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Redundancy procedures & alternatives to redundancy

On 31 October the Government announced a second national lockdown and the extension of the CJRS furlough scheme to cover November. The Job Support Scheme, which was scheduled to start on 1st November, to replace the CJRS, has been postponed until the second lockdown ends, currently on 2nd December. Read our article explaining the CJRS/ furlough extended for second lockdown.

Employers’ minds are even more sharply focussed on managing staffing needs in the coming uncertain months. The Covid-19 Job Support Scheme, (JSS) which has been promised to start after the CJRS closure is by no means a successor, or replacement. Read our article explaining the JSS and the important differences between the JSS and flexible furlough.

There is a range of options open to employers to consider before starting a redundancy process, which can save cashflow on redundancy payments and maintain skills and experience in the business for when the upturn comes and demand takes off once more. We have put together a checklist of these below.

The aim for the business may be to retain the skills with less ongoing expenditure rather than the disruption and immediate extra cost of redundancy. It is estimated the average redundancy costs £12,000 per person and it takes a business 9 months to consolidate afterwards and regain any benefit. The skills are then permanently lost for the upturn.

If redundancies are necessary, we have included a short list of the main considerations for collective consultation and individual consultation procedures. Legal advice must be taken on these procedures, as they are complex and often lead to employee litigation at Employment Tribunals.

Alternatives that are easiest to implement 

1. Non-contractual/discretionary arrangements

  • Imposing holiday when work is slow eg some holiday to be taken in Q2 rather than stored up to until August 
  • Removing overtime
  • Changing discretionary bonus scheme
  • Reducing discretionary sick pay – go back to just Statutory Sick Pay
  • Change personal objectives/targets to match the changing objectives of the business- review quarterly.
  • Check that there are no job vacancies being offered or outstanding job offers which (subject to checking) it may be possible to withdraw or consider deferring new joiners
  • Check for any non-permanent staff and whether agency, temporary or casual staff are actually required
  • Recruitment freeze 
  • Reduction of workforce or natural wastage
  • Removal of temporary or contract staff
  • Temporary office/factory shutdowns/home working
  • Lay-offs if the contract already permits them
  • Remember, flexible furlough is still available until 31st Oct 2020 to staff who have been furloughed before 10 June 2020
  • Consider whether the Coronavirus Job Retention Bonus (JRB) scheme may help.

Under this scheme, employers will be paid a £1,000 Job Retention Bonus for each employee they bring back from furlough and continuously employ through to January 2021. For businesses to be eligible for the bonus, the employee must be paid at least £520 on average in each month from November 2020 to the end of January 2021 (equivalent to the national insurance lower earnings limit).

How best to go about making these changes

  • Impose changes on reasonable notice and follow consultation with employees as necessary
  • Issue flexible furlough letters and get employees to sign them.

2. Contractual arrangements where employer may have the ability to change terms

NB Check bonus schemes and employment contracts.

  • Cutting/changing contractual bonus schemes and commission arrangements – eg whole/part of commission only paid on company receiving money from customer
  • Agreed downgrading or removal of benefits
  • Redeployment to other parts of the business (changing locations and/or duties and/or responsibilities) possibly with retraining.

How best to go about making these changes

  • Impose changes on reasonable notice and following consultation with employees
  • It may be appropriate to seek prior written consent if changes are unfavourable to employees.

Alternatives that are hardest to implement

3. Contractual arrangements where the employer has no ability to change

  • Short-term or flexible working (reduction in working hours – e.g. four day working week)
  • Salary sacrifice schemes which can reduce NICs for employers but also have income tax benefits for employees
  • Lay-offs 
  • Pay freezes or cuts
  • Job Sharing
  • Pay deferral schemes
  • Sabbaticals (paid or unpaid – e.g. on 30% of base salary for 4 to 12 weeks)
  • Unpaid leave (probably shorter than a sabbatical
  • Cutting/changing pension payments
  • Secondments to other companies
  • Changing/cutting bonus schemes without reasonable notice
  • Redeployment to be self-employed

How best to go about making these changes

  • With employee’s prior written consent

Other methods of making these changes

  • Imposing changes unilaterally but risk of unfair dismissal
  • Dismissing and re-engaging on new terms but risk of unfair dismissal
  • Commence genuine redundancy process and the above options may be alternatives which can be agreed with employees but there is need for collective consultation (see below).

Redundancy procedure

Companies are expected to adopt the following 3 steps when implementing redundancies:

  1. to give as much advance warning of the impending redundancy as is reasonable in the circumstances 
  2. to consult with the affected employees to consider and, if applicable, offer any available vacancies
  3. to pay redundancy payments (both notice pay and statutory redundancy payments for employees with 2 + years’ service)

If employers don’t follow these mandatory steps, the redundant employees can bring claims for unfair dismissal.

It’s vital to follow a full and fair procedure when making employees redundant.

If an employer is considering making 20 or more employees redundant within a period of less than 90 days, then the employer must also run a collective consultation procedure, in addition to consulting with the affected employees individually, before making any dismissal decisions.

In a collective consultation procedure, employers must

  1. notify to the Secretary of State of the potential redundancies
  2. collectively consult with all affected staff
  3. individually consult which each affected member of staff

Collective consultation requires the election of employee representatives. This takes time and is more complex when staff are not regularly attending the office or are on furlough / flexible furlough. If the workplace has a recognised Trade Union, the Trade Union reps can act as employee representatives.

There are set periods of time required for the various stages. As an example, where the employer proposes to dismiss 20 to 99 employees within a 90-day period, the notification to the Secretary of State must be at least 30 days before the first dismissal takes effect. A proposal just to change terms and conditions of employment which if not accepted by the employees would lead to dismissal also requires collective consultation if 20 or employees are affected.

There are fines and criminal offences for management for failure to notify the Secretary of State and there is the ability for employees to seek a ‘protective award’ from the ET of up to 90 days gross pay each in the event that there is a failure to consult. 

Both the collective and individual consultation processes involve decisions by employers about the size and type of the pool of selected employees, the process and criteria for selecting employees for redundancy and the process for allocating alternative jobs. There is numerous case law at the various Employment Tribunals about these other issues.

Compensation for redundancy

An employee may be entitled to some or all of the following when dismissed for reasons of redundancy:

  • statutory redundancy pay
  • enhanced/company redundancy pay
  • pay in lieu of notice
  • time off for job hunting
  • if the employee works their notice period before redundancy they can remain on the furlough scheme for the notice period. However, the furlough scheme grant cannot be used for PILON (payment in lieu of notice) or the statutory redundancy pay.

The CJRS / furlough scheme and the Job Support Scheme cannot be used for PILON (payment in lieu of notice) or statutory redundancy pay.

If an employer thinks an employee will be difficult, use a settlement agreement as part of the package for the payments made.

The information set out in this article is correct at date of publication (1 November 2020). The effect of coronavirus on businesses means things change fast, and so it is important to obtain legal advice to ensure you are properly protected

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To speak directly with Abigail or any other of The Legal Partners team of specialist business and HR lawyers based at our Richmond UK office, or our partner lawyers in Singapore or Guanzhou, please call +44 203 755 5288

This article explains the main legal issues and common situations to consider. It is not a substitute for legal advice. Please get in contact to discuss your particular issue or queries.