Redundancies and Reorganisations

From time to time, it is essential for your business to make organisational changes and to manage staffing levels in order to ensure efficiency and profitability and to remain competitive. The coronavirus crisis highlighted the need for employers to plan carefully in relation to their workforce requirements in the shorter and longer-term.

Employers anticipating potential multiple redundancies must be mindful of the legal requirements and timescales involved when consulting in relation to collective or multiple redundancies over an extended period of time. 

Our employment solicitors have many years of experience in advising on individual or simple redundancy processes up to complex reorganisations and collective redundancies.

Click here to read our Employers’ Guide to Redundancy

We also have experience of designing, managing and implementing bulk settlement agreement projects and acting as independent advisors in large scale redundancy and reorganisation exercises.

Examples:

• Supporting our clients in every sector facing requirements to urgently adjust their workforce in response to the coronavirus crisis, including advice in relation to lay off of employees and reliance on the Government’s Coronavirus Job Retention Scheme.
• Hands-on involvement in manufacturing site closure affecting several hundred employees including designing appropriate scoring and selection processes
• Advising a large manufacturing company in relation to a collective redundancy exercise involving a reduction of approximately 40% of its workforce
• Assisting a high profile national organisation with achieving a significant reorganisation in the face of strong union objections and in a tight timeframe
• Supporting numerous clients through redundancy processes, including consultation, scoring and selection, training managers so they can effectively implement change and providing all relevant correspondence and documents tailored to the business and the particular reorganisation
• Assisting a large employer with restructuring various functions, job-slotting and ring-fencing employees to avoid redundancies

The requirement to change terms and conditions of employment may arise for many reasons, including harmonisation of terms, changing working practices and patterns, the need to save costs or protect business interests.  As with any other contract or agreement, change must normally be expressly agreed.

Where the workforce is unionised or change affects large numbers of employees, collective consultation may be required in addition to effective communications and clear documentation.

Our employment solicitors are experienced in advising on and managing all sizes and scales of re-organisation with a view to achieving effective change efficiently and with low risk.

The Transfer of Undertakings (Protection of Employment) Regulations 2006 protect employees affected by business sales, outsourcing, changes in service providers and some cases of insolvency.

Our solicitors regularly provide advice in relation to TUPE, both on stand-alone projects and by providing support to our colleagues in our Corporate and Commercial Team.

In particular, we advise clients on the effect of TUPE, employers’ obligations to inform and consult employees in relation to a TUPE transfer, as well as steps that may be taken to negotiate changes to terms and conditions or reorganise the workforce following a transfer.

TUPE is a very complex area of law and failure to recognise its effect and comply with legal obligations can result in difficult practical issues and costly penalties. 

Examples:

• Advising purchasers of various businesses on the TUPE aspects of the purchase including, in one case, the employment liability associated with the transfer of 2,500 employees
• Acting for an employer, after its purchase of a retail business, on the successful resolution of a claim brought by 22 ex-employees, alleging a failure to inform and consult under TUPE
• Providing all employee communications to a North West manufacturing business undergoing a TUPE transfer, including letters, scripts and Frequently Asked Questions sheets
• Acting for a group of 45 former employees, on a multi-million pound, multi-party TUPE employment tribunal claim arising out of the collapse of an international IT outsourcing provider
• Advising various employers on changing terms and conditions of employment following a TUPE transfer
• Providing training on the election of employee representatives and training the representatives themselves to ensure effective consultation can take place
• Advising a business on the impact of TUPE in relation to a critical new contract it was entering into, including a calculation of the cost of redundancies, tactics around managing its approach that TUPE did not apply and drafting appropriate indemnity protection

In addition to the collective consultation obligations that may arise in the context of collective redundancies or change arising from a business sale or change of service provider, those employers who have recognised trade unions may have additional obligations under collective bargaining rules or recognition agreements with their trade unions.

Managing these relationships and processes can be particularly challenging in times of a difficult economy.  Maintaining a balance and effective relationship is key to avoiding poor industrial relations and industrial action which can be both reputationally and commercially very damaging. 

Our team of specialist employment solicitors act for a number of clients who have relationships with trade unions, and we have wide-ranging experience in advising on collective agreements, trade union recognition and negotiations and consultations with trade unions in order to achieve effective resolutions.

Examples of our work:

• Implementing a collective consultation process for an FTSE 250 company that needed to terminate its final salary pension arrangements for employees
• Advising an international manufacturing company in relation to its negotiations with trade unions and employees over several tranches of significant numbers of redundancies
• Advising a household name education client in relation to collective grievances, successfully preventing a matter from progressing to strike action by employees
• Assisting a training body with union negotiations in order to avoid industrial action
• Advising a national retail business on an application for trade union recognition and the Central Arbitration Committee (CAC) process
• Advising a national employer on the validity of a strike ballot and negotiating with the union and its lawyers over ending industrial action
• Advising a national employer on picketing rules and the management of industrial action
• Assisting a national retail client with drafting union consultation arrangements
• Assisting a chemicals business with the terms of its union recognition arrangements

A genuine redundancy arises where the employer’s requirement for employees ceases or diminishes. This can arise because there is a reduced requirement for employees to perform a particular kind of work or where a business or workplace is closed. The meaning of redundancy is wider when considering collective consultation requirements (see below (Do the collective redundancy consultation requirements apply in relation to changes to terms of employment?)

