Avoid these common redundancy risks

Patrick Whelan

October 27 2020

As the end of 2020 nears, many business owners are facing tough decisions around cost-cutting.

The pandemic has driven down revenues across various industries. If your business has been affected, you’re probably looking at ways to reduce your outgoings. With labour costs often making up a large portion of overall business costs, reducing the cost of labour could well be your business priority this year.

And, despite your best efforts to avoid losing staff, you might need to make redundancies to stay afloat.

Why is redundancy risky?

Even though making redundancies might be the best way to protect your business, it’s also a technical area of employment law. If you don’t complete a redundancy process correctly, your business is exposed to the risk of potential claims under redundancy, employment equality, and unfair dismissals legislation.

Objective selection process

One of the key elements of a redundancy procedure is running fair and objective selection processes. You also need to ensure that you put a consultation procedure in place to allow employees who are at risk of redundancy to participate in the process.

Employee consultations should allow the employee to suggest possible alternatives to redundancies. An objective selection process also reduces your risk of suffering a discrimination claim linked to your redundancy process.

Unfair dismissal

Redundancy is a fair reason to terminate employment. The risk of redundancy-related unfair dismissal claims tends to arise in two ways.

First, it needs to be clear that a genuine redundancy situation exists. In the current circumstances, many redundancies will be justified by a lack of work and therefore fewer employees are needed to complete the work.

Second, you need to demonstrate that you followed fair procedures before making the role redundant. If either, or both of these elements are in question, you might be exposed to the risk of an unfair dismissal claim.  

Business risks of a botched redundancy process

If you fail to comply with the redundancy legislation, you leave your business exposed to significant financial downsides. If an employee succeeds with an unfair dismissal claim, they may receive up to two years’ gross salary in compensation awards.

You should also consider the reputational downsides of a badly managed redundancy process. Any subsequent claims by employees and negative experiences have the potential to negatively impact your reputation as a business.

Those left behind

After the year we’ve had, it seems inevitable that jobs will be lost. A final risk that is sometimes overlooked is the risk of alienating the staff who avoided redundancy.

It’s vital to do as much as you can to foster a positive working environment for your remaining staff. After all, a time of great change can be difficult for many employees. Regular communications with staff are vital once the redundancy process has concluded.

Need our help?

If you’re a Peninsula client, you can call our 24/7 helpline for instant, unlimited advice on redundancy risks.

But if you’re not a client?

No problem. You can still claim a free advice call with one of our HR experts today.

To speak to an expert now and get the latest guidance on redundancy, call 0818 923 923.

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