Getting redundancies right as a small business

Karen Bexley, partner and head of employment law at commercial and private client law firm, MLP law, looks at how you can make sure you carry out any redundancies correctly and avoid legal action.

Dealing with redundancies can be difficult for any business. Often it feels like a quick decision needs to be made to safeguard the business and the temptation to simply announce redundancies without proper thought into the consequences can be overwhelming. However, smart business owners realise that taking the time to properly plan a redundancy process can save a lot of hassle and money in the long run.

In most cases, a redundancy situation will occur when there is a need to reduce the number of staff employed within the business. This may be the result of closures within the company, such as closing down sites where the business operates from, or the financial performance of the business means that the current staffing structure can no longer be supported.

So what happens if a redundancy situation does occur?

Before making any final decisions and terminating any roles, business owners must inform employees about the possible risk of redundancies. This should be done in the form of redundancy consultation meetings with those who are at risk so that employees can be made aware of the proposals and the reasoning behind them. When selecting the employees who will be made redundant, this should be based on objective and measurable criteria such as if a particular kind of work is disappearing or there is a reduced need for a specific role. There are no fixed rules when it comes to defining a pool of employees which will be at risk of dismissal. Employers just need to ensure that they have made their selection based on reasonable circumstances and the pool needs to be identified before anyone is made redundant.

Do new jobs have to be found for affected employees?

The business is not obliged to provide alternative employment where none already exists for those employees who have been dismissed. However, in order to produce evidence in defence of any unfair dismissal claims, the business should carry out a thorough search for alternative employment by identifying whether any internal vacancies exist anywhere within the business. Up until the date of the actual dismissal, the business should continue with this search and document its efforts by keeping a note of the steps taken and the dates on which job searches were carried out.

What payments are redundant employees entitled to?

Those employees who have been with the company for a significant period of time are entitled to receive a Statutory Redundancy Payment. This is tax free and is calculated based on the employee’s age, weekly wage and length of service.

All employees will be given a notice period leading up to the date that their employment will be terminated. This will either be set out in their contracts of employment or will be calculated as a minimum of one week per complete year of employment – whichever is greatest.

Employees are also entitled to receive a payment based on any accumulated but untaken holidays. Both of these payments are subject to PAYE deductions in the normal way.

What are the consequences if things go wrong?

An employee should not be made redundant as a result of performance concerns – this should be handled via disciplinary proceedings or performance management processes. Employees who have been dismissed under these circumstances have the right to bring a claim of unfair dismissal. A dismissal may also be considered unfair if there has not been an appropriate consultation, the redundancy pool is not reasonable, or if the selection criteria is not measurable. Employers are under an obligation to consider how redundancies can be avoided or, if this is not possible, how the number of redundancies can be minimised. A successful claim for unfair dismissal can result in the employee being awarded up to a year’s gross salary as compensation for loss of earnings.

Each redundancy situation is different and will depend on the circumstances surrounding the need to cut staff numbers. The most important process, and perhaps most difficult, involves selecting the redundancy pool and identifying the members of staff who may be at risk of dismissal. Undertaking redundancies is not an easy situation, but taking the time to carefully plan the process will help to save money and management time at a later stage. It will also help protect the business from potential unfair dismissal claims.