An Executives Guide to Restructuring and Redundancy

One of the first things employers going through redundancies should do is keep a full paper trail in case they find themselves receiving a claim for unfair dismissal by an employee, which might include a failure to consider all alternatives. Lacking documentation to the contrary will make a case harder to defend.

In a slower economy, where senior positions might be harder to find, some employees may take the view they would prefer a step down the career ladder to keep a job than to risk trying for another job elsewhere. Employment tribunals have looked at whether the employer should consider this process.

In one case, a senior employee was selected for redundancy on the basis that he was the company’s most expensive employee. He lodged a claim for unfair dismissal and won; one of the reasons given by the tribunal being that his employer should have considered making a more junior employee redundant and offering the job to him, instead of simply assuming that he would be unwilling to accept the lower salary.

In another case, however, it was found that a dismissal was not unfair where an employer had failed to consider dismissing a long-serving junior employee in order to retain a more highly-experienced senior employee.

Although this sounds contradictory, employers should not simply assume that a senior employee will not accept a more junior post.

Several factors will be relevant, including how different the jobs are, the drop in remuneration and the difference in length of service between the two employees. Each situation that arises will need to be considered on a case-by-case basis and employers should ensure they obtain appropriate legal advice in each case.

TEN TIPS IN RESTRUCTURING/REDUNDANCY SITUATIONS

1. In most cases, an employee must have been employed for one year before they can claim unfair dismissal in an employment tribunal. However, there are six fair reasons to dismiss an employee, including by reason of redundancy. The others are: capability; conduct; breaking a legal duty or restriction; retirement; or ‘some other substantial reason’.

2. In the case of redundancy, the employee should be notified their post is at risk and for the employer and employee to have a period of consultation to assess whether there is any alternative to the redundancy, such as considering suitable alternative employment. If no alternative is identified, the employee should be invited to a dismissal meeting at which they are entitled to be accompanied by either a work colleague or a trade union representative. The employer should write following the meeting to confirm the dismissal and that the employee has the right of appeal.

3. If 20 or more redundancies are being proposed in a 90-day period then collective consultation will be necessary and the employer must also notify the Department for Business, Enterprise and Regulatory Reform (DBERR) of the proposed redundancies.

4. Questions often arise about what is ‘suitable alternative employment’ and each case has to be assessed individually but matters such as pay, job title, status, responsibility and location will all be relevant factors.

5. Where companies restructure, employees can often find themselves being offered a position which they do not consider is ‘suitable alternative employment’. However, if an employee refuses an offer of suitable alternative employment made prior to the date when the redundancy takes effect (or within four weeks of that date) they will lose their entitlement to statutory redundancy pay if the refusal was unreasonable.

6. The amount of statutory redundancy pay an employee receives is calculated on the basis of length of service, age and weekly pay. However, the weekly pay is capped at £330 and the length of service is capped at 20 years.

Some employees have enhanced redundancy clauses irrespective of length of service, which are set out in their contracts or staff handbooks. Otherwise, an employee needs two years’ service with their employer to be eligible for statutory redundancy pay.

7. Employers may want an employee to sign a compromise agreement when they are made redundant. A compromise agreement is a binding contract that records the terms of what has been agreed and the payments to be made, in consideration for which the employee agrees to waive any potential claims.

To be a legally binding document, the employee needs to obtain independent legal advice on the terms of the agreement and employers will usually pay some or all of the legal costs incurred in the employee obtaining independent advice.

8. Where an employee is made redundant, the first £30,000 is often paid free of tax and national insurance contributions, as it is deemed compensation for loss of employment.

However, care is needed where the £30,000 exemption is claimed but the employment or engagement continues in another form, for example, if a director continues as a non-executive director, or as a consultant, because HMRC may subsequently question the authenticity of the termination.

9. The law protects employees from being dismissed unfairly where the employer has automatically selected them for redundancy for a particular reason. Examples include a reason connected with pregnancy, maternity or parental/dependent care leave, or with certain health and safety reasons or because the employee has blown the whistle about the employer’s practice or breaches. In such situations, an employee does not need one year’s service to be able to claim that their dismissal was unfair.

10. If the employee considers that their redundancy is not genuine and that they have been dismissed for a discriminatory reason, they need to lodge a written grievance with the employer stating the allegations. The employer has 28 days to deal with their grievance issues before an employee can lodge a claim.

Finally, employees should check their home contents or car insurance policies if they are concerned that their dismissal has been unfair or on discriminatory grounds because they may find that legal expenses for employment claims are covered.