Restructure and redundancy traps – don’t get caught, get it right

By Jeanette Wheeler, above, Partner and Head of Employment and Immigration, Birketts LLP

Many businesses are contemplating ways to keep their costs under control. Restructuring and trimming parts of the workforce may become an unfortunate necessity. But, getting the process wrong or cutting corners can itself lead to legal costs and compensation costs, particularly now when staff have potentially more to gain by suing their former employers.

So if redundancy is your best option, it’s best that you consider these top ten bear traps:

  1. Pool for selection. Be careful about identifying the group of staff from which you will select your redundant workers. Don’t assume that you can just opt for a pool of one and single out a particular employee or manager as redundant. Recent case law has emphasised that where there is more than one employee doing the same or a similar or interchangeable job, you should not apply a selection criteria that effectively reduces the pool to one employee before you have consulted with all those potentially affected.
  2. It might be appropriate to consider ‘bumping’ out (and making redundant) an employee whose role is not at risk in favour of keeping an employee who would otherwise have been made redundant. This will only be fair in limited circumstances and employers will need to evidence why bumping was an appropriate option (for example where it might otherwise lead to a long standing highly experienced or qualified person losing out to a shorter serving less qualified colleague). Conversely, employers should also consider (and ideally document) why bumping might not be a fair or reasonable option to pursue.
  3. Sham redundancies. Employment Tribunals are increasingly alert to the fact that some employers resort to making ‘sham’ redundancies, in circumstances where there are other underlying reasons why the employer might like to terminate. It is inadvisable to label a dismissal as a redundancy in the hope that you will get away with it particularly where there is a history of problematic relations between employer and employee or performance failings. Seek early advice on suitable strategies for the removal of problem employees, to reduce the potential risk of a claim, particularly if the employee is a potential whistle blower and has complained about other things the employer is doing or has done. In short, make sure that the real reason for dismissal is redundancy in accordance with the legal definition.
  4. Selection criteria. Choose these carefully and make sure that you can objectively and credibly quantify the scores made against those criteria. What evidence do you have to justify the scores for those selected and those not selected for redundancy? The devil really is in the detail, and managers who are conducting the scoring exercise should understand in advance the high level of scrutiny their scoring will come under. Can you prove lower performance if this forms part of the selection criteria?
  5. Don’t discriminate. The entire redundancy process and in particular the selection and scoring will also need to be adjusted to reflect any disadvantage resulting from a protected characteristic (e.g. disability, pregnancy and maternity or age), to avoid potential claims for discrimination.
  6. Consultation (individual). Consultation with affected employees is key to achieving a fair dismissal. Individual consultation meetings are essential, even if you are also undergoing a collective consultation process and even if you feel it’s unlikely to change the eventual outcome. Consultation should be meaningful and take place at a formative stage over a reasonable period of time. The aim of the consultation process is to firstly discuss if there is any possibility of avoiding the role being cut and then secondly to discuss suitable alternative roles and other means of avoiding redundancy and mitigating the impact of it on the individual. Don’t just go through the motions and do document what is said.
  7. On secondment… Employees on secondment to another employer or group company or on temporary deployment elsewhere in the business will usually expect to return to their original role with their employer at some point – don’t forget to consider them in any restructure or redundancy process. Also, don’t forget those who are sick and those on maternity or paternity leave.
  8. Consultation (collective 20+). If you are likely to be making 20 or more redundancies in a rolling period of 90 days or fewer, then the obligation to collectively consult may be triggered. This threshold includes anyone who takes voluntary redundancy. Voluntary redundancy is still a redundancy dismissal. A failure to comply with these strict statutory requirements may result in the award of a significant financial penalty. Consultation must start at a very early stage of the proposals – don’t leave it until the decision to make redundancies has been finalised and schedule time to elect employee representatives if you don’t have recognised union representatives for all those at risk.
  9. Alternative employment. Employers must proactively consider whether there is any alternative employment available within the organisation that may be suitable for employees who are selected for redundancy, and must offer suitable roles to those who might otherwise be made redundant. This is an ongoing duty that applies throughout the notice period, and the employer must actively seek alternatives. If a suitable alternative is identified before the end of an individual’s notice period, they are entitled to a statutory trial period in the new role of four weeks (which can only be extended in writing for the purposes of re-training).
  10. Right to appeal. Although not strictly a requirement for a fair redundancy process, it is usually recommended to offer the employee a right of appeal once the decision to make them redundant is confirmed. This is particularly important if the employee later challenges the basis for the redundancy and an employment tribunal finds that the Acas Code of Practice on disciplinary and grievance procedures should have applied to the dismissal – there is a potential uplift to the compensation awarded of up to 25%. Offering a right of appeal will help to demonstrate compliance with the Code.

Ultimately, employees who struggle to find a new job in difficult economic times will be checking whether their employer got things right so getting the process right from the outset is key.