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Employees of P&O Ferries found themselves in a devastating position yesterday. Having been called to an impromptu video conference, they were then told that their employment would be terminated by reason of redundancy without any warning or consultation.
Many will be wondering where this leaves them and what their rights are in this situation.
Those with over 2 years’ service will have the right to not be unfairly dismissed. This means that an employer can only terminate an employee’s contract for one of five potentially fair reasons for dismissal – Redundancy is one of these such reasons.
The statutory definition of redundancy provides (very generally) for three situations:
A dismissal will be by reason of redundancy if it is “wholly or mainly attributable to” one of these situations but, as well there being a need for a fair reason to dismiss an employee, an employer is also under an obligation to follow a fair process to effect a redundancy dismissal.
There are a number of considerations that all employers will need to factor into a fair redundancy process. The specifics will inevitably be dependent on the individual businesses circumstances. What may be reasonably expected from one employer would not necessarily be the case for another in another sector and with different resources. As a general overview though, it should look something like this…
This is really the first step businesses should be taking. This should involve financially modelling worst case scenarios, stress testing cash flow and revisiting forecasts to gain an educated insight to what the future impact on the business will be. Where necessary, businesses should be revisiting and updating business plans (or creating a business plan if these are not already in place). This initial step will help formulate a clearer understanding of the future labour needs of a business and assist with developing a strategy to accommodate any resulting diminished requirement. I.e. highlighting which parts of a business are likely to be impacted and in which parts redundancies may be ultimately be required. Clearly, the will be a wide array of unique factors that businesses will have to contend with so at this point it is important to remember that, providing there is a genuine reason for a redundancy, an employment tribunal will be reluctant to intervene. It is essential that businesses do not overlook this key first step though, regardless of how obvious and inevitable redundancies may be.
Identify an appropriate pool
The starting point will be to focus on the group of employees who are likely to be affected i.e. those employees whose workplace may close or those whose work may be diminished. It may however, be appropriate to extend this pool if there are other employees carrying out work of a similar nature (or where this is permitted under their contract). There are no fixed rules as to how the redundancy pooling should be defined other than that this should be a decision that falls ‘within a range of reasonable responses’ available to an employer. Given this ambiguity, this is a common area in which employers make mistakes.
When there is a reducing requirement for employees, it is key for employers to get their selection criteria right. The focus will, quite rightly, be geared towards ensuring the future viability of the business but employers should ensure that the selection criteria will stand up to the scrutiny of the employees to which it will be applied.
It is important to remember that an employment tribunal will not review the scoring of each individual employee and will only be concerned as to the overall selection criteria being fair. Notwithstanding this, consideration should be afforded to avoid potential discrimination when applying a selection criteria. For example, when considering attendance, absences for pregnancy-related illness, maternity and other family-friendly leave or absences due to a disability should all be discounted.
The warning and consultation stage is another key part of the overall fairness of the redundancy process. As a first step the affected employees should be placed at risk of redundancy, informed of the redundancy proposals and given enough information to be able to understand the reasons for the proposals. Following the initial at-risk notification, an employer should carry out the scoring exercise and invite the lowest scoring employees to an individual consultation meeting (where they should be notified of their provisional selection for redundancy and invited to provide any feedback and input). An employer should then hold a further consultation meeting once any employee feedback has been considered.
Employers should also be aware of whether their statutory obligations for collective consultation will be triggered.
If there are 20 or more redundancies proposed within 90 days, then collective consultation will be required and the Secretary of State will need to be notified. This is particularly important if employee representatives need to be elected as this might impact on the statutory timeframes for collective consultation.
The time limits for starting consultation are as follows:
If an employer does not meet consultation requirements, employees can make a claim to an employment tribunal. Where the claim is successful, the employer may have to pay the employee or employees a ‘protective award’. This can be up to 90 days’ full pay for each affected employee.
An employer is also under a duty to consider whether suitable alternative employment exists within its organisation. Whilst this is unlikely to be available in the midst of the current economic climate employers are reminded that this should be kept under constant review. To do otherwise would run the risk of a resulting redundancy dismissal being deemed unfair.
Also, a redundancy dismissal is more likely to be considered fair if an employer has considered whether it is possible to avoid or reduce the need for redundancies in the first place.
Other alternatives to compulsory redundancy could include seeking voluntary redundancies, deferring new starters and withdrawing job offers, redeployment, unpaid leave, lay-offs, utilising holidays or seeking agreement for salary sacrifices.
A settlement agreement is an agreement whereby an employee agrees to waive all possible claims against the employer in return for a payment. This is commonly used as a vehicle to facilitate a voluntary redundancy.
A settlement agreement therefore, provides peace of mind for an employer against the risk of a claim for unfair dismissal. An employee is usually happy to settle under the terms of such an agreement as there is often an enhanced payment that incentivises them to do so.
Settlement agreements are a common area in which we are instructed to advise and negotiate – this could be in relation to the termination payment itself where this falls short of an employee’s statutory entitlement but could also be in connection to other clauses of the agreement i.e. the employer providing an agreed reference or negotiating the impact of any post-termination restrictions that might apply.
If you have been asked to sign a Settlement Agreement then please contact us so we can ensure that you have the best deal from your employer or whether there is room for negotiating more favourable terms.
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