The pace of technological development and variation of economic factors are such that change is the only constant. Most employers will, at some time, need to lose staff. Generally the handling of redundancies leaves much to be desired and few employers manage such situations with the tact and humanity it demands.

Commentary

All employers are obliged to consult with employees, or, if there are more than 20 to be made redundant within 90 days, elected representatives of their employees (whether unionised or not) in good time before redundancies are decided. Where there are no elected representatives then an election needs to take place. Redundancy IS a dismissal, but it is a dismissal for which the employee is in no way culpable - and employees should not be treated as if they were culpable. In addition, the effect on those not being made redundant must also be assessed and managed in the interests of the future operation of the Organisation.

Policy

Devising a redundancy policy before it is needed may be helpful. When redundancies are required, a number of key aspects should have already been addressed. Consultation may then be more about alternatives, recompense and choice rather than principles.

Draft Redundancy
  1. It is our aim at all times to maintain full employment for all employees, and to assess labour requirements continually for as far in the future as possible. It is impossible always to accurately forecast product demand, and the labour required to achieve the output to satisfy this demand, and thus it is impossible to guarantee full employment, and should demand reduce unexpectedly, the hours and/or the workforce may need to be reduced.

  2. The manner of achieving a reduction will be at the discretion of the management in consultation with elected representatives of employees who will examine all alternatives as well as to discuss the manner of conducting the exercise.

  3. Management and representatives will determine the basis of selection. Whilst reference will be made to the concept of 'last in, first out', and to the preference of any employees wishing to 'volunteer' for redundancy, it is essential that the Organisation retains the level of skills and experience necessary to enable it to compete in changed circumstances.

  4. As well as consulting with elected representatives, the Organisation will discuss the situation directly with employee(s) selected for redundancy. Thus, all employees selected for redundancy will be interviewed personally, and any opportunities for alternative working/positions will be discussed with them.

  5. The full entitlement to Notice will be given whenever possible, although in some cases, it may be necessary to make a payment in lieu of notice, which will be paid with any pay due (including amounts in respect of holidays not taken etc.) on the last day of work.

  6. Whenever possible, we will try to find alternative positions for those selected for redundancy and will expect an employee to attempt such a position for a short trial period. An employee selected for redundancy who unreasonably refuses to try a suitable alternative job, may lose the entitlement to a redundancy payment. Trial periods will last at least 4 weeks, and undertaking this trial will not lose the employee the entitlement to a redundancy payment. An employee's request for one extension of a trial period will usually be granted.

  7. Employees who wish to leave before the expiry of their notice, may lose their entitlement to redundancy pay, unless the Organisation consents to them leaving on the earlier date - this decision will be based on the need to maintain adequate labour.

  8. Redundancy payments will be made at the rate of [twice] the amount payable under the State Redundancy Scheme. This amount will be calculated using the greater of the average of the last 8 actual weeks pay, or the maximum week's wages figure referred to in the State Scheme, whilst the minimum payment made will be equivalent to [2] weeks average pay.


Note

The State requires a redundancy payment to be calculated in the minimum basis of:

  • half a week's pay for every year of service between ages 18 and 22

  • a week's pay for every year of service between ages 22 and 40, and

  • one and a half week's pay for every year of service between age 41 and retirement.

In the last year before retirement, the amount is reduced by 1/12th for each month worked. The maximum weekly pay under the State Scheme is £270 - February 2004.

  1. For employees nearing retirement, the redundancy payment will be restricted to the amount of gross pay they would have received between the expiry of their notice period and their normal retirement date.

  2. A statement showing the calculation of the redundancy payment (which is not taxable) will be given to each leaver, together with a note for a future employer, stating from whom a reference can be obtained.

  3. All redundant employees will have available the OUTPLACEMENT service offered by the [personnel administrator], which will attempt to help those employees that wish to use the service, to consider their options and to find alternative positions. For 6 weeks following redundancy, all redundant employees who have not found alternative employment, are entitled to attend the outplacement advice session which will be held between 9 a.m. and 11 a.m. each Wednesday at [location]. This service will include access to word processing, photocopying and the Internet (to source job vacancies only), as well as individual assistance by [Personnel] staff to draft application letters and career details.

The purpose of a redundancy payment is to act as a financial support between the lost job and a new job. Hence, if an employee finds a new job and wishes to leave earlier the support is unnecessary - hence the payment may be lost.

