7 pitfalls to avoid when making redundancies

Advice  |   18 January 2021

Written by
Emma Thompson, Partner

Notwithstanding the Chancellor’s coronavirus job retention scheme being extended, for many companies, employers are having to contemplate redundancies if they are to keep their business afloat.

‘Getting the redundancy procedure right is crucial, as mistakes can open the door for an employee to bring a claim before an employment tribunal,’ explains Emma Thompson, Head of the employment team with. ‘There has already been an increase in claims, particularly in regard to unfair dismissal relating to redundancy.’

Here are some common misunderstandings and mistakes for employers to avoid.

Pitfall #1 - Failing to count voluntary redundancies towards the trigger for collective consultation

The obligation to inform and consult with recognised trade unions or employee representatives kicks in when you are proposing to dismiss as redundant 20 or more employees at one establishment.

If any employees have volunteered for redundancy, they must still be counted.

If you omit them from the calculation and do not collectively consult when you should, you could face claims for up to 90 days’ actual pay for each affected employee.

Pitfall #2 - Failing to consult with employees out of the workplace

An essential element of a fair redundancy is individual consultation, so do not forget about employees who are not in the workplace due to furlough leave, sickness absence, family-friendly leave or homeworking.

You must still consult with them, even if you have concerns that they may find it too stressful. We can help you find the most appropriate way to do this and can advise you on how to handle the discussions.

You may need to schedule more time in your redundancy process and may need to adjust your scoring, for instance relating to recent performance, to ensure that absent employees are not at a disadvantage.

You may also need to make adjustments to your process for disabled employees.

Pitfall #3 - Believing that ‘last in, first out’ is a fair selection approach

The approach of ‘last in, first out’ was once seen as a fair and uncontroversial selection criterion but it now carries the risk of age discrimination claims as younger employees are more likely to be the last ones in.

Another reason to avoid this approach, is that it is a blunt tool and may result in losing your best performers.

Pitfall #4 - Holding interviews instead of selection assessments

Making an employee apply for their own job is a risky way to select employees for redundancy when you are just reducing the number of existing posts and the remaining jobs remain largely the same.

An employment tribunal is likely to find this selection process to be unfair. Instead, you should use selection criteria and an assessment process.

However, it may be safe to use an interview process where the available jobs are new or have been significantly redesigned.

Pitfall #5 - Concealing assessment scores

One area for individual consultation is the employee’s assessment scores. To ensure that this consultation is meaningful, the employee needs to know:

  • their own scores;
  • the break point (the score above which their job would be safe);
  • within which quartile they scored; and
  • the anonymised scores of the other employees in the pool.

Data protection rules only prevent you from disclosing these if individuals could be identified from the anonymised scores.

Pitfall #6 - Treating employees on family-friendly leave equally

Having selected employees for redundancy, you must offer them any suitable alternative roles in your business.

Make sure that you give priority to any employee you are making redundant while on maternity, adoption or shared parental leave. They have the right to be offered first any suitable alternative roles, so long as the terms of the job are ‘not substantially less favourable’ than their current job. If the job meets these conditions and you do not offer it, the redundancy dismissal will be unfair.

You must actually offer them the job; they do not have to apply, even if other redundant employees would make better candidates. The job must then be held open for the employee until they return to work.

Pitfall #7 - Using furlough pay to calculate notice and redundancy pay

For many employees, statutory redundancy pay is calculated using average pay figures from the last 12 weeks.

Under new rules introduced on 31 July 2020, employers cannot base statutory notice and redundancy pay on reduced pay received during furlough leave. Instead, employers must calculate these payments using the full pay an employee would have received if they had not been furloughed. A week’s pay for these payments is currently capped at £538.

How we can help

Speak to us as soon as you are considering making any employees redundant to ensure that you follow the correct procedure from the outset. We can advise you on tricky issues such as what is ‘an establishment’ for purposes of collective consultation and when is a job a ‘suitable’ alternative? With our advice, you can avoid jeopardizing your business with a costly and disruptive employment tribunal claim.

Related Insights