Redundancy and Unfair Dismissal
How should an employer who no longer has sufficient work to keep all its employees occupied and can no longer afford their wages react? Making employees redundant is an option but if handled incorrectly, can result in expensive unfair dismissal claims.
Who can claim unfair dismissal?
- Redundancy was not the true reason for the dismissal; or
- If the employer did not act reasonably in all the circumstances when dismissing the employee.
Redundancy not the true reason for the dismissal
Ordinarily, redundancy is where an employer concludes it needs to reduce the number of its employees. The need may arise by reason of:
- The closure of a business;
- The closure of one of several sites or relocation to a new site; or
- A reduced requirement for employees to do work of a particular kind.
If the reason for dismissing an employee does not fall into one of these categories then it is unlikely to be a genuine redundancy.
Reasonableness of the employer
Even if there is a genuine redundancy situation, an employment tribunal will look to see if the employer acted reasonably in reaching and implementing its decision to dismiss an employee for redundancy.
In the leading case of Polkey v A E Dayton Services Ltd, the House of Lords held that an employer will not normally act reasonably unless it:
- Warns and consults employees about the proposed redundancy; and
- Adopts a fair basis on which to select for redundancy; and
- Considers whether there is suitable alternative employment they could undertake instead of losing their job.
An employer must therefore consult with employees whose jobs may be at risk with an open mind and provide them with adequate information and time in which to respond.
This will include providing affected employees with certain information, including the category and number of employees who are being considered for redundancy (referred to as the ‘pool’) and the proposed criteria on which the employer will select those who are to be made redundant.
It is important that any selection criteria should, as far as possible, be based on measurable, objective factors rather than being based on subjective opinions. If an employer has attached weightings to criteria, reflecting their relative importance, it should be able to justify any such weightings.
An employer is not obliged to create alternative employment where none already exists, but they should undertake a sufficiently thorough search for alternative employment within the organisation and should document that search (in case it is required as evidence to defend an unfair dismissal claim).
In most cases there is no specified minimum consultation period. It needs to be long enough for the consultation with employees to be meaningful and allow them a proper opportunity to consider and propose alternatives to compulsory redundancy, such as voluntary redundancy terms, job-sharing, short-time working, re-training or re-deployment.
However, if an employer is considering making 20 or more employees redundant, they will have additional duties to inform and consult union and/or employee representatives for a minimum period ahead of making redundancies; and to notify the Redundancy Payments Service.
Compensation for unfair dismissal
If an employee is successful in a claim for unfair dismissal against their employer, then the employee may be entitled to:
- An unfair dismissal basic award which is calculated on the basis of the employee’s age, salary and length of service in the same way as statutory redundancy pay; and
- An unfair dismissal compensatory award, to compensate the employee for their financial loss arising from the unfair loss of their job up to a maximum of 52 weeks’ salary or a statutory cap of £88,519 (as at the date of publication of this article), whichever is lower.
Any award to an employee will be subject to their duty to mitigate their loss (by finding another job) or could be reduced if an employee is considered to have contributed to their dismissal in some way (which is unlikely in redundancy dismissals).
What can an employer do to avoid unfair dismissal claims when making redundancies?
- Make sure that redundancy is the genuine reason for dismissing the employee, not some other reason such as poor performance. In other words, don’t use redundancy as an “excuse” to avoid confronting and dealing with other issues.
- Follow a fair redundancy process. Do not cut corners in order to save time. If you are unsure if your proposed redundancy procedure, or any element of it, is fair, then seek legal advice.
- Consider offering enhanced voluntary redundancy terms in exchange for employees signing a Settlement Agreement, under which the employee agrees to waive any claims arising out of, or in connection with, their employment or its termination.
If an employee does accept voluntary redundancy terms and is willing to sign a Settlement Agreement, they will need to receive independent legal advice, in order for the agreement to be valid.
Care must be taken in entering into discussions with employees about voluntary redundancy packages. Such discussions can, if not properly conducted, be used in evidence in Employment Tribunal claims. Again, it is wise to seek specialist legal advice before opening any dialogue about voluntary redundancy terms and Settlement Agreements.