Redundancy – what do you need to consider in an SME?

Not surprisingly, a large number of my queries are currently related to making redundancies due to the current pandemic.  Some clients are wanting to rush through the process as they are really struggling to stay afloat and survive during the current times.  I understand wanting to get through the process quickly but as nothing has changed in terms of redundancy process, is it worth the risk of a possible claim which could actually cost you more money in the long term?

What is the true meaning of redundancy?

A redundancy occurs in three situations.  1. Where there is an actual or intended closure of the whole business.  2.  Where there is an actual or intended closure of the business at a particular workplace.  3. Where there is a reduction in the need for employees to carry out work of a particular kind.

To dismiss fairly for redundancy an employer must establish that the role is genuinely redundant, follow a fair consultation procedure and consider whether there is suitable alternative employment.

What is a genuine redundancy?

A genuine redundancy could be where the work is no longer needed due to a downturn of business, a new line of work which requires a different skill set, or a new process being introduced.  It could also be where the job no longer exists because the work is being done by other employees.  A common reason in the current pandemic is where there is a need to cut costs resulting in a reduction in staff numbers.  The workplace could be closing because the business is ceasing trading or has become insolvent.  The employer’s business and the work might be moving to another location or the employer’s business is transferred to a different employer.

What process should you follow?

For employees with under 2 years service, you can terminate their employment without following a redundancy process with no risk of an unfair dismissal claim as long as you pay the correct notice and accrued holiday pay.  The only time you not want to risk this is if there is a risk of a discrimination (no length of service required) claim due to a protected characteristic (age, disability, gender reassignment, race, religion or belief, sex, sexual orientation, marriage and civil partnership and pregnancy and maternity).  If there is a risk of a discrimination claim, then you will want to follow the process so that you demonstrate their protected characteristic was not the reason for making them redundant.  If you are making others redundant with over 2 years service, you may want to still include them in the redundancy process you are carrying out with others.

For employees with over 2 years service, you should warn employees of proposed redundancies, consult with them (and collectively via union reps or employee reps if you are making over 20 employees redundant in one location), choose objective selection criteria and consider other solutions, including alternative employment opportunities.  Consultation should be meaningful and for under 20 employees can be completed within 1-2 weeks.  If you have employees on furlough, the cost will be low of you consulting and it will be worthwhile to conduct consultation properly whilst the cost to you is low.  Otherwise, the cost of a claim could be much higher.

It may seem pointless consulting when you know that there aren’t any alternatives to the redundancy or any alternative roles but to ensure that you have followed a fair process this is required.  

Download my checklist of the top 8 considerations you need to make, including a redundancy process flowchart below.