No business wants to consider making redundancies, but the ongoing pandemic and current economic climate have left many organisations with little choice. Due to this, they’ve had to scale back their workforce over the past twelve months. As an in-house lawyer, what should you know?
In-house lawyers are taking on a larger role in implementing business changes. They are managing external legal instructions and spend, while also facilitating 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 years of experience advising clients on redundancy processes, we have valuable insights. Additionally, our in-house lawyers have shared their firsthand experiences. Together, we will provide answers to the common questions in-house teams face during this challenging time.
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Our legal team is under pressure to “rubber stamp” an inadequate redundancy process
Leaders and managers are under pressure to make the numbers add up. As a result, many businesses are considering significant cost-cutting and restructuring during 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.
Redundancy creates difficulties for everyone involved- those facing potential job loss, their colleagues who remain, and the leadership and HR teams managing the process. In the current climate, it’s even more challenging. Many people are already under stress, dealing with illness, health concerns, family issues, homeschooling, lack of space, and cancelled holidays. And that’s just the start. On top of everything, the job market is weak, so those facing redundancy know that finding a new job will be difficult.
Conducting consultation meetings over video calls adds extra pressure on everyone involved. Approaching the redundancy process with humanity and compassion has always been crucial, particularly when helping employees understand and accept the outcome. The pandemic has made this even more challenging, but it has also made it even more essential.
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. Recent reports show that employment tribunal claims have risen by 27% compared to the previous year. After such an unexpected and challenging year, with so much uncertainty, people may feel they have little to lose by pursuing litigation. Now, more than ever, it is vital that redundancies are done “well”.
What does it mean to do redundancy ‘well’?
In brief, this means conducting the process in a legally compliant manner that is seen as fair, though unwelcome, by both the organisation and its employees. This is crucial for both those leaving and those who remain.
Whether this is the first round of redundancies or your business has been through restructures previously, the recommendation is clear. Take advice from the outset. Early consultation with legal experts can help navigate potential pitfalls.
The law in this area is complex. It is essential to follow a fair process. This remains true even where the need to make cuts is clear and pressing. Failure to follow proper procedures can lead to significant legal consequences.
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.
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Engaging with a firm that has a proven track record of guiding clients through redundancy processes is extremely important. Working through restructuring programmes teaches many lessons, practical tips, and practices. 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
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’
Guiding a business through an internal redundancy process is never easy, but it is manageable. Here we answer some frequently asked questions concerning redundancy.
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- How long will the redundancy process take?
The number of roles at risk of redundancy will determine the process. Under UK law, if an employer proposes to dismiss 20 or more employees within a 90-day period, they must trigger a collective consultation obligation. This means the business must consult with appropriate employee representatives before starting individual consultation meetings. If the number of redundancies is between 20 and 99, the collective consultation must begin at least 30 days before any dismissal. For more than 100 proposed redundancies, the consultation period must last at least 45 days.
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?
We recommend planning for at least three consultations, even though there is no legal minimum, and not all may be necessary. The consultation with the employee must be ‘meaningful’ and cover the following:
- Reason for the proposed redundancy
- Other cost-saving measures that businesses have considered include furlough schemes, removing overtime, and implementing recruitment freezes.
- 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?
After confirming redundancy, the employee works through their notice period unless both parties agree otherwise. In some instances, however, the employer may not want or require the employee to do this. In that case, they might pay the employee instead of requiring the notice period (with employment terminating immediately), or place them on garden leave for the duration of the notice period. Either way, the employer taxes pay for notice periods in the normal way and cannot pay it tax free.
- How do we calculate redundancy payments?
Employees with over two years’ service are legally entitled to a statutory redundancy payment, which we calculate based on their age and length of service. An online calculator is available at www.gov.uk.
In addition, many businesses operate an enhanced redundancy payment. You can calculate this in various ways. As part of the business planning, and before starting the consultation, decide whether to offer any enhanced payment to employees. If offered, the enhanced payment 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?
The employee is entitled to receive any contractual notice period payments, which are fully taxable. If they have more than two years of service, they are also entitled to a statutory redundancy payment, which can be paid tax-free up to £30,000. Furthermore, you can offer an enhanced redundancy payment if desired.
- 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.
Settlement agreements come with potential downsides. To make the agreement legally binding, the employee must seek independent legal advice on any claims they may have against the business. The quality of the advice may prompt the employee to bring a claim or ask for more money than they initially would have.
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Although not legally required, employers typically contribute around £500 plus VAT (which cannot be recovered) to cover the employee’s independent legal advice. Businesses should include these costs in their budget. Additionally, the company will face an increased administrative burden when 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 to ensure everyone is clear about the potential consequences of cutting short the selection and consultation process.
- Ensure the business has budgeted appropriately for the redundancy process, including settlement of any potentially difficult claims.
Rachel is a specialist employment lawyer who advises employers on all UK HR-related matters, both contentious and non-contentious. She’s a Senior Consultant at Bellevue Law.