Redundancy and Restructure

Redundancy and restructuring is not an exercise that any organisation takes lightly and requires careful legal consideration to avoid the risk of an employment tribunal or reputational damage.

Key legal and procedural steps for handling redundancy and restructure.

The below steps will help ensure your process is fair, protects your organisation, and reduces the risk of unfair dismissal claims.

What is a redundancy?

The Employment Rights Act 1996 identifies three situations in which the statutory definition of redundancy is met:

• Ceasing or intending to cease to carry on the business for the purpose of which the employee was employed by it (business closure);
• Ceasing or intending to cease to carry on that business in the place where the employee was so employed (workplace closure); or
• Having a reduced requirement for employees to carry out work of a particular kind or to do so at the place where the employee was employed at work (reduced requirement for employees to do work of a specific type).

Redundancy is a potentially fair reason for dismissal and is used in situations where an employer has a need to reduce the number of its employees, either within the organisation as a whole, or within a particular site, function or job role.

An employer may decide to make redundancies for a variety of reasons including for example:

• Financial pressures making closure or reduction in staff necessary.
• Changes in the nature of products or services provided.
• Internal reorganisations to make more efficient use of roles and duties.
• Technological developments resulting in change to some or all job functions.
• Relocation of organisation.

This is not an exhaustive list, and legal guidance should be taken before any action is taken to ensure that your reasons meet the statutory requirements.

What are the main risks of redundancy to the organisation?

Redundancy is a no-fault dismissal. The reasons for the redundancy must be objective and focussed on the organisation’s needs rather than an opportunity to shed underperforming or difficult employees.

There are two main risks:

1. Does the organisation have a genuine reason for reducing staff? 

   The organisation must carefully consider the reason for the redundancies and be able to show that there are genuine organisational reasons to reduce staff.

2. Has the organisation fairly selected an employee for redundancy? 

   Even if you have a very good reason for making redundancies, if you fail to follow a fair process you risk facing an unfair dismissal claim.

Communication about redundancies

A significant proportion of tribunal claims are triggered by poor communication and misunderstandings.

If you do not explain your reasoning and follow a fair process, your staff are likely to make assumptions about your motives.

How do I avoid that risk?

An employment tribunal will not interfere with an employer’s freedom to make business decisions, but you will be required to show that you have a genuine redundancy situation.

Preparation

The first step is to identify genuine business reasons for redundancy. You will need to demonstrate that job roles, not individuals, are at risk and why.

This involves a thorough evaluation of operational needs and should be documented clearly to avoid disputes or accusations of unfair dismissal.

You should explore alternatives such as:

• Reducing hours
• Freezing recruitment or redeploying staff
• Non-renewal of fixed term contacts
• Ceasing use of agency workers.

Offering hybrid working arrangements or part-time positions can help to retain valuable employees while addressing cost-saving needs.

You should keep a log of all options you have considered and the reasons those options are not suitable.

Voluntary redundancy

You do not need to offer voluntary redundancy, but you should be able to explain your position on this.

Selection process

You will need to prepare and set out how you propose to select who will be at risk of redundancy.

This might be straight forward if you are removing a unique role but if you are reducing the number of employees in a specific role then you will need to consider a fair selection criteria. This can include:

• Length of service
• Skills
• Performance
• Disciplinary records

Consultation

A redundancy consultation process is a legal requirement designed to keep employees informed and ensure fair treatment.

Your aim is to ensure that this is a genuine engagement with affected employees. You should be open to considering their views and potentially changing the plan.

You do not need to consult on the reason for the proposed redundancies, but you do need to consult on how you propose to make those changes. This includes:

• A consultation timetable
• Proposed selection criteria
• Who is in the pool for selection
• What alternatives you have already considered

Collective consultation

There are legal obligations to undertake a collective consultation if you are proposing to dismiss 20 or more employees within a 90-day period.

There are very specific rules around collective consultation and, financial penalties for failing to comply with those rules.

