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Managing large-scale redundancies in a fast-changing world


Fast-changing business landscapeIf there is one thing we can all learn from the current economic climate, it’s that nothing is ever certain. If redundancy is on the cards at your organisation, David Ludlow warns HR to ignore the statutory procedures at its peril.

It is a sign of the times that when I was invited to write this article (in late September) the ‘banking crisis’ was in full swing, media coverage was at fever pitch and many commentators were forecasting widespread lay-offs. As I put pen to paper a couple of weeks later, things are calmer and some commentators are cautiously more optimistic.

“Tribunals have the power to effectively impose financial penalties which are more like fines than compensation… for failure to inform and consult in accordance with the legislation.”

These sudden changes in outlook should serve to remind employment lawyers and HR professionals that the very prescriptive statutory procedures governing the provision of information and consultation with potentially ‘redundant’ employees are ignored by managers at their peril.

The law governing ‘collective redundancies’ (situations in which employers propose to make 20 or more employees at one establishment redundant within a 90 day period ) broadly requires the following:

  • The employer consults with employees who may be affected not just by
    proposed dismissals but by any ‘measures’ connected to dismissals. This could and often does include job changes (including redeployment and other changes to contractual terms).

  • If the employer is thinking about making between 20 and 100 people redundant he must ‘consult’ for at least 30 days before dismissing i.e. before giving notice of termination (or notice of changes to contractual terms). Gone are the days when ‘consultation’ could take place during the notice period.

  • If the employer is thinking about making more than 100 people redundant the consultation period is longer – at least 90 days.

  • The potentially redundant people need only belong to one establishment (think in terms of an economic entity) and not necessarily be based in one place.

  • Consultation must be ‘meaningful’ and aimed at avoiding dismissals, reducing the number of dismissals and lessening the impact of dismissals. That requires amongst other things the employer to inform and discuss the reasons for the possible redundancies, the numbers of people affected and the method of selection.

  • The consultation must be with appropriate representatives i.e. existing trade union representatives, workforce representatives (e.g. elected work councils) or representatives elected specifically to discuss the immediate ‘redundancy exercise’. The majority of small- to medium-sized businesses do not have organised workforces and an election of appropriate representatives process is required. In practice this is not difficult to accomplish.

  • The employer must provide the Secretary of State for the Department of Business Enterprise and Regulation with a notice of the proposed redundancies in the prescribed form (HR1), at the beginning of the relevant consultation periods and again before notices to terminate contracts of employment are given. The notice must identify the ‘appropriate representatives’ who must be provided with a copy of it and the categories or groups of employees affected e.g. sales, marketing, admin, accounts, production line teams etc. The Secretary of State can ask for more information once the notice has been given.

Protective awards

Tribunals have the power to effectively impose financial penalties which are more like fines than compensation (even though the money is paid to the employees in question) for failure to inform and consult in accordance with the legislation. These ‘protective awards’ can amount to 90 days (or 13 weeks’ pay) per employee (even in cases where the duty to consult is limited to the 30 day period). In practice the amount of the ‘award’ (penalty) depends on the extent to which the employer has failed to comply with the duties outlined above. Wholesale and substantial failures will result in maximum awards which can easily run into tens of thousands of pounds even where the number of affected employees is merely 20 people.

Exceptional cases – financial crises

There is a limited defence to a claim for protective awards – the special circumstances defence. In practice it is difficult to establish because not only does the employer have to show that there were special circumstances which made it impractical for them to comply with the duties but they must also demonstrate that they nevertheless took all reasonably practicable steps to comply with the (quite onerous) duties.

“The best advice to employers contemplating the possibility of redundancies or restructuring of the workforce is to start collective consultation now.”

Employers often understandably delay as long as possible before realising or facing up to the fact that they have to (or are likely to have to) make employees redundant. In practice employment lawyers are often told by clients at very short notice, often on the same day of the proposed dismissals, that an unforeseen financial crises has developed, for example, where a failing business expects an injection of funds from third party investors which in the event does not materialise. Tribunals and courts are very sceptical of arguments that financial crises suddenly developed over night and are more inclined to the view that the writing of potential redundancies was on the wall many weeks or months before the employer actually addressed the problem. The best advice in those circumstances is for the employer (and the insolvency practitioner) to take some steps to comply with the requirements even if it cannot now fully comply because it has left it too late. Such action is likely to buy some protection against a penal award.

Of course, even if the collective procedures are followed it is always wise to consider individual employee situations and additionally consult with the affected employees on an individual level before taking final decisions.

Embracing the law

Whether an actual or anticipated downturn in business requires large scale ‘down-sizing’, or more limited restructuring or reorganisation, perhaps the best approach to the management of the problem is to embrace the procedures and enter into the spirit of the underlying purpose – to involve the workforce in saving jobs.

The recent extraordinary global economic events have provided many managers with a roller coaster decision making problem. Forecasts and outlooks have fluctuated wildly and the picture remains very uncertain. Surely the best advice to employers contemplating the possibility of redundancies or restructuring of the workforce is to start collective consultation now, thereby responsibly sharing the problem with their workforce and safely leaving their options open.

David Ludlow is an employment law partner at Barlow Robbins LLP in Woking and Guildford. You can email him at [email protected].

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