A redundancy policy, like many of the policies and procedures that make up an employee handbook, is not a legal requirement. However, the value of an up to date and well implemented policy goes a long way to ensuring good practice if a redundancy situation arises.

A redundancy process can be complex, not to mention stressful for everyone involved. Getting a redundancy process wrong can have reputational and financial consequences for employers, with potential exposure to claims like unfair dismissal, redundancy pay and discrimination.

Taking time to map out and communicate how the process will be managed as well as employee rights and entitlements can be a great way to maintain trust and confidence. It will also hopefully limit challenges that may be driven by employee frustration or confusion, as well as ensuring managers take a consistent approach.

A recap on the legal requirements 

Set out in article 174 of the Employment Rights (Northern Ireland) Order 1996, a dismissal by reason of redundancy will occur when:

a)     An employer has ceased or intends to cease to carry on the business for the purposes of which the employee was employed, or to carry on the business in the place where the employee was employed; or

b)     There is a reduced or diminished requirement for work of a particular kind, or in the place where the employee is employed to work.

A redundancy scenario can arise in a variety of circumstances, and not necessarily when a business is in trouble. Internal re-organisations, which can see the streamlining of roles and departments, can give rise to a redundancy situation. Likewise, business relocation, diversification or changes to the products and services offered by a business can lead to redundancies.

Usually a redundancy situation will result in reduced headcount – but not always. A slightly more unusual situation is where there is less work of a particular kind but, overall, the same number of employees is required, because that work is being replaced. Overall, the business might need the same number of employees, but ones with different skills and experience to serve the new work stream.

For example, for retailers, as a result of the pandemic, workflows might move from physical stores to online. This could increase the need for staff with IT skills but reduce the requirement for shop floor staff, thereby resulting in redundancies in the customer-facing part of the business.

The law does not interfere with the business reasons for making such decisions, and generally speaking, an employer will not have to justify the commercial decision to make redundancies. However, it is important to be aware that a frequent area of employee challenge in redundancy exercises is on the question of whether there was a genuine redundancy situation. It is therefore recommended that before commencing a redundancy process, employers consider and record the business rationale for the plans they intend to implement and ensure this is communicated to impacted employees at the outset of the process and as early as possible.

Consulting with at-risk employees 

In any redundancy process, a period of consultation should take place with at-risk employees. Employers should also be mindful of the prescribed timeframes that apply in circumstances where it is proposed that 20 or more employees are to be dismissed in a 90-day period, triggering collective consultation obligations. The specific requirements laid out for collective consultation will also require employers to set up a process for the election of employee representatives (trade union representatives may already be appointed for this purpose through an existing collective agreement). The Department of Economy must also be given advance notice of the redundancies via a HR1 form (failure to do so is a criminal offence which may result in a fine).

Employers should also be mindful of ensuring that the redundancy process is compliant with the three-step statutory dispute resolution procedures, otherwise they risk the dismissal being automatically unfair. This will include ensuring that employees dismissed because of redundancy are provided with a right of appeal.

There is no guide on the number of individual consultation meetings an employer needs to hold with an employee before giving them notice of redundancy, but a minimum of two will usually be necessary. This will usually provide the opportunity to discuss the proposal to make redundancies, and for representations from employees to be properly considered before a decision is made. In practical terms, it is recommended that a timetable is drawn up at the outset with details of the various stages of the process and the relevant timeframes for completion.

As a result of the ongoing pandemic, employers will have to think more creatively about how to effectively manage the process, particularly if they have an employee who is clinically vulnerable or shielding. One solution that is being explored where in-person meetings cannot take place is the use of technology such as Zoom to hold video meetings. Remember that the employee’s entitlement to be accompanied will have to be factored in here, and employers will need to obtain clarification of representation, if the employee wishes to avail of it, ahead of scheduling a meeting.

Where an employee is unwilling to go ahead with a virtual consultation meeting, you will need to give reasonable consideration to how you proceed. This includes whether in the circumstances the employee’s conduct in refusing to attend is such that it would not be unreasonable for you to proceed with the meeting despite their absence.

Determining the scope of redundancy 

The decisions an employer takes on who to place at risk of redundancy will be relevant in the event of any challenge to the fairness of the process. Therefore, at the initial planning stages employers should consider the impacted areas of the business and identify an appropriate pool(s) for redundancy selection. Case law provides that employers will generally have wide discretion here, provided they have genuinely thought about it.

It is possible to have a fair dismissal based on a pool of only one. Drawing a narrow pool for selection will often be preferential for the employer, but the opposite will be true for employees. Therefore, as with the business rationale for making redundancies, it is recommended that employers record how they have determined the pool(s) during the preparatory stages (this may be something that has been carried out in conjunction with trade union representatives) and are able to explain the position early in the consultation process.

