as a minimum and provide information about the following:

– Why are redundancies necessary? (explain the business case)

– Why is this role proposed as redundant?

– How have I been selected?

– Are there any suitable vacancies that I could consider to avoid the redundancy?

– What is the timescale for leaving if I am made redundant?

– What are the financial implications if I am made redundant?

It’s good practice to make notes of all the meetings and share these with the individuals.

Redundancy entitlements for employees

Any individual made redundant should have their contract terminated in line with the employer’s contractual notice provisions. This means either a period of notice is served or if the contract allows for it, paid in lieu, or served on garden leave.

An individual employee with more than 2 years continuous service at the date they leave the business has an entitlement to a statutory redundancy payment. This is calculated using a statutory formula based on age, length of continuous service and value of a week’s pay (capped at £577 for dismissals after 6 April 2022). 

Some employers choose to pay more than the statutory payment, and this is something that would be determined as part of the consultation process.

If your business needs help with redundancy

Our team are on hand to advise and guide you on all aspects of the redundancy process. We can also offer a more complete outsourced HR solution if you don’t have your own team in-house.

Contact one of our friendly team today for an informal chat.