Proving a Genuine Redundancy

If a redundancy dismissal is challenged in a tribunal the employer must prove there was a genuine redundancy. Thus, figures drawn from management accounts, order book etc., will be required. Copies should be provided but the originals should be available. Where management become aware of a downturn in demand or similar which means that there are too many productive hours being paid for on an ongoing basis, they need to assess the number of surplus hours. It may be preferable at this stage not to refer to the excess in terms of people.

Selection

The manner of selection of those to be made redundant should be another facet of consultation. Ideally the basis of selection should be objective rather than subjective - it should be based on facts already in being rather than assessment at the time. Removing subjectivity helps preserve the appearance of fairness of selection. However, if there is an appraisal or performance review scheme in operation (and accepted by all) then recent scores in that could be used.

Management will also need to determine the 'pool' from which those chosen must be selected. For example, if the sales force (of 25) is to be reduced since only 20 representatives are needed - then the workforce of 25 representatives is the pool and 5 will need to be selected from the current number.

Conversely, if the employer is suffering a diminution in overall demand, savings might be needed from all areas to cut total costs. In that case the pool could be the entire establishment.

The number required should then be selected from the pool in accordance with the selection criteria already agreed. Those selected should be told and given the opportunity for further consultation - for example, if they have had any further ideas or possibly wish to be considered for another job if there are any vacancies.

No one should be made redundant without having been given the opportunity to ask to be considered for vacancies in the Organisation. If they are considered suitable they should be given say a month's trial. If successful, obviously a new (continuous) contract should be issued. If unsuccessful, the original redundancy situation must be resumed.

Notice

Once selected, a notice of termination of employment on grounds of redundancy should be issued. This should state the leaving date and give the amount of notice required under the contract - or one week for each year of service to a maximum of 12 weeks - whichever is the longer. If the required period of notice cannot be given (because the period to the required termination date is too short) then a payment in lieu of notice PILON) must be paid. Unless the right to make a PILON is set out in the contract this payment can be made gross. (If the right to make a PILON is set out in the contract then the amounts are subject to tax and NI.) During the notice period an employee is entitled to all benefits under the contract. If a PILON is made then the cash equivalent of the benefits should be agreed between the parties and paid.

If the employee works the notice they will be entitled to a proportion of annual holiday (if excess has not already been taken). If a PILON is made it can be argued that holiday due is being taken since the employer is not requiring the employee to work their notice so they are being given their holiday. If there is excess of holiday owing then this will need to be paid in cash - and be made subject to tax and NI deductions.

Time Off

Those made redundant are entitled to 'reasonable' amounts of paid time off to seek other work and to arrange training for such other work (but presumably not to actually undergo such training - although the employer might be prepared to allow them unpaid time off for the training).

References

Being made redundant often carries a stigma akin to being dismissed for a culpable act. However, a redundant employee has no culpability for their dismissal and for this reason should be treated accordingly. Future employers may well require a reference and arrangements should be made so that those requiring this can source it easily. References must be clear and fair.

Administration

Declaring employees redundant is subject to legal ramifications and obligations and those not experienced in dealing with redundancies should take specific advice in such circumstances. The following checklist covers the subject in the order in which each item should be dealt to create a fair dismissal.

Redundancy Checklist
  1. determine (provable) excess of productive capacity.

  2. consult about position - ask for comments/alternatives/suggestions (and/or make a presentation identifying the alternatives, showing why these cannot be used) - suggestions re choice criteria if terminations needed.

  3. consider suggestions and alternatives derived from b).

  4. give reasons for not using suggestions and/or alternatives (obviously if some can be used say so and re-assess surplus capacity then left).

  5. decide hours/days/numbers now to be lost.

  6. identify the pool (the particular area - or the whole Organisation - from which the number to be made redundant are to be drawn).

  7. ask for volunteers.

  8. identify those to be terminated ideally using totally objective criteria.

  9. inform those affected (allowing them to be accompanied if requested) giving notice under contract, details of redundancy payments and right of appeal.

  10. advise any vacancies and oversee trial periods.

  11. consider outplacement.

  12. deal with queries and appeals.

  13. re-check calculations (particularly those undertaking trial periods).

  14. arrange provision of references.

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