Employment Law: The Recession and Redundancies

The legal position for SMEs outlined by 365 Employment Law

As we start to see the economy decline, many businesses are worried about how to deal with staff. Rising interest rates, increasing borrowing costs and rising inflation, including increasing energy costs, mean redundancies are inevitable. The issue of staff redundancies will be in the news as the economic situation deteriorates in the Autumn. 

Employers that have held off on redundancies would be wise to consider the next steps they might want to take, before the situation for them becomes critical. How those redundancies happen is important from both a reason perspective, but given a process must be followed, also a procedural one. If employers make redundancies quickly in the autumn as financial problems hit them, they will face difficulty arguing that dismissals are not, at the very least, procedurally unfair.

If the number of affected staff is over 20, then collective rules apply. I do not focus on those for the purpose of this article, but on the smaller number redundancies, that affect SMEs on a more regular basis, and that will have to be faced when they are faced with those financial pressures. Many of these considerations should already be in the mind of employers.

The legal position relating to redundancy of staff sets out that it can happen in one of three situations, business closure, workplace closure (i.e. the location where the employee worked closes), and the most commonly used, a reduction in the need for staff to do work of a particular kind.

A reduction in the need for staff to do work of a particular kind is the most common route to staff redundancies at this time. The staff are redundant if the employer no longer has the requirement for staff to do work of a particular kind. The test is not whether the work still exists, but whether or not the role is needed to do the work. This means that redundancy can be because of specific work reduction, for costs saving purposes, or for re-organisation purposes. As an example, in hospitality, a widely affected area as energy bills become unaffordable, a bar owner may have two bar managers, both of whom share shifts, so both are needed. The employer may decide to make one of those redundant to save costs, despite the work need being there, and do some of the shifts themself. That would be a genuine redundancy, as the requirement for a bar manager has ceased. They would of course have to have a fair selection process to decide which employee goes, but one of those roles is redundant. 

A redundancy situation does not occur under this heading, if an employee is made “redundant” and someone else is hired into exactly the same role. Using the above example, if another bar manager is immediately hired, a redundancy situation would not exist.

An employee made redundant will be entitled to statutory redundancy pay. The right to qualify for that pay is conditional on two years’ continuous employment with the employer.

The reason why it is important for employers to get this process right, is that if an employee is not redundant, or they are unfairly selected, or a fair procedure is not followed, the employee will have an Unfair Dismissal claim, and could receive much higher amounts of compensation.

Employers should also think about selection, and whether or not genuine redundancies exist.  

Employers also often have the mistaken belief that they can change hours and/or pay. They can only do this with informed consent. If they unilaterally vary either, they run the risk of a constructive dismissal claim and/or a claim for unpaid wages for any differences in pay. They could of course explore these possibilities with employees as a means of avoiding redundancy, and reach agreement in that regard, but should never impose such changes unless redundancy is not possible and there are dire financial circumstances.

Please, always take advice on any staff-related issues.

By Alex Jones, Managing Director,
365 Employment Law
Tel: 01903 863284
ajones@365employmentlaw.co.uk
www.365employmentlaw.co.uk