Redundancies: A guide for in-house lawyers
No business wants to consider making redundancies. However, thanks to the ongoing pandemic and the current economic climate, the last twelve months have left many organisations with little or no choice but to scale back their workforce.
In-house lawyers are becoming increasingly involved in implementing these business changes; both to manage external legal instructions (and spend) and to facilitate the process internally. Here we set out some top tips for our in-house colleagues on devising a strategy that will:
- Aid a swift redundancy process
- Minimise disruption to the business
- Keep the organisation on the right side of the law
With insights gleaned from many years advising clients on redundancy processes, and our own lawyers’ experiences working in-house, we’ll share answers to questions which in-house teams are frequently being asked in the current environment.
Our legal team is under pressure to “rubber stamp” an inadequate redundancy process
Leaders and managers are understandably facing strain to make the numbers add up, and many businesses are considering significant cost-cutting and restructuring in these unprecedented times.
Therefore, it’s not surprising that in-house teams may feel under significant pressure to ‘sanction’ or authorise these redundancy processes. This, of course, is just part and parcel of being in-house. However, balancing the business need of reducing overheads with ensuring the adoption of an appropriate and robust process is always a challenge.
Make no mistake: redundancy is an inherently difficult process. For those at risk, but also for the colleagues who remain, and the leadership and HR teams responsible for the process. In the current climate, this is even tougher. When so many are already experiencing an enormous amount of unprecedented stress, from dealing with illness, worries about health and family to homeschooling, lack of space and cancelled holidays…The list goes on. In addition, the job market is not buoyant which means that during redundancy processes, employees will be aware that finding a new job will not be easy.
With consultation meetings being conducted over video calls , it puts an additional intensity on all parties. Behaving in a humane and compassionate manner during the redundancy process has always been vital, particularly when employees need help understanding and accepting the outcome. The pandemic has made this even more challenging, but also crucial.
With all the additional anxieties and stresses, the redundancy process will be more painful than usual for at-risk employees. For instance, there are more likely to be claims that the redundancy process or outcome is unfair or discriminatory. It has recently been reported that employment tribunal claims have increased by a huge 27% when compared with the previous year. After such an unexpected and difficult year, when so much feels uncertain, people may well feel they have little to lose in pursuing litigation. Now, more than ever, it is vital that redundancies are done “well”.
What does it mean to do redundancy ‘well’?
In brief: it means the process is conducted in a way that is both legally compliant and which is recognised as fair, albeit unwelcome, by the organisation and its employees. This is important both for those leaving, and those who remain in post.
Whether this is the first round of redundancies or your business has been through restructures previously, the recommendation is to take advice from the outset. The law in this area is complex and it is essential to follow a fair process, even where the need to make cuts is clear and pressing.
What value can external law firms add to in-house capacity?
From capacity issues to a lack of specific employment law expertise, there are numerous reasons for engaging an external law firm to advise and guide on redundancy processes.
Whatever the rationale, you should select a lawyer – or team of lawyers - who will work as a partner guiding you from start to finish. They can assist by advising you on an appropriate process, and give their external perspective to help balance legal and commercial pressures. You need someone who will live the experience with you - not a law firm that provides you with an essay on what the law says and leaves you to implement the impenetrable advice.
Engaging with a firm that has a proven track record of guiding clients through redundancy processes is extremely important. So many lessons, practical tips and practices are learned by working through restructuring programmes. Leverage this knowledge by engaging an experienced external counsel – a firm that has “seen it all before”.
In addition, choosing the right law firm will give you the confidence to create and implement a plan which appropriately balances commercial demands with legal risk. Therefore, supporting you in managing internal pressure to cut corners with rational, legal and commercial rationale as to why a consistent and fair approach, tailored to the needs of the business, is always the best option.
The redundancy process is going to cause untold disruption to the business – there must be a better way…
In our experience, treating employees with sensitivity and care alongside a robust, well-planned process is not only the right thing to do, but also it means that at-risk employees are more likely to accept the consequences and outcomes of that process. This in turn allows the process to run smoothly, thus reducing the risk of damage to the morale of remaining employees and minimising the likelihood of facing expensive litigation.
The time and legal fees spent upfront on planning a restructure thoroughly will, in our view, more than pay for itself when considering the possible time and cost of managing the fallout from a poorly executed process.
Our in-house ‘FAQs’
Being asked to guide a business through an internal redundancy process is never easy – but it is manageable. Here we answer some frequently asked questions concerning redundancy.
