Counsel Emma Vennesson, Associate Charlotte Marshall and Trainee Solicitor Elise Lanteri at Faegre Drinker Biddle & Reath explain how employers can let employees go fairly, while reducing the risk of unfair dismissal claims, during redundancies.
Unfair dismissal
Unfair dismissal is a statutory claim available to employees who have at least two years’ service. In the event of a successful unfair dismissal claim, the employee could get up to £89,4931 or 52 weeks’ gross pay, whichever is lower.
In addition, a basic award of up to £16,3202 may be imposed, if the employer failed to make any statutory redundancy payment owed to the employee.
In order to defend against such a claim, an employer will need to demonstrate that it has (i) a potentially fair reason for the dismissal and (ii) followed a fair process in relation to that dismissal.
Redundancy as a potentially fair reason
There are five potentially fair reasons for dismissal listed in the Employment Rights Act 1996, one of which is redundancy.
An employer wishing to rely on redundancy as the reason for dismissal should therefore satisfy itself that the statutory definition of redundancy is met.
Under the Employment Rights Act 1996, there will be a redundancy situation where (1) a business is closing down, (2) a workplace is closing down, or (3) the requirement for employees to do work of a particular kind has ceased or diminished.
Fair redundancy process
Even where redundancy is established as the reason for dismissal, the dismissal will be unfair if the employer fails to follow a fair redundancy process.
There is no law that sets out what a fair process should look like, but a body of caselaw has over time established certain key steps to ensure a process is fair.
Of these, the overriding requirement is full consultation with the employees before any decisions are made. Employees should be given enough information to understand the situation and enough time to respond.
Where an employer proposes to make 20 or more employees redundant in a period of 90 days or less at one establishment, this will trigger additional collective consultation obligations (a breach of which could lead to awards of up to 90 days’ gross uncapped pay per employee).
Start consultation as early as possible when the business is considering making redundancies. As part of the consultation the following should be discussed:
- Alternatives to compulsory redundancy: An employer should consider whether it is possible to avoid or reduce the need for dismissals, for example by inviting employees to consider voluntary redundancy or implementing a recruitment freeze or temporary lay-offs.
- The selection pool: A selection pool is the group of employees from which employees will be selected for redundancy. While an employer has discretion in deciding the selection pool, it should ensure the people making up the pool is reasonable. This will generally involve considering the employees’ roles, duties and reporting lines.
- The selection criteria: The criteria used to choose employees from the selection pool should be objective and capable of independent verification. Examples of potentially objective criteria include performance, length of service, and attendance or disciplinary records. Employers can attach different weightings to criteria, but must be able to objectively justify the weightings.
- Suitable alternative employment. An employer must carry out a reasonable search for alternative employment within the employing entity and, if applicable, its wider group. If suitable alternative employment exists, it should be discussed with the employee. If an employer makes an offer of suitable alternative employment that is rejected unreasonably by the employee – the employee will lose any entitlement to statutory redundancy pay.
Involve a union if you recognise one
There is no law that specifically requires an employer to give an employee the opportunity to appeal against a dismissal for redundancy.
However, in the recent case of Gwynedd Council v Barratt and another3, the Employment Appeal Tribunal found that while a failure to provide such opportunity would not necessarily be fatal to a case, it is one of the factors that an Employment Tribunal should take into account when considering whether a fair process has taken place.
Employers looking to reduce their exposure to unfair dismissal claims should therefore look to incorporate an appeal procedure as part of their redundancy process.
Additional considerations
To reduce potential exposure to other statutory claims, employers should take care not to discriminate during the redundancy process on the basis of any protected characteristics under the Equality Act 2010 (namely, age, sex, maternity or pregnancy, marital status or civil partnership, race, disability, sexual orientation, gender reassignment, or religion or belief).
They should also ensure that any dismissal is not for another unlawful reason – for example in retaliation to a whistle-blowing employee.
Finally, employers should comply with their employees’ contractual entitlements, as failure to do so could allow the employee to cite breach of contract.
