FAQ: Redundancy

If one of my employees leaves the company of their own accord having been issued notice during a redundancy exercise, do they forfeit their redundancy pay?

No, however they may forfeit part of the redundancy pay. You would not be obliged to pay them the whole of their notice period and the statutory payment may need to be recalculated if their service anniversary or birthday falls within their notice period, but after the date they actually leave on.

If I want to make someone redundant what do I do?

Talk them through the process of whether it is a genuine redundancy situation, the consultation period and purpose, selection criteria and its importance, calculation of redundancy payments and final confirmation of decision and follow up letter. Remember, it is the position that becomes redundant, not the employee. Dismissal of the employee is the consequence of the position no longer being required. Every reasonable effort should be made to identify suitable alternative employment within the company.

What constitutes a redundancy situation?

The need to no longer maintain a particular job or a significant reduction/ diminished requirement for work of a particular kind. If a number of posts of a particular kind are to be made redundant then an agreed selection criteria must be applied to ensure a fair selection process.

When do employers need to consult collectively as well as individually in a redundancy situation and how does this affect the timing of dismissals?

Employers are required to consult collectively with trade unions, if recognised or with elected employee representatives if no trade unions are recognised, where they propose to dismiss 20 or more employees from one establishment within 90 days. The length of consultation is either 30 or 90 days depending on the number of employees the employer proposes to dismiss. In a 2005 case, the European Court of Justice held that an employer who gave employees notice of dismissal prior to the conclusion of collective consultation would breach the collective consultation requirements for redundancy.

In most cases this will mean that no notices of dismissal can lawfully be given before the 30 or 90 days are up. As failure to consult collectively can result in an award of up to 90 days pay for each affected employee, getting it wrong can be expensive. We can advise how to get it right and avoid costly claims.

How long is it before an employee is entitled to claim redundancy pay?

An employee can claim redundancy pay after 2 years service. Note that service is not counted below 18 years of age.

When should employees be asked to sign compromise agreements in situations of compulsory redundancy.

This can be a difficult balancing act.

In a small company where you know the actual employee and how litigious they are, you will often make a decision based on whether you think the employee is the type who is likely to sue.

In a larger company or with large scale redundancies there is going to have to be a policy decision taken.

There are advantages and disadvantages to asking the employees to sign a compromise agreement. Firstly that they get told by their solicitor (or trade union official, CAB etc of potential claims they might have.

Secondly, the employer will generally have to pay a couple of hundred pounds as a contribution towards the legal advice.

Thirdly, if the employees go off to a solicitor, then that solicitor may feel he has to justify his fee by negotiating the payment up. You might just say no but it is a situation where you could end up having to pay more money than you originally contemplated.

The advantage of a compromise agreement is obvious: in essence, for a payment, of, say, £250 (for the claimant’s solicitor’s legal fees) you have brought yourself an insurance policy against no claims being brought by that employee in the future. Indeed, you will have to do this to ensure the employee has received appropriate advice as to the contents of the agreement.

The main factor to consider in deciding whether to insist on a compromise agreement is whether the enhanced redundancy payment is contractual.

If the contract actually says ‘you get three weeks’ pay for every year you worked’ and the employees are entitled to this as a matter of right, the employer need not ask them to sign a compromise agreement. They would have absolutely no incentive at all to signing it, and if the employer declined to pay the monies the employee would have a right of action for breach of contact.

If, by contrast, the employer is offering an ex gratia enhanced redundancy payment, then there is a good chance that signing a compromise agreement can in the long term be the best way forward.

Would you recommend the use of L.I.F.O (that is ‘last in, first out‘) where there are no other differentiating criteria available for selecting for redundancy?

When selecting for redundancy you would reasonably expect to find a range of criteria to help distinguish between potential candidates. A scoring system can be applied to these criteria to help establish an objective means of selection.

Where there is a very large scale redundancy and there is simply limited number of points you can give employees, there may be employees in the affected population who end up with the same scores. In these circumstances L.I.F.O. can be used as a distinguishing feature.

Be aware, however, that L.I.F.O. is of course, indirectly discriminatory on the grounds of age, because the longer that somebody has been working for a company, the older they are likely to be. Similarly, the shorter somebody’s service, the younger they are likely to be. In redundancy situation such indirect discrimination will probably be justified as long as L.I.F.O. is only one of the factors in the redundancy selection process and not the only one.

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