It’s an issue that most companies prefer to avoid thinking about. But if you’re running a small business, redundancy is something that you can’t afford to ignore. In the world of the small and medium-sized enterprises (SME’s), setbacks can strike suddenly and staff cuts might be the only way stay afloat. In this article, I will share some insight on how to deal with redundancies safely.

We’ve all heard of redundancy. But employers still often worry about the true nature of the sometimes challenging processes. Redundancy is a dismissal, albeit a dismissal because of redundancy and it will only be genuine if work is disappearing or diminishing in the employee’s area, or if there is ceasing to be a need, or there is a reduced need, for work to be carried out in the employee’s place of work.

Redundancies most often spring to mind when finances are at the fore. However, businesses are often surprised that cost-cutting is not a reason per se for redundancy. Whilst more recently showing empathy for employers, one must never forget the overarching unwritten rule of employment law that people should be kept in work if at all possible. Redundancy laws reflect this exactly, essentially saying that workers shouldn’t be dismissed unless their jobs genuinely aren’t needed any more.

Because the job is redundant, employees should not be replaced. The three months post-dismissal are the most crucial for this, being the time limit in which employees have to make a claim to Tribunal that the dismissal was unfair. Even in the case of work that is merely diminishing, when planning to employ someone to take on the reduced role, in most circumstances, and if reasonable to do so, the employee should, strictly speaking, be consulted about this possible suitable alternative employment.

Whilst making 20 or more employees redundant carries additional duties (and you should take advice if this applies to your business), the necessity to consult properly still applies to fewer employees, but only within the duty to be reasonable. Most businesses have heard of Polkey, the leading case on reasonableness. Polkey states that an employer will normally not act reasonably unless it warns and consults affected employees, adopts a fair basis on which to select employees and takes such steps as may be reasonable to avoid or minimise redundancy by redeployment within its own organisation.

At the outset of a fair redundancy procedure and indeed throughout, an employer should consider whether it can avoid or reduce redundancies. A fair process will in most cases consist of a correct amount of time in consultation, usually shaped by an initial meeting, then a fair amount of time in which the employee can digest the news and, where appropriate and reasonable, be considered for, and in some cases offered, any alternative employment. The first correspondence will state the reason for redundancy. The employer can admit that there are financial motivations but within the wording of the statute and referring to the fact that these jobs are disappearing or diminishing. There will then be a final meeting to confirm whether the employee has been selected for redundancy or not. All steps should be followed up with written confirmation.

Before confirmation of who is redundant, there will be a selection process. How this is undertaken depends on how many employees are affected, whether their jobs are the same or similar and therefore whether they need to be pooled together for “marking” in order to select the ones for redundancy. If there is only one job being made redundant, or if a job is unique, there is no pool and no need to compare this job with others. Where there is more than one job involved, or more than one of the same role, the “marking” is usually in table (or matrix) form, scoring employees on length of service, attendance, disciplinary sanctions and so forth. Employers commonly ask whether they can use subjective assessments, such as whether the employee “fits in”, to score. The answer is yes, as long as it’s objectively justifiable and, naturally, reasonable.

If there is no contractual, enhanced right to a redundancy payment, if the employee has been in the job for two years or more, they will be entitled to a statutory redundancy payment. Currently this is £475 per year of service, subject to a maximum of 20 years. A redundancy payment may also be implied where a set of redundancy terms are regularly applied in a particular trade or industry or by a particular employer.

The two year qualifying service is of course also relevant to the employee’s rights to claim unfair dismissal. Although best practice dictates that reasonable procedure should always be followed, if an employee has been employed for less than two years, the company may decide to take a view on shortening or bypassing the process. This decision must be taken in the knowledge that, in certain circumstances, selection of an employee for dismissal on grounds of redundancy does not need the qualifying two years’ service and will be automatically unfair if, amongst other reasons, they are dismissed for a reason connected to pregnancy, or because they have refused to sign a working time opt-out agreement.

Genuine redundancy, when carried out fairly, is a clean cut way to dismiss. As such, it is useful and common to “create” a redundancy situation in order to remove employees who aren’t gelling with the business, or who have a personality clash with a manager or other employee, situations which do not come under any of the fair dismissal heads and otherwise may create problems. Obviously care must be taken where there is qualifying service, without which the dismissal is easier all round. Having said this, it is not advisable to create a redundancy where there is absolutely no chance of proving it if challenged. Whatever the situation, employers must make sure that they can back up a fair redundancy with concrete evidence.

The bottom line therefore is that, when faced with a potentially tricky dismissal, the more the need for a good employment lawyer who, even if the situation does not at first glance look like a redundancy, can help to carry out their client’s instructions – and hopefully within the remits of the legal obligations!

By Philippa Wood, Keystone Law