Employers must take into consideration a range of practical, legal and financial concerns when making redundancies.
Unemployment may soon fall below the million mark but, as last week's news of 1,300 job losses at Panasonic's factory in Cardiff shows, redundancies are possible even in boom times.
Managing redundancies requires sensitivity, care and sometimes considerable toughness. Human resources departments have to manage employees' anxieties while ensuring the company's redundancy programme does not turn into a financial disaster. Although everyone speaks in terms of redundancy, in reality it is only one form of dismissal. It occurs, broadly, when an employer needs fewer staff to run the business.
HR managers need to consider the practical aspects of redundancies. How should dismissals be handled? Do the managers carrying out the dismissals need a prepared brief? Are employees clear about how to accept any offer made to them? Do employees need independent legal advice before they can accept the offer? Will the employer pay a contribution to legal fees?
The HR department will also be anxious to ensure that the settlement letter signed by employees in return for payment covers all concerns. Typically, these will include an obligation to return all property, such as a company car. Employees will also usually be required to keep confidential matters relating to their employment. Occasionally they will be subject to restrictive covenants limiting the organisations they can work for or clients they can approach.
Those handling dismissals will need to think practically during the redundancy. Have they devoted enough resources to implementing the programme? Who will co-ordinate it?
They should also be prepared for the reactions of employees, as dismissal can be a traumatic experience. Should dismissed employees be allowed to return to their desks or should they be escorted immediately from the premises? Will they damage the IT system or crash the company car? How will redundancies affect morale? Is it necessary to make an announcement to the workforce or the press?
Employers intending to dismiss 20 or more employees are under a statutory duty to consult any recognised trade unions or, if there are none involved, employee representatives elected from the workforce. Last year the government issued new regulations governing the election of these representatives.
Employers who fail to carry out collective consultation risk having to pay each affected employee a sum equal to up to 90 days' pay.
The consultation should start at least 30 days before the first redundancies take effect. This rises to a minimum of 90 days if 100 or more employees are threatened with dismissal.
An employer is under an additional statutory duty to notify the Department of Trade and Industry when it intends to dismiss 20 or more employees. The length of notice varies depending on the number of employees involved. Failure to comply with this could result in the employer being fined up to £5,000, although employer are rarely prosecuted.
Employees who are given notice of dismissal by reason of redundancy are entitled to reasonable time off to look for other employment and are entitled to be paid for such absences.
A dismissed employee has two potential claims against his or her employer: contractual and statutory.
Contractual claims are usually caused by the failure of the employer to give adequate notice of its intention to terminate an employee contract. The starting-point for damages is an amount equal to the value of the salary and other fringe benefits to which the employee would have been entitled during the notice period.
An employee with a continuous employment period of at least a year enjoys additional statutory protection on dismissal. He or she may also have a claim for unfair dismissal and if he or she has over two years service statutory redundancy payment, or both. All claims must be made within specified periods.
Redundant employees with more than two years' continuous employment are entitled to a statutory redundancy payment of a maximum of between £115 and £345 for each completed year of employment. The amount awarded is dependant on the employee's age and length of service.
A claim for unfair dismissal is made up of two parts. The first, the basic award, is a payment equal to the statutory redundancy payment. If such an award is made it cancels out the employee's entitlement to an additional statutory redundancy payment.
The second award, the compensatory award, is limited to a maximum of £50,000. Average awards are much less than this.
A claim for unfair dismissal will generally succeed only if the procedure used in selecting who should be made redundant is unfair or unfairly operated. To minimise the risk of unfair dismissal, an employer should ensure that it has a fair selection procedure and that the choice of a particular employee is a fair application of that procedure.
Employers should be aware of certain redundancy procedures if they are to avoid claims for unfair dismissal. They should, wherever possible, give employees advance notice of proposed redundancies and consult them individually as to the form and nature such redundancies will take, then explore other employment opportunities that may exist.
Employees should be given an opportunity to comment on the selection criteria used. If the employer fails to consult, unless he or she can show that such consultation would not have made any difference, the dismissal will usually be deemed unfair .
Where an employer has an agreed or customary procedure for dealing with redundancy, failure to adhere to it will usually make any dismissal unfair unless the departure can be justified.
First published in the Financial Times on 1 November 2000.