The effects on your business of Redundancy

The following article is reproduced with kind permission of Simon Warley of Whitehead Monckton Solicitors and succintly discusses the legal implications of redundancy

At the moment the news is dominated by the economic downturn, with considerable attention being drawn to the distressing situation whereby companies and businesses are making employees redundant. Much coverage has been given to the large number of redundancies at high profile employers such as Woolworths and Nissan and also closer to home at the pharmaceutical giants based in Kent, GlaxoSmithKline in Dartford and Pfizer in Sandwich. However, very little explanation is given of when redundancies are actually legally justified, the correct procedure for employers to follow when implementing them and employee’s entitlements upon being made redundant

In law a redundancy is defined as occurring in either of the following scenarios:

Where an employer has ceased or intends to cease to carry on the business for the purposes of which the employee was employed or to carry on that business in the place where the employee was employed; or

Where the requirements of the business for employees to carry out work of a particular kind or for employees to carry out work of a particular kind in the place where the employee was employed have ceased or diminished

Unless either one of these two definitions is fulfilled, the dismissal of an employee will not amount to a genuine redundancy situation and could legally be challenged by the employee. A desire to simply save costs or preserve profit levels for directors and partners of companies and partnerships by shedding staff are not genuine redundancy situations and would instead be unfair dismissals. Rumours abound of companies and partnerships using the present downturn in business and profits as an excuse to “clear out dead wood” or in some cases to settle old scores against particular employees who have been troublesome in the past

Such dismissals are not valid redundancies but unfair dismissals. In addition, the scenario whereby and employee is dismissed purportedly on grounds of redundancy, and then a replacement will hopefully “perform” better and produce more profits would also not be a redundancy and would be an unfair dismissal

Employers must ensure that they do not confuse the issue of conduct and performance with that of redundancy. Failure to do so could mean they are on the receiving end of claims to the employment tribunal. Such claims are likely to be costly to both in terms of legal fees and awards of compensation payable to the unfairly dismissed employees

In addition, employers must ensure that they follow the correct procedure of consultation with any staff affected by planned redundancies and also that they try to find a suitable alternative role for the employee within the company before making the employee redundant. The correct period of consultation is dependant on the number of employees likely to be affected by the redundancies. Where large numbers of people are to be made redundant, a period of consultation is required; in certain circumstances this can be up to 90 days. Even if a smaller number are to be made redundant a minimum “reasonable” period of consultation is required and in most cases this will be a minimum of one month

Any employee with two years continuous employment or more with a particular employer is entitled to receive statutory redundancy pay according to a set formula based on the employee’s age and length of employment. If there is a company redundancy scheme in place and that scheme is more generous than the statutory scheme then employee is entitled to be paid according to that scheme. Redundant employees are also entitled to receive their notice pay, effective from the date when the decision to make them redundant was finalised

At the time of writing this article, Simon Warley was Head of Employment Law at Whitehead Monckton. He specialises in all aspects of employment law including advising clients on both contentious and non-contentious matters, drafting contracts and policies and procedures and representing clients at employment tribunals. He graduated in law from Oxford University and was admitted as a solicitor in 1997. Prior to joining Whitehead Monckton he worked as an employment law advisor in London and Kent

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