Redundancy in UK: Employers’ guide to good practice 2020

published on 15 September 2020 | reading time approx. 4 minutes

The coronavirus pandemic has affected the UK economy since it arrived earlier this year and the impact continues to be felt. After a nationwide lockdown was imposed in March to try to halt the spread of the virus, all non-essential retail and hospitality had to close, putting intense pressure on companies to stay afloat.

  

With the UK Government now relaxing lockdown measures, it is widely considered that a second wave of the coronavirus is looming. It is vital that employers start planning to ensure that they are well prepared as it seems highly unlikely that the Government will introduce a new furlough scheme in the event of a second wave.
With the furlough scheme ending in October 2020, employers will have to decide if they can afford to keep those still on furlough. This could result in a big wave of unemployment in the autumn.
 
Redundancy in the UK is a daunting process for employers to get right and many employers struggle with its complexities. Employers need to establish a strong business case and have a fair approach throughout. There are many employment laws to consider during dismissals, so it’s essential employers get everything right. If you have to make dismissals, below is a quick overview of the redundancy process.

• What is redundancy? »

• Redundancy law in the UK »

• Consultation process »

• Settlement Agreements »

The redundancy process—a quick overview
What is redundancy?

The usual rules around redundancy in the UK have not changed. When dealing with a potential redundancy situation that is subject to the laws of England and Wales, before any employee’s position can be determined as redundant, it is necessary to go through a fair selection process with all the “at-risk employees”. This obliges the employer to consult with such employees about the redundancy situation, the selection criteria used, their scores from using the selection criteria, and to consider alternatives to dismissal.
 
A genuine redundancy situation is either:

• a closure of the business for which the employee was employed; or
• a closure of the place of business where the employee was employed to work; or
• a reduced requirement for employees to carry out work of a particular kind

This process doesn’t simply involve ending employees’ contracts of employment; it’s a bit more complicated than that.
 

Redundancy law in the UK

Legislation that governs redundancy in the UK is outlined in the Employment Rights Act 1996. As an employer, you do have the right to dismiss employees by way of redundancy; however, you must provide a strong business case to go ahead with it. Employers must justify their reasons for making dismissals as employees have redundancy rights, which include the right to a fair and objective redundancy process. If an employee has been dismissed by reason of redundancy and was not subject to a fair consultation process in advance of being made redundant, they may have a claim against their employer for unfair dismissal.

Consultation process

Employees are entitled to a consultation with their employer if they’re at risk of being made redundant. This involves speaking to employees about:

• why they are at risk of redundancy
• any alternatives to redundancy

If you as an employer are making up to 19 redundancies, there are no rules about how you should carry out the consultation. However, if you are making 20 or more redundancies at the same time, then collective redundancy rules will apply which will involve consulting with elected employee representatives as well as the employees themselves. As part of the consultation process, the following points need to be considered:

Selection pool

Once a genuine redundancy situation has been identified, the next step in a redundancy consultation process is to identify the employees at risk, otherwise known as the appropriate selection pool(s). Prior to choosing who should be made redundant, it is normally the case that there should be a number of different pools which may need to include groups of employees on this list and also be extended to include other employees within the organisation.
 
A selection pool must contain employees who are doing the same or similar work and whose jobs are interchangeable with each other. This does not mean that a pool of one will never be fair, but an employer seeking to rely upon such a narrow pool must show that it genuinely applied its mind to the issue. The underlying concept is that a wider pool is normally more appropriate and that applying a narrow pool without exceptionally good reasons may render this decision outside the band of reasonable responses and, ultimately, unfair.
 

Selection criteria

For a redundancy dismissal to be fair, employers must adopt fair and objective selection criteria in order to distinguish between the employees within each pool. If the organisation does not have an agreed redundancy procedure, the employer must adopt fair and objective selection criteria that are most suitable for its business, and should be able to substantiate the criteria adopted. Examples include attendance records, performance/capabilities, skills/qualifications, length of service, disciplinary records and anything else that may be tailored to the new or reduced positions available. Employers should take care to ensure that the selection criteria adopted are consistently applied and do not discriminate.
 
Employees in the pool for selection are commonly assessed by being marked against the selection criteria, which in some cases may be given a particular weighting.
 
As part of the consultation process employees should be given information about the selection criteria that the employer is using, and should be given the opportunity to comment on the scores attributed to them.
 
Once the final scores have been arrived at, the employee with the lowest score in that particular pool would normally be considered redundant.
 
The final stage involves writing individual redundancy notice letters to each employee set to be made redundant following the conclusion of the consultation process. In these, you should detail the redundancy and notice pay that the employee will receive. Redundancy entitlement is available if the employee has been employed with you for two or more years.
 

Settlement Agreements

The handling of a redundancy process can be complex and timely, particularly for large scale redundancies, so it is common practice for employers to offer enhanced redundancy payments by way of settlement agreements (where in a financial position to do so) as an incentive to reach a settlement with any affected employees. Where an agreement is reached and the employee signs a settlement agreement accepting the termination of their employment, this then avoids the need to carry out a lengthy consultation process and minimises the risk of future claims in the Employment Tribunal. It can also be carried out in a confidential manner meaning that it does not affect the morale of the wider workforce.