• Where 100 or more redundancies are proposed, consultation must begin at least 45 days before the first dismissal takes effect
• For 20 to 99 redundancies, the consultation period is 30 days.
• Notify the Secretary of State on Form HR1, this notification must be received by the Secretary of State at least 45 days before the first dismissal.

Collective consultation means consulting with representatives on behalf of all affected employees.

If you do not recognise a union or already have an elected staff forum, you will need to fairly elect representatives.

Individual consultation is also important as you need to discuss with each employee how this proposal will affect them directly.

Employees have the right to be accompanied at these meetings.

Alternatives to redundancy

A redundancy dismissal will be deemed unfair if an employer fails to consider whether or not any suitable alternative employment exists within the business.

This should be discussed with the employee during the consultation meetings. This is not a one-off decision. An employer is required to continue to review options for alternative roles right up to the last day of employment.

Whilst an employer is not expected to create roles for individuals at risk of redundancy, a reasonable search for existing roles should be conducted. It is advisable to document this search to demonstrate compliance.

Other considerations

You have specific obligations to offer a suitable alternative vacancy to an employee who is pregnant and up to 18 months after the date of childbirth.

This does not limit your right to undertake a fair and objective selection for redundancy. This means that employers will be under a duty to offer any suitable alternative employment to these employees before other redundant employees.

Payments on redundancy

If and when redundancies are made, the employer must ensure that each employee is paid any statutory redundancy entitlement, their notice entitlement (if they are not working their notice) and any outstanding untaken holiday accrual. Employers should also ensure such payments are compliant with any contractual redundancy policies should these exist.

If payment in excess of employees’ contractual rights and/ or statutory entitlement is being offered, it may be sensible to make such an offer conditional upon a settlement agreement.

This will eliminate the risk of future claims being pursued by an employee . Legal advice will need to be obtained by the employee for a settlement agreement to be legally binding.

Letter providing notice of dismissal

What should the letter contain:

• A summary of the reason for the redundancy and the process followed to select the employee;
• Position on alternative options;
• Communication on if you are giving notice, how long that notice is and what the final day of employment will be;
• Confirmation of accrued annual leave during their notice period and, if this will be paid in lieu;
• =The financial arrangements, e.g. payment of redundancy and any payment in lieu of notice if offered;
• Any other arrangements (e.g. redundancy counselling, help finding another job, return of company property);and an opportunity to appeal the decision to dismiss them for redundancy and setting out the appeal procedure.

Timelines

The timeline will vary depending on the number of employees affected and the complexity of the situation.

For small-scale redundancies, the process may take a few weeks, while larger, collective redundancies involving 20 – 99 employees require a minimum 30-day consultation period.

Here is a simplified timeline of what a redundancy process could be:

Restructure

Restructuring refers to changes in a company’s organisational structure to improve efficiency. This may lead to changes in roles, responsibilities, or job titles.

However, restructuring doesn’t always lead to redundancies – employees can often be reassigned to new positions.

Where job restructuring occurs, employers need to offer alternative employment options. It’s important that these changes are clearly communicated to the workforce to maintain morale and avoid confusion.

Following a fair redundancy process is essential to protecting the business and avoiding unfair dismissal claims.

Employers must ensure that redundancies are handled transparently and in compliance with employment law to protect both the business and its employees.

Fair selection process

When an employer is conducting a restructure its vital to ensure fairness and legal compliance.  The selection criteria should be free from bias, helping employers to avoid claims of discrimination.

When selecting employees for redundancy the following should be considered:

• Employees skills: how relevant and adaptable are the employees’ skills for the company’s future needs?
• Performance: past performance reviews or appraisals can provide objective data to support decisions
• Disciplinary record: any relevant disciplinary issues should be considered. Though care must be taken to ensure they are fair and non-discriminatory.

When going through a restructure, it’s essential that the process is well documented, and the same process is applied consistently across all employees to avoid any claims of unfairness.

Therefore, employers should ensure that the process is transparent and communicated to employees, providing them with an opportunity to raise concerns if they feel the criteria has not been applied fairly.