As the country enters recession it is inevitable that a number of businesses will be looking to undertake cost-cutting procedures. It is a sad reality that employees will figure in restructurings, a fact confirmed by the 27% of organisations recently surveyed by the Chartered Institute of Personnel and Development who predicted making redundancies in the coming months.

If your business falls into this 27% then it is important to tread carefully. There are certain steps which must be taken and particular approaches that must be adopted when making employees redundant. The purpose of redundancies is to save your business money so the last thing you need is litigation on your hands.

Employment solicitors have already received more inquiries for redundancy from businesses from a range of sectors and predict that the trend is only set to continue. To help you navigate the pitfalls of such a process TakeLegalAdvice.com has asked employment solicitors, available through the site, what advice they can give.

How you should proceed

Employers essentially have two obligations according to employment solicitor John Hayes (right), of national law firm Irwin Mitchell. Firstly your business needs to have a fair reason for making the redundancy and secondly must follow a fair process.

Andrew Haywood (left), an employment specialist at city law firm Dawsons, explains the minimum procedure that employers should follow when facing a redundancy situation. Although, he adds, the process is slightly different where companies are intending to make 20 or more redundancies.

1 – ESTABLISH WHETHER THERE IS A GENUINE REDUNDANCY SITUATION

This will entail looking at the business as a whole. The cost-cutting decisions will be different for each business says Haywood but adds that most commonly, the areas where there is “superfluous spending”, are the first to be reviewed. Hayes emphasises that the redundancies must be under consideration for business reasons.

2 – ESTABLISH WHO IS AT RISK

Once the company has established how many redundancies are being proposed, it should carefully identify the appropriate ‘pool’ of employees and apply selection criteria to that ‘pool’. The selection criteria must be objective and not merely reflect someone’s personal opinion. For example, criteria such as qualifications, experience, skills, disciplinary record and attendance record are often used. The lowest scoring employees in the pool are then at risk of redundancy. Where an employee is ‘ringfenced’ because they are the only person in their area of the business, then there will be no need to apply the selection criteria.

3 – WARN THOSE AT RISK

Send a letter to all the affected employees explaining the reason(s) for the potential redundancies and warning them that they may be dismissed. At this stage there should be no pre-determined decision.

4 – CONSULT THE EMPLOYEES AT RISK

Carry out a meaningful consultation by meeting with the employees who are at risk on an individual basis to discuss the situation and explore ways of avoiding the redundancies. Employees should be allowed to be accompanied by a trade union representative or work colleague.

During this meeting the company should be prepared to answer questions regarding the selection criteria and how the individual was scored. During consultation the company should maintain an open dialogue with the affected employees and continue to explore ways of avoiding redundancies. Haywood adds that throughout the process, redundancy should remain the last resort and alternatives should be fully explored.

5 – DECISION TO DISMISS

Once all suggestions and alternatives have been fully explored, if the decision is taken to make an employee redundant, invite that employee to a further meeting. Again, allow the employee be to be accompanied by a trade union representative or work colleague. Provided nothing has changed, confirm that the employee has been selected for redundancy and go through the appropriate redundancy package.

Where an employee has been dismissed, the decision should be confirmed in writing together with the termination date. The employee must also be offered the right to appeal the decision.

6 –APPEAL MEETING

If an employee appeals the redundancy decision, invite them to a further meeting to hear the appeal.

How to avoid litigation

Naturally, employees are likely to feel disgruntled disappointed and unhappy if they are being made redundant. However, if the process is “transparent” Haywood suggests that you are less likely to receive a claim for unfair dismissal.

Hayes agrees on the importance of making the process transparent and also emphasises the necessity of fair selection criteria to ensure that you cannot be accused of discrimination. For instance, it is important to ensure that if attendance is used as one of the criteria that absence related to maternity is discounted. Of particular concern at the moment are the relatively new age discrimination regulations, which resulted in 972 claims being brought in the Employment Tribunal in the first six months of implementation.

Hayes goes on to emphasise the necessity of recording the decision making process so that if challenged you can prove how you reached your decision.

Financial obligations

There are three payments that an employee is entitled to once they have been made redundant.

FULL NOTICE PERIOD PAY

An employee is entitled to receive their full notice pay. Andrew Haywood says that whilst there is usually a contractual provision for notice, in the absence of any such provision, an employee will be entitled to statutory notice.

REDUNDANCY PAYMENT

There is a statutory amount payable which is calculated using a specific formula, although employers should check to ensure that there is no contractual entitlement to an enhanced redundancy payment.

UNCLAIMED HOLIDAY LEAVE

Employees will also be entitled to payment for any accrued but untaken holiday.

Contributors

Andrew Haywood is an senior assistant solicitor at Dawsons LLP. He advises businesses on employment matters including restructures, unfair dismissal, restrictive covenants, preparation of employment contracts, management employee issues and redundancy.

John Hayes is partner at Irwin Mitchell. He gives employment advice to businesses from a range of sectors including recruitment, construction, retail, leisure and professional services.

Useful links

How an employment solicitor can help your business

Employment solicitors explain the effect of new laws on employers

The tax pitfalls of redundancy

Government guidance on redundancy