Everything you need to know about redundancy procedures
Amid the torrent of emails I've received lately from people feeling panicked, irate and/or depressed about the economy and their careers, it was a welcome surprise to be asked: Is now the right time to start a business? And it was a welcome opportunity for me to realise, well, yes, it could be a very good time to start a business. In fact, I can think of at least four compelling reasons why, but only if the business you're hoping to start passes one major test: it can sell more for less.
In 2007 there were over 130,000 employment tribunal cases in the UK. The maximum compensation for unfair dismissal now stands at £66,200. Being anything less than thorough, professional and legally compliant could prove costly.
Let's start with the contract. Businesses should always include precautionary terms in their employment contracts. One clause worth considering is making contractual provision for short-time working (flexible working arrangements for reduced hours) and lay-offs (not the conventional meaning but a temporary measure of suspending the employment contract for a specific amount of time). This ensures that should such measures become necessary the employer can enforce them. The only penalty will be five days' statutory guarantee in any quarter, limited to £21.50 per day.
Should redundancy become a real possibility then you must go through a process of consultation. Ideally, you will have gone through this with your employees before you announce any decisions; at this initial stage you should be discussing proposals. This is important because if you talk about decisions, the message you give is that consultation will not change anything.
The intention behind consultation is that it should give an opportunity for employees to put forward their ideas, ones that might avoid compulsory redundancies. These can include reduced hours of work, pay freeze or cut, re-deployment, voluntary redundancy and early retirement.
If an employee does come up with alternative suggestions and you do not consider them seriously the process might be interpreted as a sham. Many of my current clients have used this stage to implement flexible working arrangements that save jobs, retain skills and company knowledge and avoid redundancy. It can be just as valuable for the employer to listen as it is for the employee to suggest a solution, so have an open mind.
Redundancy is a potentially fair reason for dismissal. Too often employers will just try to use a redundancy exercise as the opportunity to dismiss people for poor performance or conduct. Don't make this mistake.
If an employment tribunal feels that you used redundancy as a pretext to dispense with someone whose job had not gone, you could lose an unfair dismissal claim. You must be prepared to demonstrate to your employees and to a tribunal that there really was a genuine need to make people redundant. So gather evidence such as sliding sales figures and loss of accounts to justify your decision.
Make the process as simple as legally possible. The general rule is that the more complicated you make it, the greater the scope for mistakes. Stick to objective and justifiable factors in deciding whom to select. For a sales person, for example, missing agreed sales targets is likely to be valid.
Attendance records are also objective, though you should be cautious of selecting on this basis anyone whose attendance is adversely affected by a disability or maternity absence, or childcare responsibilities. If you do not know, make sure you ask. Ignorance, however understandable, is not an adequate defence.
A dismissal by reason of redundancy is still a dismissal and you must not forget to give the right of appeal. State an Effective Date of Termination. If you are paying someone in lieu of notice, do not forget to specify that the EDT (Effective Date of Termination) is the date they stop working for you. Tribunal claims have to be submitted within three months of the EDT so it is very much in your interests to make the termination date absolutely clear.
Create a Paper Trail. Everything should be in writing. So for example, when inviting employees to a consultation meeting (which could result in unemployment) do so in writing, explaining the background and your proposals.
It is great if you do all the right things in the right order, but do not simply rely on memories to support you in the event of a tribunal claim. When you have consultation meetings, take a record and when alternative proposals are put to you, explain in writing why they are or are not acceptable.
You are unlikely to get penalised if you honestly follow legal procedure. Many employees know their rights. Many employers do not meet their legal obligations. The result has been a steady increase in costly claims, which the recession will push higher. The key is to plan legally compliant procedures, get advice where necessary and not be motivated by anything other than the necessity of getting your business back on an even financial setting.
David Readman is a director at Employment Practice & Law
Posted 23 April 2009 : Director.co.uk
