Nowadays, given the current economic climate, redundancies are a common issue for many organizations.
In this article, we discuss how managers need to handle redundancies delicately and follow the proper procedures.
Doing this can transform a possibly stressful scenario for both the manager and the employee into a positive one, where the employee can move on quickly and find new employment and is able to leave the organisation feeling respected and on good terms with the organisation.
What is redundancy?
Redundancy is when an employee’s position is no longer required by an employer due to restructuring or operational changes in the organisation.
For example, it occurs when:
- An employer decides they no longer want an employee’s job to be done by anyone and terminates their employment (diminishing the need for employees to carry out work of a particular kind)
- The organisation ceases to operate and closes down (it becomes insolvent or bankrupt)
- The organisation has more employees than it needs or can afford to pay
Employers must make sure that when they terminate an employee’s contract by reason of redundancy that is a ‘genuine redundancy’.
The following constitute scenarios that were not genuine and lead to complaints and cases from employees:
- Dismissing when there was not a genuine redundancy at all
- Failing to follow a fair procedure leading to the dismissal
- Selecting employees to be made redundant subjectively rather than using objective criteria
Who is made redundant?
When an employer has made the decision that redundancies are necessary, the first step is to identify which employees will be made redundant.
This can be difficult as it means making decisions about people’s livelihoods and careers. However, there are some key steps that organizations should take in order to ensure that this process is as fair as possible.
Step 1: Identify the need for redundancies
The first step is to assess whether or not there is a genuine business case for making redundancies. This means looking at factors such as whether the work that the employee does is still required, if there are too many people doing the same job, or if there has been a decrease in demand for the product or service that the employee provides.
If it is determined that there is a legitimate business case for making redundancies, then the next step is to identify which employees will be affected.
Step 2: Identify which roles will be made redundant
The next step is to identify which specific roles within the organization will be made redundant. This is important as it allows managers to focus on the employees who are actually affected by the redundancy, rather than making decisions based on personal preferences.
Step 3: Select employees for redundancy
Once the roles that are to be made redundant have been identified, the next step is to select which employees will fill those roles.
There are a number of ways that this can be done, but the most important thing is to ensure that the selection process is as fair and objective as possible.
These are the most commonly used selection criteria in identifying redundancy:
Last in, first out (LIFO)
Using length of service as a selection criterion is not looked upon favourably. This is because it is potentially discriminatory against younger employees who are more likely than older employees to have shorter service.
Skills and knowledge
It is reasonable for managers to take employees’ skills, experience, performance and knowledge into account in a selection exercise. Managers should ensure that such skills are assessed objectively and should avoid difficult-to-measure tests such as employee “attitude”.
While line managers can use employees’ attendance records as a criterion for selection, they need to consider the period over which attendance is reviewed and the reasons for absence (for example reasons for absence such as pregnancy shouldn’t be counted).
Discriminatory Selection Criteria
If an employer’s selection criterion discriminates on the grounds of race, sex, disability, marital status, religion or belief, sexual orientation or age, the employer will potentially face discrimination claims as well as claims for unfair dismissal. A dismissal is automatically unfair if the employee has been selected for an inadmissible reason (for example, because the employee is pregnant).
The list of criteria should be drawn up to reflect the employer’s business priorities in order to retain the best employees.
For example, it would not be good business practice to select an employee for redundancy purely on the basis of their age if they are the only employee with specialist skills that are vital to the company.
Once the selection criteria have been drawn up, they should be applied fairly and consistently to all employees who are within the scope of the redundancy exercise.
Step 4: Inform and consult with employees
Once the decision has been made as to which employees will be made redundant, it is important to inform them as soon as possible. This allows employees to start thinking about their options and gives them time to adjust to the news.
The consultation process is also an important step in the redundancy process as it allows employees to have their say on the proposed changes and to put forward any suggestions that they may have.
The consultation should be conducted in good faith and with a view to reaching an agreement. It should involve all affected employees, not just those who are being made redundant.
Step 5: Give employees notice
Once the decision has been made to make an employee redundant, they must be given notice in accordance with their contract of employment. The amount of notice that is required will depend on the employee’s length of service.
The employee should also be given a statement setting out the reasons for the dismissal and the date on which their employment will end.
If the employee is being made redundant as part of a collective redundancy process, they may be entitled to a statutory redundancy payment.
Step 6: Offer alternative employment
If an employee is being made redundant, the employer should consider whether there are any other roles within the company that the employee could be suitable for.
If there are alternative roles available, the employee should be given the opportunity to apply for them. If they are successful in securing another role, their employment will not end and they will not be entitled to a redundancy payment.
If there are no suitable alternative roles available, the employee’s employment will come to an end and they will be entitled to a redundancy payment.
Step 7: Make the employee redundant
Once the employee’s notice period has expired, their employment will come to an end and they will be paid any outstanding salary and entitlements.
The employee may also be entitled to a redundancy payment if they have at least two years’ continuous service with the company.
If the employee is eligible for a redundancy payment, they should receive it within four weeks of their employment ending.
Tips to Handle Redundancies
Review whether redundancies can be avoided from the start. Discuss and give serious consideration to any suggestions made by employees that you may not have considered – e.g. early retirement; not renewing contractors’ contracts; freeze on overtime; bans on recruitment; flexitime; terminating agency temps etc.
Make sure those that are being made redundant are told in private (also given notice in writing) and are fully briefed on their entitlements, as well as any support services the company will be offering them to help them move forward. Remember, the affected individuals are likely to be ill-equipped for positioning themselves in the job market and often feel confused, isolated, angry and afraid.
Furthermore, make sure those employees who will retain their jobs are aware of what is going on, and how it may affect them (for example organisational/departmental restructures). Those who were made redundant aren’t the only ones who are impacted. The remaining employees will also be faced with “survivor shock” and may ask themselves, ‘will I be next?’. It is important that managers reassure survivors and demonstrate that those who have left have been provided with as much support as possible.
In instances where a number of people lose their positions through redundancies, feelings of doubt, suspicion and lack of confidence can spread throughout the organisation. To minimise “survivor shock” you will need to schedule meetings with them as soon as possible after you have delivered the cutbacks.
Keep It Legal
Make sure employees are receiving their full entitlements – ensure you have satisfied every contractual obligation you may have. It may help you to obtain formal legal and financial advice before deciding on redundancies. Be aware that your decision to make an employee redundant means you will have to provide a valid reason for the decision and you will be unable to re-fill the position if circumstances change for a reasonable period of time.
Employers should also be aware that employees who are made redundant may be entitled to claim unfair dismissal if they believe that the redundancy process was not carried out fairly.
Redundancy can be a difficult time for both employers and employees. However, by following the steps set out above, employers can ensure that the process is carried out fairly and in accordance with the law.