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With Britain officially in recession, businesses are having to give consideration to tightening their belts and this often means looking closely at staffing costs as the orders dry up. Jennifer Gardner, a senior solicitor in the employment law division at Aberdeen’s leading commercial law firm Paull & Williamsons, examines the complex issues involved when taking the difficult decision to make people redundant.

“Redundant: not or no longer needed or useful; superfluous” (Oxford English Dictionary)

For some employers options such as freezing recruitment or changing terms and conditions such as reviewing bonus entitlements or reductions in salary or benefits will suffice. However, for some businesses, redundancies are inevitable.

As the dictionary definition above demonstrates, the very word “redundant” has particularly negative connotations and a redundancy exercise is likely to be an emotive and upsetting experience for all concerned. For staff, the financial consequences of being made redundant are obvious and this increases the incentive to bring employment tribunal claims. It is therefore vitally important to get the process right.

The key question to be answered is: do you have a genuine redundancy situation? Redundancy is a potentially fair reason for dismissing an employee, but it is for the employer to show that particular circumstances actually constitute a redundancy situation, as defined by statute and that the procedure followed in carrying out the dismissal was fair. In general terms this will include situations where fewer employees are required. This might be due to the closure of all, or part of a business due to a down turn in work or there might simply be a reduced requirement for a particular class of employees.

Specific statutory provisions apply where employers propose to dismiss 20 or more employees at one establishment within a 90-day period. Collective consultation with employee representatives will be required. Collective consultation is complex and legal advice should be sought when contemplating redundancies of 20 or more. There are many legal pitfalls when undertaking collective consultation and the consequences of getting the process wrong are potentially much more costly than in an individual redundancy situation.

Employers must ensure the process is fair when it comes to choosing who should be placed at risk of redundancy and finally selecting which employees to make redundant at the end of the consultation process. Determining the correct “selection pool” may involve pooling employees from separate departments or with different job titles together where employees have interchangeable skills.

Once the pool of employees at risk of redundancy has been determined care should be taken to ensure that the selection criteria applied to the pool are fair.  Selection criteria such as “attitude” are unlikely to be sufficiently objective. Criteria should be capable of being measured against yardsticks such as performance appraisals or productivity levels.

Any criteria that may be discriminatory should be avoided. For example, care should be taken when using length of service, as this is likely to discriminate on the grounds of age. Absence levels are useful, but allowances should be made for disabled employees or those on maternity leave.

Whilst there is no magic formula when undertaking an individual consultation process, it is vital to meet with each affected employee individually at least twice prior to confirming dismissal. An appeal must be offered and employees must be given a true opportunity to discuss matters and put forward any suggestions before a final decision is made.

Redundant employees, with two or more years of service, are entitled to a statutory redundancy payment, calculated by reference to the employee’s age and length of service. Many employers also provide enhanced redundancy payments, often only in exchange for signed compromise agreements.

Employers are also obliged to consider whether there are any suitable alternative positions that could be offered to redundant employees. A failure to do so will result in a potential claim for unfair dismissal. On the flipside, an employee who unreasonably refuses to accept an offer of suitable alternative employment may not be entitled to receive a statutory redundancy payment.

The cost of getting the redundancy process wrong can be high. Generally the cost of compensation that an employment tribunal can award is capped, currently at £66,200. Where discrimination is alleged, employers face potentially unlimited awards. Employees may also bring claims for breach of contract if they believe they are entitled to enhanced redundancy payments. In a collective consultation situation a hefty Protective Award can also be made in respect of each employee to penalise employers for a failure to consult properly.

Redundancy exercises, even when they go smoothly, can attract adverse publicity and consideration will also need to be given to managing this from the outset.

For more information contact Jennifer Gardner or another member of the employment law division at Paull & Williamsons, in Aberdeen 01224 621621.

Paull & Williamsons, in conjunction with The Urquhart Partnership, is hosting a half-day redundancy seminar on March 30. For more information contact Laura McHardy at The Urquhart Partnership 01224 651 815 or visit www.upwebsite.com