In parts one (Redundancy Part 1: A Guide for Employers) and two (Redundancy Part 2: Pooling and Selection) of this series, we have explored what qualifies as a redundancy situation, how an employer should prepare redundancy proposals and the correct approach to pooling and selection.
In this article, we answer the key questions employers ask when it comes to the all-important step of completing the redundancy consultation process and considering alternatives to redundancy.
What is collective consultation?
There are two types of redundancy consultation. There is ordinary consultation and consultation to which collective consultation rules additionally apply.
Collective consultation applies where an employer proposes 20 or more redundancies, at a single establishment, over a period of 90 days. In addition to ensuring that the redundancy dismissal is fair on an individual basis, the employer must comply with additional requirements to provide information about its proposals and to consult on a collective basis.
See “How should an employer handle collective consultation?” below for more details, but first, we will consider the principles of effective consultation generally.
The connection between redundancy consultation and a fair dismissal
Polkey v AE Dayton Services Ltd is a case that is often discussed in the context of compensation awards for unfair dismissal claims. However, it involved a consultation process and established the following important principles:
- An employer has a duty to warn and consult employees when potentially making them redundant and cannot rely on a “no difference rule”.
- Having found that a dismissal was unfair because of procedural failings, the tribunal may choose to reduce the amount of compensation awarded to reflect the possibility that there would have been a fair dismissal had a proper process been followed.
Therefore, an employer has a duty to consult and cannot escape a finding of unfair dismissal by arguing that consultation would have made no difference to the outcome. Procedurally unfair dismissals will be deemed unfair. Whilst there may be reductions in compensation, this is not something an employer should look to gamble on from the outset in place of a consultation process.
The lesson from Polkey is that employers shouldn’t bypass the consultation process and need to make sure there is a fair and effective consultation process in place to avoid a finding of unfair dismissal.
Redundancy consultation process
To consult properly, an employer must meaningfully engage in discussions with employees on the redundancy proposals. A fair consultation process has been identified as including:
- Open-minded consultation whilst the proposals are at a formative stage.
- Giving adequate information to employees about the redundancy situation and their selection.
- Adequate time for employees to respond (consultation should last at least one week but ideally longer).
- Genuine exploration of the comments and suggestions of employees.
There is no one-size-fits-all approach in redundancy situations, and consultation may be made more streamlined or comprehensive, depending on the circumstances. If you need help planning and structuring your consultation process, please feel free to contact our employment law specialists.
How should an employer handle collective consultation?
In deciding whether collective consultation rules are triggered (see ‘What is collective consultation?’ above), employers must include any individuals that apply for voluntary redundancy within the numbers being made redundant, as should any anticipated future redundancies within the 90-day period.
Where collective consultation is triggered, the obligations on the employer (which should be considered and acted on from the start of the 90-day period) include:
- Inform the Secretary of State (using form HR1).
Failure to do so is a criminal offence and can result in an unlimited fine. Where 20 or more redundancies are proposed, the Secretary of State will need to be informed at least 30 days before the first dismissal. In cases of 100 or more redundancies, it is 35 days before the first dismissal.
- Identify appropriate representatives of affected employees.
An employer will consult with either recognised trade union representatives or elected representatives. If elections need to be held, there are statutory rules that must be followed. “Affected employees” means not only those employees at risk of being dismissed, but also those whose role might be changing as a result e.g. new contractual terms or new ways of working.
- Consult with representatives
This involves, firstly, providing specific prescribed written information on the proposals and, secondly, consulting with representatives to try to avoid, reduce and/or mitigate the dismissals.
Once collective consultation has been completed and the rules have been complied with, an employer still has an obligation to follow a fair process and engage in individual consultation meetings with employees.
How long must collective consultation last?
In cases where between 20 and 99 dismissals are proposed in the 90-day period, collective consultation must last for 30 days before the first dismissal happens. For cases of 100 or more dismissals, it must last for 45 days before the first dismissal.
That does not mean that the period of consultation must last for the entire 30 or 45 days. It can conclude within that period. Notice of termination can be delivered within the consultation period, as long as the dismissal does not take effect until the end of the period. However, we recommend that the period is used as much as possible to better ensure a thorough process.
What are the implications of breaching collective consultation rules?
As noted, failing to inform the Secretary of State is a criminal offence that can result in a fine. Failing to comply with other rules could result in a declaration from the Employment Tribunal that there has been a breach of collective consultation rules and could also result in what is known as a “protective award” being given to employees.
The protective award is intended to punish the employer for non-compliance rather than compensate the employee for financial loss, so it is guided by the extent of the breach and whether there are mitigating circumstances.
Each employee who is covered a protective award is entitled to a week’s pay (subject to a cap) for each week of the protected period and a proportional sum for each part week.
In one case, the employer was entirely ignorant of its collective consultation obligations, but ignorance is not a defence, and a maximum award of 90 days’ pay per affected employee was given. Equally, a different case involved an uncooperative trade union impeding consultation, so a lower award of 30 days’ pay was given due to this mitigating factor.
Do employers need to look at alternatives to redundancy?
Yes. A dismissal is likely to be unfair if the employer gives no thought to whether suitable alternative employment existed within its organisation.
The does not mean every possible option to prevent redundancy must be exhausted. However, reasonable efforts must be made. Some alternatives might include:
- Suitable vacancies
- Changing a role to part-time hours
- Retraining or redeploying
- Cutting overtime
- Deferring new hires
A common alternative is a vacancy. This might be as simple as sending at-risk employees a list of current vacancies that they are free to apply for, or there may be new vacancies arising soon to consider. If part of a wider business group, this will involve reviewing vacancies across the group structure.
It is important that an employer does not make any assumptions about potential alternatives or the employee’s suitability. Employers should carefully consider the nature of the role, as well as the employee’s skill set, and maintain an open mind in discussing vacancies.
If an at-risk employee applies for a vacancy, the employer is not obliged to hand them the role. The employer is free to run a competitive interview process with other candidates. If the employee is not suitable, their application can be rejected, and the reasons explained.
Where there is a redundancy situation and an employee on maternity leave is at risk, they must be offered any suitable alternative vacancies. Maternity rights are complex and have their own legal structure, but this is an important exception to remember in the context of redundancies.
In addition, it is possible for roles to be offered on a trial basis or for statutory trial periods to apply to the alternative role.
Furthermore, where a suitable alternative role is offered to an at-risk employee, and they unreasonably refuse that role, it is possible for the individual to lose their entitlement to statutory redundancy pay as a result. However, this needs careful thought, and whether this is the case will depend upon the suitability of the role and the reasons for the employee’s refusal.
Key Learning Points
- Calculate the number of employees at risk of redundancy within the next 90 days and consider whether collective consultation rules apply.
- Plan the structure and timing of the consultation process
- Have mechanisms in place for internally informing employees of vacancies.
- Keep an open mind when discussing alternatives and undertake a reasonable exploration of different options to redundancy.
- Where the situation is complex, take legal advice at the earliest stage possible.
The rules around consultation, collective consultation and alternatives to redundancy are complex and can be costly to get wrong. If you require any more detail, please reach out to our employment law specialists.
You can also try the Myerson HR Portal on a free trial which includes redundancy documents for an individual process. You can find out more about our Myerson HR product here.
Here to help
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 the Employment Team at Myerson Solicitors.