Making redundancies as a result of Covid-19
Many employers have sadly needed to make redundancies in recent months due to the pandemic and this trend will likely continue. This article provides a useful summary of the key considerations for employers who are contemplating a headcount reduction.
Is there another way?
As a general rule, employers should only make redundancies as a last resort. They should therefore first consider whether there are any alternatives. For example:
- Exercising any contractual right to ‘lay-off’ staff on a temporary basis or reduce their hours.
- Terminating the contracts of agency staff and contractors first, if appropriate.
- Where there is no contractual right, asking employees to consent to reduce their hours or pay on a temporary basis or considering ways to unilaterally make such changes.
- Seeing whether any employees want to take unpaid leave or go on a sabbatical.
Employers should also consider, to the extent they have not already done so, whether the extended Coronavirus Job Retention Scheme (the "furlough scheme") or the new Job Support Scheme (which is due to take effect when the furlough scheme officially closes) are an option; an Employment Tribunal, when assessing unfair dismissal claims, will likely expect employers to have at least considered using any available government support to avoid having to make redundancies.
What is a ‘redundancy’?
‘Redundancy’ is one of the potentially ‘fair’ reasons which an employer can rely upon to dismiss an employee. It is important for an employer to demonstrate that there was a genuine redundancy situation (e.g. the dismissal was due to a workplace closure or a reduced requirement for employees to carry out a certain type of work) and that they follow a fair process, including meaningful consultation with the affected employees.
The process involved will depend on how many employees are affected and over what time period. Generally speaking, if an employer is proposing to make 20 or more redundancies at one time, they will need to carry out collective consultation with employee representatives or a trade union if applicable.
Making fewer than 20 redundancies
If an employer is proposing to make fewer than 20 redundancies, there is no definitive timescale for conducting the process. Although fact-dependant (the reason for the redundancies, how many employees are involved, size of the employer, etc.), the process can often be completed within two weeks and will normally involve:
- considering whether to ask for volunteers
- considering the pool of affected employees
- putting affected employees ‘at risk’ of redundancy (i.e. warning them that their role might be made redundant)
- scoring employees (using fair and non-discriminatory selection criteria)
- consulting with employees on an individual basis about their score
- considering whether there are any alternatives to the redundancy (including whether the employer has any vacant jobs which are suitable).
As many employees are continuing to work from home, consultation will be harder and employers will need to think creatively about how they can meaningfully consult with staff remotely (e.g. via zoom, web-chat, telephone, etc.). Getting the communication right will be key.
Making more than 20 redundancies
If an employer is proposing to make more than 20 redundancies within a 90-day period, they will need to comply with collective consultation obligations. This process will last between 30 to 45 days, depending on the number of redundancies proposed.
Under collective consultation rules, employers must first consult about the proposed redundancies with any recognised trade union or, if none exist, with a newly elected employee representative body. Again, communication is critical and employers will need to carefully consider how to deal with this whilst complying with social distancing rules.
There is also a requirement to notify the Government’s Business, Energy and Industrial Strategy Department about the proposals.
It is possible, in very limited circumstances, for employers to deviate from their collective consultation obligations. However, it is important to seek legal advice on this point.
Payments on a redundancy
An employee who is made redundant will be entitled to:-
- Their notice (whether that is worked or paid in lieu). Employees are entitled to the greater of: (i) the notice period in their employment contract; or (ii) that required under statute (being one week’s notice per year of service (up to a maximum of 12 weeks);
- Salary and benefits which accrue up to their last day;
- A payment in lieu of any accrued but untaken annual leave; and
- A statutory redundancy payment (‘SRP’) based on their age, length of service and gross weekly pay (if they have been employed for more than two years). SRP can be calculated using this online calculator. If an employer operates a contractual enhanced redundancy pay policy, employees will be entitled to that instead.
In practice, only employees with more than two years’ service benefit from unfair dismissal rights. Therefore, where affected employees do not have sufficient service, employers might elect to effect redundancies more expeditiously.
It is important that redundancy processes are fully considered, properly documented and carried out correctly to avoid lengthy and potentially expensive employment claims down the line. We often advise clients on these processes, and can assist with drafting scripts for use at consultation meetings, letters to employees and associated termination documents.
This note reflects our opinion and views as of 5 November 2020 and is a general summary of the legal position as we understand it. It does not constitute legal advice and local law advice should be obtained before proceeding.
In yet another development, Rishi Sunak, the Chancellor, has confirmed that he will announce today that the scheme will be further extended until March 2021.