Coronavirus and redundancies – lessons to be learnt from previous recessions

In response to the adverse economic conditions arising from the coronavirus outbreak, press reports published earlier this week confirmed that UK employers planned to make more than 300,000 redundancies in June and July alone. Undoubtedly, further redundancies will be announced in the forthcoming months and particularly, nearing the end of the furlough scheme on 31 October.

It is too early to tell whether the redundancies will translate into increased Employment Tribunal claims, but history shows that following the last recession in 2009–10, the number of claims rose by 56% compared to the previous year. Of those claims, the focus was on unfair dismissal, breach of contract and redundancy. We can expect the claims flowing from the current wave of redundancies to be similar, given the current climate. Similarly to the last recession, employees are not readily securing alternative employment and this may make them more likely to bring and actively pursue claims where there are grounds to challenge the fairness of their dismissal.

Given the expense in terms of both management time and money in having to defend Employment Tribunal proceedings, it pays to ensure that employers vigorously adhere to fair redundancy procedures. Employers also need to ensure that, in addition to an individual redundancy process, they comply with the collective redundancy consultation process where this is triggered by the number of employees being made redundant.

To successfully defend any unfair dismissal complaint on the grounds of redundancy, employers should ensure that:

1. Prior warning and consultation with affected employees takes place

The first step is to notify the relevant employee(s) that their role is at risk of redundancy. This then triggers the start of a period of consultation with the employee(s) before any final decision is taken. During this time, employers should discuss with affected employees ways of avoiding redundancies and mitigating their effect.

For some businesses, there continues to be an element of unpredictability associated with the longer-term effects of COVID-19 and the impact on the business going forward. In these types of situations, part of the consultation process should explore potential alternatives to redundancy and obtain employees’ views on any proposals formed.

Similarly, there will be some businesses that will not survive the dire downturn in business, and redundancies will be an inevitable consequence. Whilst employers in such cases might argue that the prior consultation would have made no difference to the eventual outcome, there should still be a form of employee consultation except in exceptional cases.

A consultation process can also be an effective tool to retain key talent when a company is forced to implement a range of cost-cutting measures or to implement succession planning initiatives. For example, some FTSE 100 firms have introduced initiatives to allow all employees to elect to work a reduced week and/or introduce optional phased retirement schemes for those aged 50 years and above.

2. A fair selection process is carried out

Provided that employers reasonably address their minds to the question of which employees should be included within a redundancy selection pool (i.e. a pool from which to select (or deselect) those employees to be made redundant), Tribunals do not tend to interfere with such decisions. Generally, this involves giving consideration to pooling all those employees performing the same or similar/interchangeable roles. In some cases, employers may have a good business rationale for excluding certain roles from a redundancy pool on the basis of key client relationships or a desire to preserve key accounts, but this should be considered on a case-by-case basis.

Once the selection pool has been identified, employers must apply fair and objective selection criteria to determine which employees should be made redundant. Again, employers have a degree of latitude in determining the selection criteria and it can be centred on ensuring that the employers retain the best-suited employees to meet the future, and often changing, needs of the business.

Any selection criteria applied must be free of discrimination on the grounds of a protected characteristic.

3. Any suitable alternative employment is offered to affected employees

In times of recession, the need to downsize may mean that no suitable alternative employment is available. However, for other employers, the need to restructure results in the creation of new positions, and mapping potentially redundant employees to new roles can be a very effective measure in times of cutting costs. But employers should take care not to impose alternative roles on employees without prior consultation. Again, the availability of alternative positions needs to be considered and openly discussed with affected employees.

It is becoming apparent that COVID-19 has forced many industries to cut staff and, while the furlough scheme may have protected as many as 9.6 million jobs, the fear is that more job losses will be inevitable as businesses restructure their businesses. There may be a tendency for employers to think that they can short-circuit the redundancy process because of the adverse impact of the current economic climate, but they must bear in mind that doing so does run the risk of employees bringing claims.

If you have any questions, please contact our employment law lawyers Asha Kumar and Angharad Harris.