English - UK	English-Overseas	Brain Teasers
Français	What I need is...	Links
Deutsch	newsletter	email us

Commercial Angles' Newsletter - November 2001

Handling redundancy

Changes in business processes and the economic environment sometimes make redundancies inevitable. The redundancy process must be handled in a manner which is fair to all employees, minimises the harm done to employee and customer relations and does not leave the company exposed to claims for unfair dismissals. The maximum award for an unfair dismissal case brought before an Employment Tribunal is now £52,000.

Redundancy

An employee is redundant if he works under a contract of employment and is dismissed because his employer needs to reduce the size of his workforce in a particular area. An employee is thus not redundant if an employer immediately recruits another person to fill the same position. However an employer may recruit new employees for different work, or similar work at a different location, without necessarily affecting the redundant employee's rights.

Consultation

Employment legislation provides for a minimum period of consultation before the first redundancy takes effect. The minimum consultation period is determined by the number of redundancies to take place within a three month period at a specific location:

For less than 20 redundancies at one location - no minimum consultation period.
Between 20 and 99 redundancies at one location - 30 days.
100 or more redundancies at one location - 90 days.

Consultation is between the employer and representatives of the employees. The employees themselves select their representatives who will hear the employer's proposals and discuss all matters affecting the number of redundancies, the selection criteria for employees to be made redundant, the criteria for accepting volunteers not directly affected by the proposals for redundancy, retraining and working practices after the redundancies, the redundancy payments and other matters.

It is normal for employers to contact the local DTI office and job centres during the consultation process to inform them of the anticipated increase in job-seekers and to obtain information which may help their redundant employees to obtain other work more quickly.

Employees at risk of redundancy may be given notice during the consultation period, such notice to be confirmed or withdrawn once a workplace agreement has been reached by consultation.

Length of notice

The employees' employment contracts should contain provisions about notice periods. In cases where the employment contract is not specific, The Employment Rights Acts 1996 lays down minimum notice periods. Essentially this is one week's notice per complete year of service, up to a maximum of twelve years' service, with the employer or linked employers in the case where there has been a prior transfer of the undertaking. There are exceptions to this rule for particular classes of employee, e.g. employees who joined the employer at a young age or who are due to retire soon.

The first compulsory redundancy must not take place, unless agreed with the employees' representatives, before the minimum consultation period has elapsed.

If an employer does not allow an employee to work his notice then the employee is entitled to damages for breach of contract. Pay in lieu of notice may be paid to such employees. This payment will be non-taxable on the employee if the payment is made as damages for breach of contract but will be taxable if the contract of employment gives the employee the right to pay in lieu of notice.

Redundancy payments

The employees' contracts of employment should contain provisions about redundancy payments but the amounts payable under the contract must at least equal the statutory minimum redundancy payments. Certain categories of employee are not entitled to redundancy payments. These include employees on short-term contracts or fixed term contracts which include a waiver clause, employees under the age of 20 , controlling directors and directors of companies who only attend board meetings for a fee.

The statutory minimum redundancy payments are:

less than 2 years' continuous service - nil.
for employees over the age of 20 with more than 2 years' continuous service:
- for each complete year of continuous service between the ages of 18 and 21 - half a week's pay.
- for each complete year of continuous service between the ages of 22 and 40 - one week's pay.
- for each complete year of continuous service between the ages of 41 and 65 - 1½ weeks' pay. However, if the employee is over 64, the total amount of the payment will be reduced by one twelfth for each month over the age of 64.

A week's pay is subject to a maximum of £240 and otherwise is calculated as a twelve week average ending on the date the employee would have been given minimum notice or the date the employee left if inadequate notice was given. Overtime payments are excluded when calculating the average, unless overtime was part of the normal working hours under the contract of employment. Similar rules apply to pieceworkers or those working irregular weekly hours.

Offers of alternative work

An employee may be offered alternative work by the employer before his present contract terminates. In this case, provided the work starts less than four weeks after the termination date, the employee can undertake a retraining period and a four week trial after retraining without losing his right to redundancy pay. If either the employee or the employer decides, within the four week trial period, that the new work is not suitable then the employee retains his rights to redundancy pay. If the employee continues with the new work after the four week trial he loses his rights to redundancy pay.

Advice on redundancy

Employees and employers can receive advice at the DTI web site or on the telephone helpline 0500 848 489 or at the local redundancy payments offices:

Department of Trade and Industry, Redundancy Payments Office, Ladywell House, Ladywell Road, Edinburgh EH12 7UR. Tel. 0131 316 5600
Department of Trade and Industry, Redundancy Payments Office, PO. Box 15, Exchange House, 60 Exchange Road, Watford WD1 7SP. Tel. 01923 210 700
Department of Trade and Industry, Redundancy Payments Office, 7th Floor Hagley House, 83-85 Hagley Road, Birmingham B16 8QG. Tel. 0121 456 4411

Articles from previous newsletters