Businesses will often go through ups and down. When times are hard you may need to make some employees redundant. So, it’s important you follow the correct process.
Not doing so could lead to the dismissals being unfair, leaving you liable to future claims. Following the process is the only way to avoid unfairly dismissing your employees.
In this guide, we'll discuss what the redundancy process is, how to follow a fair procedure, and how long the process takes.
What is the redundancy process?
The redundancy process is a list of steps you must follow to ensure you're acting legally when making redundancies.
Let's discuss each step in more detail to help you stay on the right side of the law:
Stage one - Create a business case for redundancy
The first stage of the process is to create a business case for redundancy. This is a document that explains the reasons for needing to trim your workforce. In essence, it's a redundancy proposal.
You must have genuine and legal reasons for making employees redundant from your company.
As a business owner, it’s accepted practice to create a business case for redundancy. So, you must know how to write one to avoid claims and potential compensation payouts in the future.
How to write a business case for redundancy
When writing the business case for your company, there's plenty to bear in mind. Try and include the following in yours:
- The situation that's led to the redundancies.
- The number of employees affected.
- What alternatives to redundancies might be available.
You must also explain how the redundancies will affect the remaining employees in your company.
The case has to be as clear as possible as you may be required to defend its at a tribunal.
Stage two - Consider alternatives to redundancy
As an employer, you should explore alternatives to avoid redundancy. There are different avenues to explore when it comes to this, so you must become familiar with them.
Choosing one of the alternatives can lead to the number of redundancies decreasing.
Let's discuss each of them in more detail:
- Early retirement: You may offer early retirement to your older employees. However, you must avoid age discrimination.
- Lay-offs: You may choose to temporarily lay some employees off with the plan to bring them back at a later date. Be aware that a lay-off can only happen if it’s included within their contract.
- Lowering working hours or removing overtime: You may remove the chance for employees to work any overtime. However, be careful you don't breach their employment contract in doing so.
- Providing a pay reduction: You may reduce employee's pay in a bid to save money. However, the employee must agree to do this first, not doing so is against employment law.
Make sure you discuss all the options with your employees and be willing to listen to any new ideas.
Stage three - Offer voluntary redundancy
Stage three of the redundancy process is to offer voluntary redundancy. However, this isn't always an option for all companies so you must understand what it is.
What is Voluntary redundancy?
Voluntary redundancy is when employees are offered fair financial compensation or incentive to leave the company.
It's typically a fast and less painful process than compulsory redundancy. But if not enough employees volunteer themselves, you must go down the compulsory route.
Benefits of voluntary redundancy
There are some benefits to offering voluntary redundancy that you should consider. Such as:
- Reduces long-term operating and running costs.
- Avoids having to make the process compulsory and more difficult.
- Increases employee morale as it is seen as a more positive move.
Risks of voluntary redundancy
As well as the benefits, there are some risks you need to be aware of. You should be familiar with them before you decide to take this route, such as:
- There may be an increase in your short-term costs.
- The financial payment is usually larger than the usual redundancy payment.
- You may lose your best and more highly skilled employees.
- You may be accused of acting in a discriminatory way by offering it to certain employees.
What is the difference between compulsory and voluntary redundancies?
There are two major differences between voluntary and compulsory redundancies that you need to be aware of.
Voluntary redundancy typically offers a larger financial incentive than compulsory, and people want to leave. This makes it a desirable option for companies.
But the main difference is that with voluntary redundancy people want to go, with compulsory they don’t.
Can an employer refuse a voluntary redundancy request
Yes, employers don't have a legal requirement to accept voluntary redundancy requests.
You may not want to lose the particular member of staff who has offered their redundancy. Especially if they're crucial to the day-to-day running of your business.
If this situation arises and the employee still wants to leave, it should be processed as a resignation.
Stage four - Redundancy selection
The fourth stage of the process is to select the employees you wish to make redundant. No matter how many people are losing their job, they must be fairly selected by predetermined selection criteria.
However, if more than one employee is at risk you must create a selection pool to assess each one. Your pool must follow fair selection criteria, for example employees who carry out similar work.
Following unfair selection criteria can lead to the dismissals being automatically unfair.
Fair selection criteria examples
You must use objective criteria within your pool. Examples of these are:
- Relevant skills and experience.
- Attendance and disciplinary
- Who was employed most recently (last in, first out).However this should not be used as the only criterion, doing so can run the risk of age discrimination.
When is redundancy selection unfair?
Redundancy selection becomes unfair if you choose employees who hold a protected characteristic. All your employees have the right to be treated equally and without discrimination.
You cannot choose someone to be made redundant because of the following:
- Gender reassignment.
- Sexual orientation.
- Race, religion, or belief.
- Marital status.
- Being pregnant.
As an employer, you may choose to use a scoring system to fairly choose employees for redundancy.
What is the redundancy selection scoring system?
When making multiple redundancies, you may be unsure of which employees to select. One way you can make the final decision is by using a scoring system.
You can use this to score employees against a predetermined set of criteria, for example:
- Outstanding: 15 points.
- Exceeds objectives: 12 points.
- Meets all objectives: nine points.
- Meets some objectives: six points.
- Fails to meet objectives: three points.
Remember, you must never act in a discriminatory way when selecting employees via the points system.
Stage five - Redundancy consultation
The fifth stage of the redundancy process is redundancy consolidation. All employees should be made aware of the proposed redundancies in your company.
It's important you understand the process to be followed.
What is the redundancy consultation process?
You must understand the process for redundancy consultations. Failure to do so could mean you act unfairly and have claims raised against you. So, let's discuss it in more detail:
- Invite affected employees to consultation meetings.
- Explain the reasons behind the redundancies.
- Discuss alternative solutions.
