Redundancy and Restructuring
Jane Klauber
10 May 2011
ALTERNATIVES TO REDUNDANCY
 Natural wastage
 Let agency staff go
 Cut back/freeze recruitment
 Reduce/eliminate overtime
 Lay off/short-time working
 Consider offering voluntary redundancy
VARYING A STAFF CONTRACT
Alternatives to redundancies:
 Temporary pay freeze
 Reduction in hours
 Reduction in pay
 By informed and express consent
 By express variation clause but any unreasonable change
may constitute a breach of trust and confidence
 By serving notice and offering a new contract following
consultation
 But unilateral imposition without a variation clause will
amount to unfair dismissal as well as breach of contract
MOBILITY CLAUSES
 The “factual” rather than “contractual” test will apply
 Commonly employers will offer redundancy where
significant relocation is required
 The employee will not be entitled to a redundancy payment
if the transfer to a new workplace constitutes suitable
alternative employment which he unreasonably refuses
BUSINESS REORGANISATION
 The dismissal of an employee who refuses to agree
contractual changes may be fair if the employer has a
sound good business reason
 The employer must evidence the advantages of the
changes. Profitability alone is unlikely to be sufficient
WHAT IS A REDUNDANCY?
SECTION 139(1)(B) EMPLOYMENT RIGHTS ACT 1996 (ERA
1996) – STATUTORY DEFINITION OF REDUNDANCY
An employee’s dismissal must be wholly or mainly attributable
to the employer:

Ceasing or intending to cease to carry on the business for the
purposes of which the employee was employed by it (business
closure)

Ceasing or intending to cease to carry on that business in the
place where the employee was so employed (workplace
closure); or

