The impact of the pandemic on the economy is still being felt and understood. Despite positive recent signs in the UK employment market, there remains high levels of pessimism and uncertainty over jobs. An estimated one million workers remained on furlough at the end of the Government’s furlough scheme on 30th September 2021, whilst a recent report by Renovo suggested that seven in ten employers expect to make redundancies in the next year.
This is the first article in a three-part series in which we will guide employers through the potential minefield that is a redundancy process. This article focuses on the first stage in this process by going back to basics and exploring the legal meaning of “redundancy”, and considering when redundancy situations might arise in practice.
A redundancy situation can arise in three situations:
1. A business is ceasing trading altogether
For example, a restaurant is struggling financially, and so the owners close the business permanently. Alternatively, the business closure could be temporary and still cause redundancies, such as if the restaurant was closed for a few months for major refurbishment.
2. A business is closing or moving a workplace
For example, a chain of sandwich shops might identify that one of its shops is suffering from reduced footfall and decide to close that particular branch. Redundancies could be caused by the chain deciding to permanently close the shop or relocating the shop to a further away location.
3. A business has a reduced need for employees carrying out work of a particular kind
For example, a company with branches nationwide must cut costs and reduce the number of employees across the board and reorganise the entire business structure to be more efficient. Alternatively, it may stop or lessen efforts selling a specific product that is performing poorly, meaning that the six-strong sales team for that product (or it could even be just a single salesperson) is no longer needed, or perhaps only a smaller team of three is needed.
Redundancy situations such as these can arise for a variety of reasons, including:
A three-stage test has been established through case law, which involves an Employment Tribunal looking at the statutory definition above and asking itself:
If the answer to all three of the above stages is “yes”, then there will be a genuine redundancy dismissal.
Here are some examples of when it can be difficult to determine whether there is a genuine redundancy situation:
An employee may bring a legal claim, usually for unfair dismissal, if they feel there was an unlawful reason for their dismissal. Redundancy is a fair reason for dismissal, but claimants regularly argue that the redundancy situation is not genuine but a sham to cover up an unlawful dismissal. It is surprisingly common for employers to have a perfectly genuine redundancy situation on their hands but to fall down by rushing into the consultation process without fully understanding or documenting the redundancy situation. This can lead to employers being unable to properly communicate the situation to at-risk employees, which can generate suspicion of foul play and leave employers exposed in any Employment Tribunal proceedings because they cannot prove that there was a genuine redundancy reason for the dismissal.
Misunderstanding and miscommunication are often the driving forces behind such claims. Therefore, the first step in any redundancy process, and arguably the most important one, is for an employer to carefully consider the cause of the redundancy situation, document this, and plan how they will explain this to their employee(s).
In the absence of an obvious sham, an Employment Tribunal will not delve into the reasons behind a redundancy situation. Claimants may criticise the logic of their redundancy, but the Employment Tribunal is not concerned with whether a brilliant commercial decision was made. It is concerned with whether the statutory definition of redundancy is proven. Where there is a paper trail explaining and analysing a redundancy situation, a Judge is more likely to accept on face value that one had arisen. This will be particularly important where a Claimant is arguing that they were dismissed for another reason, such as misconduct, whistleblowing or discrimination, where a Judge may investigate the facts of the dismissal in detail. Therefore, it is always helpful for an employer to have thought through the nature of the redundancy situation in detail before beginning the consultation process so that this can be properly documented, conveyed and recorded.
In part two of this series, we will explore how employers can make a strong start to their redundancy process by ensuring that employees are correctly pooled and fairly selected for redundancy.
You can also try our Myerson HR Portal on a free trial which includes redundancy documents for an individual process.
This article is general guidance only and should not be relied upon as advice. If you have questions or would like more information regarding handling redundancies, you can contact our Employment Solicitors below.