- How long will the redundancy process take?
This will depend on how many roles are placed at risk of redundancy. Under UK law, where an employer is proposing to dismiss 20 or more employees in a rolling 90-day period, a collective consultation obligation is triggered. In short, this means that, before commencing individual consultation meetings, the business must also consult collectively with appropriate employee representatives. Where the number to be dismissed is between 20 and 99, this collective consultation period must start at least 30 days before any dismissal. Over 100 proposed redundancies and a minimum 45-day period is required.
Where there are 19 or fewer redundancies proposed in a rolling 90-day period, there is no set time frame for individual consultation. That said, it must be ‘meaningful’ in order to hold up against future legal scrutiny.
- Who should take the lead on the consultation meetings?
This is normally undertaken by HR and/or the management team. However, for smaller organisations or organisations with a limited UK footprint, it may be necessary to draft in external assistance.
- How many individual consultation meetings should each employee have?
There is no legal minimum. We advise planning for at least three, although in practice they may not all be required. Consultation with the employee needs be ‘meaningful’ and cover the following:
- Reason for the proposed redundancy
- Other cost saving measures that have been considered (e.g. furlough, removal of overtimes, recruitment freeze)
- Selection criteria to be used (if appropriate)
- An opportunity for the employee to give suggestions as to how to avoid the redundancy
- Suitable alternative vacancies with the business
- Follow up on the employee’s suggestions and feedback
- Can an employee bring a lawyer to their consultation meeting?
Legally, the employee does not have a right to be accompanied to a consultation meeting. You should agree from the outset whether you will allow this, as a matter of policy. If you do, you should limit this to workplace colleagues and trade union representatives. Lawyers should not be allowed to attend.
- Does the at-risk employee have to work during their notice period?
Once redundancy has been confirmed, the employee will work through their notice period unless otherwise agreed. In some instances, however, the employer may not want, or may choose not to require, the employee to do this. In that case, they might pay the employee in lieu of the notice period (with employment terminating immediately), or have them remain employed but on garden leave for the duration of notice period. Either way, the pay received in respect of a notice period should be taxed in the normal way and cannot be paid tax free.
- How do we calculate redundancy payments?
Legally, all employees with over two years’ service are entitled to a statutory redundancy payment. This is calculated on the basis of an employee’s age and length of service. An online calculator is available at www.gov.uk.
In addition, many businesses operate an enhanced redundancy payment. This can be calculated in different ways. As part of the business planning, and prior to launching the consultation, you should decide what (if any) enhanced payment may be offered to employees. If an enhanced payment is offered, this can be paid tax free (up to £30,000). Most employers will offer this in return for the employee entering into a settlement agreement (see below).
There are some strategic decisions you should make during planning regarding the point at which you will offer this enhancement, and on what terms. Your lawyer should help guide you through these strategic decisions.
- Do we have to pay for notice periods and a redundancy payment?
Yes. The employee is entitled to any contractual notice period payments (which are fully taxable). They are also entitled to a statutory redundancy payment if they have over two years’ service which can be paid tax-free (up to £30,000). As set out above, the employee can also be offered an enhanced redundancy payment.
- Should we ask our employees to sign settlement agreements?
This is a strategic business decision, which should be addressed with your legal adviser at the planning stage. In most cases, where the employee is receiving more money than that to which they are contractually or legally entitled, we recommend the settlement agreement route. This requires the employee to waive potential claims against the employer and in practice can incentivise employees to exit smoothly.
There are potential downsides to settlement agreements, however. For the settlement agreement to be legally binding, the employee must seek independent legal advice to discuss the claims that they may have against the business. Depending on the quality of the advice they receive, the employee may be inspired to bring a claim or ask for more money where they would not otherwise have done so.
Although not legally required, employers tend to contribute around £500 plus VAT (VAT cannot be recovered) towards the employee’s independent legal advice. Such costs should be factored into the budget. Finally, there is an increased administrative burden for the business of issuing, negotiating and processing settlement agreements.
Final top tips
- Choose the right law firm and confirm the scope of their involvement from the outset.
- Devise the business plan and agree various redundancy-related issues as soon as possible.
- Set realistic expectations about how long any redundancy process will take.
- Understand and communicate the business’s legal obligations, so everyone is clear about the potential fallout if decisions are made to cut short the selection and consultation process.
- Ensure the business has budgeted appropriately for the redundancy process, including settlement of any potentially difficult claims.