Having a reduced requirement for employees to carry out work
of a particular kind or to carry out work of a particular kind at the
place where the employee was employed to work (headcount
reduction)
UNFAIR DISMISSAL
FAIR REASON
 Employees with over one year of service have the right not to be
unfairly dismissed (section 94, ERA 1996)
 Redundancy is a potentially fair reason for dismissal (section 98,
ERA 1996)
 Automatically unfair redundancies (section 105, ERA 1996)
 Even where there is a genuine redundancy situation, an
employer will need to ensure that they follow a fair process
(section 98(4) ERA 1996)
EXAMPLES OF REDUNDANCY
 Reallocation of duties
 Change to the kind of work
 Re-organisation leading to a reduced need for employees
NOT REDUNDANCY
 Appointment of a junior employee to do the same work
 Change in an individual’s role if the requirement for
employees to do work of a particular kind has not diminished
FAIR PROCEDURE (1)
 Procedural fairness is essential to avoid an unfair
dismissal claim
 Polkey – failure to follow correct procedures likely to
render dismissal unfair unless doing so “utterly useless”
or “futile”
 Question of whether employee would have been
dismissed anyway only relevant to compensation
FAIR PROCEDURE (2)
The “Williams Guidelines”
 warn and consult employees about possible
redundancies;
 adopt a fair basis of selection;
 take reasonable steps to minimise the number of
redundancies by considering alternative work.
FAIR PROCEDURE (3)
 Union agreement
 Contractual provisions
 Handbook
FAIR PROCEDURE (4)
 Adequate warning
 Fair selection: correct pool and objective criteria
 Consultation
 Suitable Alternative Employment
IDENTIFYING THE POOL
 May be agreed with union or employee reps
 The jobs may be similar or interchangeable
 Ensure there are no jobs outside the identified pool
which are the same/interchangeable
SELECTION CRITERIA
 Must be reasonable
 Non-discriminatory (direct or indirect discrimination)
 Performance and ability (must be evidenced)
 Disciplinary record
 Attendance (exclude DDA and maternity absence)
 LIFO
 Bumping
FORMAL NOTIFICATION
 Notification post at risk
 Confirm selection criteria
 Invitation to volunteer
 Consultation to be followed
 Any redeployment opportunities
 Redundancy entitlement
INDIVIDUAL CONSULTATION (1)
 Reasonable period
 Genuine engagement
 Documented
 Confirm basis of selection and allow employees to
comment on individual assessment
 Allow employees to make suggestions to avoid
redundancy
 Consideration of alternative employment
INDIVIDUAL CONSULTATION (2)
 Consultation should commence while proposals are
still being formulated
 No prescribed period but 7 days is the “bare minimum”
 A failure to consult may render a dismissal unfair
COLLECTIVE CONSULTATION
 Proposal to dismiss 20 or more at one establishment
within 90 days
 20-99 30 days consultation
 100+ at least 90 days
 Consultation with TU reps or reps appointed or elected
who have authority to receive information and be
consulted
 Also applies to varying terms and conditions where the
employer has to terminate employment and re-engage
ELECTION REQUIREMENTS
The employer must: make arrangements to ensure the election is fair
 determine the number of representatives to ensure all
groups of employees are represented
 determine whether employees should be represented
by reps of particular groups
 decide term of office
 all affected employees are entitled to vote
 voting must be in secret and votes accurately counted
COLLECTIVE COSULTATION
Representatives must be provided with written
information including: the reasons for the proposed redundancies;
 the number and description of employees proposed as
redundant;
 total number of employees of that description
employed at the establishment;
 proposed method of selection;
 proposed method and timescale for carrying out
dismissal; and
 Method of calculating any non statutory payment.
COLLECTIVE CONSULTATION
 Consultation should include the reasons in a closure
case
 Consultation must conclude before the first notice is
issued
 The rules apply even if fewer than 20 are made
redundant
COLLECTIVE CONSULTATION
Consultation must be in good faith with a view to
reaching agreement on
 avoiding dismissals
 reducing the number of dismissals
 Mitigating the consequences of dismissals
COLLECTIVE CONSULTATION (5)
Protective awards of up to 90 days pay for failure to
consult or comply with election requirements
SUITABLE ALTERNATIVE
EMPLOYMENT
 No obligation to create a new role
 But any vacancy should be offered even if not considered suitable
 Evidence will be required as to why a role is not suitable
 Trial period (4 weeks) may be extended for retraining
 If the employee unreasonably refuses he will lose redundancy
entitlement
 Consider selection process if more than one employee is eligible
 Remember any employee on maternity leave has priority for
redeployment
 Avoid “slotting in” and “matching” JDs.
ENTITLEMENTS
STATUTORY REDUNDANCY PAY
 Employees with at least two years of service are entitled to a
statutory redundancy payment (section 135, ERA 1996). Only
employees are entitled to statutory redundancy payments
 Statutory redundancy pay calculated by reference to an
employee’s age, length of service and weekly pay capped at
£400 from 1 February
 Maximum length of service to be taken into account = 20 years
(section 162(3), ERA 1996).
 An employee may lose their right to a redundancy payment
where either an incident of gross misconduct comes to light
during redundancy consultation, or the employee is guilty of
gross misconduct during their notice period
ENHANCED REDUNDANCY PAY
 Is it required by contract/policy
 Is it the best use of the charity’s resource?
 NB any enhancement may be caught by age
discrimination rules
TAX TREATMENT
 Statutory payments are tax free
 Termination payments are tax free up to £30k
(including the statutory element)
 If a PILON is made it will be safest to deduct tax or
(if relying on payment as damages for breach of
contract) terminate contract before payment is
made
TOP TIPS FOR MINIMISING LEGAL RISK
 Need for clear business reason for redundancies – should be
documented
 Take care in considering appropriate selection criteria
 Managers should be trained to ensure that objective selection
criteria are fairly applied
 Suitable alternative employment should be considered widely
 Remember to consult long term sick and employees on
maternity leave
 Ensure there is someone available to respond to any queries
employees may have
 Consider offering a compromise agreement
TUPE
 Application of Tupe
 Same rules regarding election of representatives as
for collective redundancy
 Duty to inform representatives of
- transfer
- date of transfer
- reason for transfer
- legal, social and economic implications
- any measures
 Consultation on measures
 Protective awards
TUPE
 Any dismissal or contractual change which is transferrelated will be automatically unfair
 Unless there is an “ETO” reason requiring a change to
the number or functions of staff
 A transferor will not be able to rely on a transferee’s
defence
 An ETO reason may only apply to a section of the
workforce
 An employee may object to transfer
 If objection is on the basis of a substantial change in
working conditions he may treat himself as having
been dismissed and the dismissal will be unfair
INSOLVENCY
 Where insolvency proceedings are instituted with a
view to liquidating the Transferors assets, employees
do not transfer and there is no protection against
contractual variations or dismissals connected to the
transfer
 Where insolvency proceedings are not commenced
with a view to liquidating assets, contractual variations
may be agreed with employee representatives in order
to safeguard employment
CONTACT DETAILS
Jane Klauber
E: jane.klauber@russell-cooke.co.uk
T: 020 8394 6483