Without being able to establish that a genuine redundancy arises (see What is redundancy?) a dismissal on this basis is likely to be unfair. A genuine redundancy dismissal can also become an unfair dismissal where an employer fails to adopt a fair process in relation to selecting employees for redundancy, fails to consider alternatives to redundancy or fails to follow a fair procedure in relation to the redundancy.

A fair procedure involves the employer consulting with the employee on an individual basis in relation to the potential redundancy dismissal. A fair procedure may also involve collective consultation with appropriate representatives of affected employees.

Only employees with 2 or more years’ service can claim unfair dismissal. However, irrespective of length of service, employees may make claims to an Employment Tribunal if there is any discriminatory factor in the employer’s decision to dismiss.

Where an employer proposes 20 or more redundancy dismissals, at a single establishment, over a period of 90 days, in addition to ensuring that the redundancy dismissal is fair on an individual basis, the employer must comply with additional requirements to provide information about its proposals and to consult on a collective basis.

The information and consultation obligations are owed to ‘appropriate representatives’ of employees and involve the employer consulting for minimum periods prior to effecting redundancy dismissals. These additional requirements are complex and failure to properly satisfy the requirements can result in financial penalties of up to 90 days’ pay for each affected employee.

There is a defence to such claims where special circumstances apply but this defence is rarely successful.

For the purposes of collective redundancy consultation, appropriate representatives are either a trade union recognised by the employer in relation to the affected employees or where there is no recognised trade union, representatives that have been elected for the purposes of collective consultation in relation to those employees. 

Accordingly, an employer may be required to conduct an election exercise to appoint appropriate representatives prior to being able to commence consultation. There are complex rules in relation to the election of representatives and employers must factor into their timescales complying with these requirements and potentially training representatives in relation to their role.

Where an employee has been furloughed (under the Government’s Coronavirus Job Retention Scheme), the employee is not permitted to perform any work or provide any service to the employee’s employer. However, Government Guidance has confirmed that  employees who are union or non-union representatives may undertake duties and activities for the purpose of individual or collective representation of employees or other workers while furloughed, provided that they do not provide services to or generate revenue for or on behalf of the employer;

Prior to consultation, employers must provide the appropriate representatives with a written information about its redundancy proposals. The information provided must include, for example, details of the reasons for the proposals, details of the numbers and descriptions of employees affected, details of selection criteria and details of redundancy payments.

Consultation with appropriate representatives must begin ‘in good time’ and must in any event begin:

• where between 20 and 99 redundancies are proposed at one establishment within a 90 day period, at least 30 days before the first of the dismissals takes effect; and
• where 100 or more redundancies are proposed at one establishment within a 90 day period, at least 45 days before the first of the dismissals takes effect.

A dismissal before the minimum consultation period is up will be a breach of the requirements (even if the agreement has been reached with appropriate representatives). 

Consultation involves a genuine and meaningful exchange with appropriate representatives about avoiding dismissals, reducing the numbers to be dismissed and mitigating the consequences of the dismissals, as a minimum.  In order for consultation to be meaningful, the employer’s proposals must be at a formative stage when consultation begins and the representatives must be given sufficient time to make a meaningful contribution.

The collective consultation requirements are in addition to the requirement not to unfairly dismiss an employee.  Employers must therefore undertake (and normally complete) collective consultation prior to effecting individual dismissals (which must follow a fair procedure and individual consultation).

In addition to obligations to inform and collectively consult with appropriate representatives in cases of collective redundancies (20 or more), employers must also notify the Secretary of State of the proposed dismissals. This is done using a prescribed form – Form HR1, which can be obtained from the Redundancy Payments Office. Failure to give notice to the Secretary of State is a criminal offence punishable on summary conviction by an unlimited fine.

The collective consultation requirements apply where an employer proposes to dismiss 20 or more employees where the reason for dismissal is a reason not related to the individual. This means that the requirements are triggered in circumstances where dismissals are for reasons which are wider than what is commonly understood to be redundancy. Such circumstances include where dismissals may be proposed in the context of reorganisation or changes to terms and conditions involving significant numbers of employees.

Employees who have been furloughed under the Government’s Coronavirus Job Retention Scheme (CJRS) can be made redundant but all employment law principles in relation to individual and collective redundancy (including individual and collective consultation requirements continue to apply). Employers will need to consider carefully whether a decision to dismiss by reason of redundancy at such a time is reasonable in all of the circumstances.

It is not clear whether an employer who effects a redundancy during a furlough period can continue to claim the wages rebate under the CJRS in relation to either a period of consultation or notice. Redundancy payments cannot be claimed from the Scheme.

During a furlough period all employment law principles continue to apply, including requirements to effect a fair dismissal and to observe both individual and collective consultation requirements.

On redundancy, employees with 2 or more years’ service are entitled to a statutory redundancy payment (calculated by reference to age, length of service and a weeks’ pay (currently capped at £538)). Employees may also have an entitlement to an enhanced redundancy payment in some circumstances. Leavers must also either work a period of notice or be paid in lieu of notice. An entitlement to pay in lieu of accrued but untaken holiday may also arise.

The Government’s Coronavirus Job Retention Scheme (CJRS) does not cover statutory redundancy payments. It is unclear whether the Scheme covers pay during a notice period. In certain circumstances where an employer is unable to pay a statutory redundancy payment, an employee may claim the payment from the Redundancy Payments Office.