Restructuring refers to the process of adjusting the way a company operates. It is often undertaken when a business is under financial pressure and therefore leads to cutting costs and redundancies.
During a restructuring at your company, you may need to consider making redundancies. This can be a difficult process personally – for both you and your employees – but it also presents a number of legal risks that you need to be aware of as an employer.
The redundancy and restructuring process
Redundancies aren’t guaranteed with every restructuring. However, if there has been a reduction in work, or if changes in how you work negate the need for a particular type of work or role, then they may need to be made. For instance, artificial intelligence (AI) and advances in technology may mean machinery can cover the work of multiple employees.
This process can be unsettling and upsetting for both you and your employees, so it is important to ensure that you follow a fair and legally compliant process.
The most important part of a redundancy process is ensuring you inform and consult with your workforce about the changes that you are considering making, the impact of these changes on the Company and workforce and the process you will follow.
Clear communication regarding the number of redundancies to be made, how people will be selected for redundancy and their rights and entitlements if an employee is selected for redundancy is key to avoiding claims.
The redundancy process is likely to involve the following staff:
- management (senior managers and line managers) – as well as potentially being affected by any restructuring and redundancies, they will be key in disseminating information to your workforce.
- union representatives – if there is a recognised trade union at your workplace you will need to ensure that the Union are notified and engaged with in relation to any potential redundancies on behalf of their membership.
- employee representatives – employees may also elect workplace representatives, who you are obliged to engage with on behalf of your workforce. Early in any restructuring and potential redundancy situation, you should share with your employees the process for electing employee representatives.
- employees (individuals or whole teams) – you will need to ensure that you engage with those employees not just in the workplace, but also those absent for parental leave or ill health reasons. Make sure that you keep a clear written record of all meetings.
Fair redundancy selection process
The selection process by which you choose the employees for redundancy must be fair.
Your process can take into account an employee’s:
- performance within their job role
- skills and qualifications
- attendance records (discounting any necessary or unavoidable absences).
Your process must not discriminate based on:
- age
- disability
- religion or belief
- race
- gender
- pregnancy or parental commitments
- membership of a particular group or organisation.
Fair redundancy consultation process
A fair redundancy consultation process allows both employer and employee to consider and review all alternative employment options.
A collective consultation with any unions or employee representatives involved must take place if you’re making 20 or more of your employees redundant within the same 90-day period. All employees must also receive an individual consultation.
If you are making more than 20 employees redundant at any one time, the collective and individual dismissals must take place 30 days ahead of the first redundancy. If you’re proposing more than 100 redundancies, the process should begin 45 days ahead of the first redundancy. In this case, you must also inform the Secretary of State of your intentions.
All employees should receive a notice of redundancy, in writing, before their final day of work. This notice should outline the reasons for the redundancy and afford the employee a final chance to raise any concerns.
Alternative employment options
Before confirming redundancies, you should always examine alternative options for your employees. The redundancy process is a stressful and upsetting one for anyone to go through, so attempting to resolve the situation through other means is always recommended.
You could:
- recommend a job share with another employee
- redeploy or retrain the employee in a different team or area
- restrict or ban overtime in order to reduce costs
- recommend a voluntary career break or sabbatical
- reduce the number of work hours or shifts available
- recommend early retirement
- attempt to cut costs in other areas of the business.
If an employee refuses to consider an acceptable alternative role within the business, they may lose their entitlement to redundancy pay.
It is a legal requirement to explore these options prior to issuing a compulsory redundancy, and it can ensure that you maintain morale and trust amongst your employees.
Compulsory versus voluntary redundancy
If you find that you need to make redundancies, you may wish to open up a voluntary redundancy scheme. Generally, this will involve employees receiving an enhanced payment in return for agreeing to leave the Company.
You do not have to offer voluntary redundancy.
It is important to make clear that, although people can ask to be considered for voluntary redundancy, you do not have to accept their application. This will still be subject to the ongoing needs of the business.
You may want to consider offering a Settlement Agreement to any employees accepting an enhanced redundancy package, to give finality to the end of their employment.
Employee redundancy entitlements
You should ensure that all employees are aware of their legal rights when beginning the redundancy process and what their entitlements are if made redundant.
You should make the employees aware of their statutory and contractual entitlements, including the provision of:
- a notice period
- redundancy pay
- reasonable time off work.
Redundancy pay
All employees who have been with the business for two years or more should receive statutory redundancy pay. If stipulated in the employee contract, they may receive more than the statutory amount.
Calculate the amount of statutory pay based on:
- the employee’s age
- the employee’s weekly pay
- how long the employee has held their position with the company.
Depending on age, the amount of redundancy pay will vary.
If an employee is aged 17-21, they should receive half a week’s pay for every year worked.
If an employee is aged 22-40, they should receive:
- one week’s pay for every year worked from the age of 22
- half a week’s pay for every year before the age of 22.
If an employee is aged 41 or over, they should receive:
- one and a half week’s pay for every year worked from the age of 41
- one week’s pay for every year worked between the ages of 22 and 40
- half a week’s pay for every year worked between the ages of 17 and 21.
The amount of weekly pay input into this formula is currently capped at £643 and redundancy payments are also capped at 20 years.
Always be sure to confirm the amount of redundancy pay an employee should expect in writing, to avoid any discrepancies going forward.
Notice period
All employees should receive a minimum period of paid notice upon redundancy.
Unless you have a certain length of time stipulated within the employee contract, calculate the length of statutory paid notice based on the number of years the employee has worked for you:
- If an employee has worked for you for one month to two years, they should receive one week’s notice.
- If an employee has worked for you for longer than two years, they should receive one week’s notice, plus an extra week for each year worked. This allowance is currently capped at 12 weeks.
Even if an employee is not required to work their notice period, they are still entitled to pay during this time. If you prefer to issue your employee with pay in lieu of notice, ensure you stipulate this within the employee contract.
Reasonable time off work
An employee facing redundancy who has worked at your company for more than two years has an entitlement to a reasonable amount of time off work to look for another job.
You have to pay an employee up to 40% of one week’s pay during the entirety of this reasonable time off.
How to avoid unfair dismissal claims
Following a fair and comprehensive consultation process should ensure that, if redundancies are required, those who are made redundant are selected fairly. Failing to follow this process can lead to a risk of an employment tribunal claim for unfair dismissal from your employee.
Consultation and communication are key – in order to avoid legal action ensure your employees are aware of the timeline of the redundancy process and their rights.
You must retain evidence that you have followed a fair selection and consultation process when it comes to choosing the employees who will receive redundancy. You must show consideration of acceptable alternative employment options for the employee.
If you have any questions or feel unsure about your position, speak to one of our specialist employment law solicitors. Call our Newcastle office on 0191 232 3048.