Redundancies in a time of recession: how can an employer handle these compliantly?

The end of 2022 sees the UK already in recession with the OBR forecasting that the downturn will last over a year. It may be that certain sectors will see a higher concentration of redundancies, having already seen a wave of lay-offs in the tech sector, which looks set to continue. The manner in which some of the tech firms have handled their redundancies has also been a lesson in how not to do it – the most notable example being informing employees virtually through messaging and emails rather than in person that their employment was being terminated.

Where employers are contemplating making redundancies, they need to ensure that the way it is handled does not cause reputational damage. There are also potential psychological impacts on the retained staff that persist long after a redundancy process has taken place in the business, which in turn have financial consequences on the business.

In this article, employment partners Angharad Harris and Asha Kumar explain why managing a fair, transparent and respectful redundancy process can be key not just for the departing employee but also to retain an employer’s best employees.

Plan ahead

The best advice is to start planning for any anticipated redundancies early. As part of this process some employers will also be looking at redundancies as a last resort rather than a first response. Sometimes this is seen using innovative thinking to try and avoid widespread redundancies, for example reskilling, redeployment, and reorganising how work is carried out.

Redundancy can be a fair reason for dismissal where the statutory definition of redundancy applies. However, an employee with two years’ continuous employment (or more) may be able to claim unfair dismissal in an Employment Tribunal if the correct redundancy procedure is not followed or their dismissal was not on grounds of a genuine redundancy or for another potentially unfair reason.

Employers should therefore ensure that, in addition to an individual consultation process, they comply with the collective redundancy consultation process where more than 20 employees are 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 consultation process there needs to be a fair and genuine dialogue between the employee and the employer. The employee should be given a proper opportunity to understand fully the matters on which they are being consulted and to express their views at each stage including any suggestions that they may have to avoid their redundancy.

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 considering 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 because 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. For example, employers should check the reasons for absence to ensure that this does not put women or disabled employees at a particular disadvantage. Absences for pregnancy-related illnesses, maternity or other family-friendly leave as well as absences related to an employee’s disability should therefore be discounted.

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. Employers should be aware of the risk of discrimination when considering if there are any suitable vacancies and, if relevant, the process for deciding which potentially redundant employee should be offered each vacancy.

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 about redundancies, please contact Asha Kumar and Angharad Harris.