- Explain the selection criteria and process you'll use.
- Explain which criteria have more importance to others.
All employees are eligible to discuss alternatives and suggest new ideas. You may also need to hold a collective consultation.
What is a collective consultation?
If 20 or more, or even 100 employees are potentially being made redundant it is known as collective redundancy. The consultation for 20 or more employees it must be held at least 30 days before any redundancies take place. For 100,it’s 45 days.
It must involve a trade union or employee representatives to keep them fair.
You must as many consultation meetings as needed with the affected employees, explaining why they're part of the selection pool.
The Redundancy Payments Service (RPS) must be notified before starting the consultation process. The process is as follows:
- Notifying the RPS, trade unions, and other employee representatives with information related to the redundancies.
- Notifying each affected employee.
- Consult with trade union and employee representatives.
- Scoring employees and deciding on who to make redundant.
Following completion of the collective consultation, employees must be provided with redundancy notice.
Consultation process for individual redundancies
There are different procedures that apply to small-scale or individual redundancies. For example, there's no time limit to hold a consultation. However, it must be held in a reasonable time.
To ensure you're acting fairly, you should follow the standard consultation process to avoid claims being made against you.
Once the individual consultation is completed, you must provide the employee with a notice period. This will either be contractual notice or a statutory minimum notice period.
Remember, you shouldn't provide your employees with a redundancy notice period during any of the consultation stages.
Are employees expected to work during the redundancy consultation process?
Yes, employees are expected to work whilst the consultation process is taking place (unless they have time booked off as annual leave or on maternity leave).
It's advisable to explain this to your employees at the start of the process.
Employee rights during redundancy consultation
During the redundancy consultation process, your employees have certain rights that you must provide.
If an employer fails to do so, it can lead to claims being raised against you at an employment tribunal.
These rights are:
- Be treated fairly and not discriminated against.
- Be invited to all consultation meetings.
- Be made aware of redundancy pay, and a contractual or statutory notice period.
- Be given the chance to respond and suggest any ideas of alternatives.
- Be accompanied to the final decision meeting by a fellow employee or trade union representative.
Stage six - Find suitable alternative employment
The next stage of the process makes up your obligation to avoid redundancies in your company.
Any at-risk employees should be offered this where available. However, employees who have more than two years’ service and not been offered can claim for unfair dismissal.
Consider eligible employees for roles based on:
- Relevant work experience, skills, or expertise.
- Previous position held within the company.
- Training needed for new roles or responsibilities.
The role must be offered before their contract finishes, with employees given a four-week trial period in their new job. However, this period can be extended with an agreement.
Failure to source alternative employment may make the dismissal unfair in the eyes of a tribunal.
Stage seven - Finalise the redundancies
The last stage of the process is to select employees for redundancy.
You should hold a meeting with each employee to inform them of your decision to make them redundant.
This must be confirmed in writing, including when the job ends along with details of their redundancy package (statutory redundancy pay).
Employees have the right to know how their statutory redundancy payment has been calculated.
Following this, they start their notice period. You must provide the following:
- If employed for longer than one month but less than two years: one week's notice.
- If employed for two years or more: one week's notice for every year employed (up to 12 years).S
- If employed for 12 or more years: 12 weeks' notice.
Also confirmed in writing should be they can appeal your decision. At this point, employees are entitled to time off to look for a new job.
How long does the redundancy process take?
How long the redundancy process takes depends entirely on how many employees are being made redundant. So, let's discuss the redundancy process timeline below:
- Making fewer than 20 employees redundant: Typically less than 30 days (as you must consult with individual employees).
- Making between 20 and 99 employees redundant: Typically around 30 days (as you must complete individual and collective consultation).
These timeframes are a legal requirement, which you must adhere to.
Redundancy process best practices
You should do everything you can to avoid claims being raised against you for unfair dismissal.
So, if you're making any employees redundant in your company, it's good practice to follow these tips:
- Provide all employees with a full explanation and the redundancy process you're using.
- Treat all employees equally and act transparently.
Arguably the most important is communication. You must communicate with your employees every step of the way. Don't forget how stressful this period of time is for them.
Can employees complain about the redundancy process?
Yes, employees are well within their right to make a complaint if they feel they aren't being treated fairly. If a complaint is made, you must take it seriously.
When dealing with a complaint, your grievance and investigation procedure must be followed. It's advisable that someone not involved in the redundancy process leads the investigation.
Be aware you may be required to pause the redundancy process whilst the issue is investigated.
Avoiding unfair dismissal claims
If you want to avoid unfair dismissal claims being raised against you, then managing redundancy correctly is vital. This includes following a fair redundancy process.
Employers who don't follow the correct procedures during the redundancy process may leave themselves liable to unfair dismissal claims.
It's automatically unfair to make an employee redundant for several reasons, such as being a part-time worker. However there are more, for example:
- Pregnancy, or all reasons relating to maternity.
- Family reasons, including parental, paternity, adoptive leave, or time off for dependents.
- Being a whistleblower.
- Taking part in industrial action.
Avoiding discrimination claims
During the redundancy process, you must avoid choosing someone for redundancy due to the fact they hold a protected characteristic. For example an employee's age under the Equality Act 2010.
Be extra careful when offering older employees with early retirement. Although they may take this option, be aware of age discrimination.
Get expert advice on the redundancy process from Peninsula
As an employer, making redundancies will be one of the challenging and complex processes you'll have to go through. So, it's vital you understand and follow the correct process.
Failure to do so may make the dismissals unfair, leading to claims being raised against you in the future. You shouldn't underestimate the importance of getting it right.
Peninsula offers 24/7 HR advice which is available 365 days a year. Want to find out more? Contact us on 0800 051 3687 and book a free consultation with one of our HR consultants.