The selection criteria used to score employees in the pool should be objective and measurable and reflect the needs of the business. Employers should also be alive to any criterion that could be discriminatory. For example, ‘last in first out’ is open to claims of age discrimination and is unlikely to identify the employees with the right skills for the business going forward.

Likewise, while absence history is often an effective and measurable criterion, take care to ensure that persons who suffer from a disability that has resulted in more frequent or longer periods of absence are not unfairly disadvantaged. In that situation, employers should discuss and preferably agree with the employee which absence periods will be discounted for the purposes of completing scoring. Likewise, any pregnancy or maternity or other family-related absence should be discounted.

Common selection criteria include:

• Length of service
• Scope for future development in role
• Absence history
• Performance
• Flexibility
• Previous experience
• Time keeping
• Disciplinary record

Alternative employment 

The other important facet of a fair redundancy process is consideration of suitable alternative employment. Failure to give any due consideration to this is likely to lead to a finding of unfair dismissal, if it is challenged through the tribunal. Reasonable efforts should therefore be made to identify alternative employment elsewhere in the business as a means of avoiding redundancy.

This does not mean that an employer is required to create a role that does not exist. However, it is entirely possible that a potentially suitable alternative role may involve some aspect of re-training and up-skilling. The suitability of a role will be a question of fact to be considered on a case by case basis. In cases where more than one at-risk employee could potentially be suitable for a role, an employer can, and commonly will run a competitive interview process to select the best candidate for the vacancy. It is good practice to provide employees with a list of current vacancies, whether during consultation meetings or by pointing them towards an intranet page or notice board.

For planning purposes, employers should factor in a process for interviewing candidates for suitable alternative roles (and there may be more than one) so as to be in a position to offer roles before their existing employment ends. The duty to search for suitable alternative employment does not stop when notice of termination is given and should continue up the point that employment ends.

If suitable alternative employment is offered but involves changes to job role/function, location or other terms such as hours and pay, a statutory trial period of four weeks should be given. This is to provide both the employer and the employee with the opportunity to consider if the role is suitable for them. The trial period will commence on the date the employee’s old contract comes to an end and will run for a consecutive period of four weeks.

The fact that this is a trial period should be clearly communicated to the employee. If it is successful, the employee’s employment will continue in the new role and they will not be entitled to a statutory redundancy payment. However, if it is unsuccessful, the employee shall be regarded as dismissed for statutory redundancy payment purposes. The relevant date for calculating the payment will be the date when the original contract came to an end.

What should be included in a redundancy policy?

Taking account of the key legal points as highlighted, the redundancy policy should provide an overview of the key steps an employer will take if faced with the need to make redundancies.

It is beneficial for employers to make their redundancy policy non-contractual. This will provide greater flexibility to tailor the approach to each redundancy exercise, particularly in relation to selection criteria and scoring. Where an organisation recognises a trade union and there is an agreed procedure for handling redundancies, the ability to agree any changes to the procedure are limited, and would have to be done in consultation with the union.

A redundancy policy will often include guidance on the measures an employer will consider in order to avoid redundancies. These will be specific to the business and what is realistic, but could include:

• Reviewing the use of agency workers and self-employed contractors
• Reducing hours and pay
• Using mobility clauses instead of redundancy
• Implementing pay and/or recruitment freezes
• Offering early or flexible retirement
• Seeking volunteers for redundancy
• Stripping back overtime
• Withholding or removing bonuses

If the policy allows people to volunteer for redundancy, it should include the objective criteria for selecting from volunteers, to ensure that the right skill sets are retained for the business. It should be made clear that the employer reserves the right to select which volunteers it accepts for redundancy.

If mobility clauses are used as an alternative to redundancies, it is important that this decision is made at an early stage and applied consistently throughout the process. It is not possible to “dodge between” redundancy and the relocation of employees (as the Court of Appeal put it in a 2007 case called Home Office v Evans). The use of mobility clauses, particularly in a situation such as this, should be carefully considered and advice taken before committing to an approach.

The redundancy policy should also reassure employees about what they can expect if compulsory redundancies are unavoidable. The following statements may be useful:

• The Company will not discriminate directly or indirectly on grounds of age, race, colour, nationality, ethnicity, gender, marital or civil partnership status, religious belief or political opinion, disability, sexual orientation or gender reassignment.
• Selection for redundancy will be transparent and based on fair and objective criteria that will ensure the retention of those skills that are required to meet our continuing business needs.
• If applicable, the organisation will consult with the recognised trade union(s) and/or employee representatives.
• Individual consultation will take place with all those provisionally selected for redundancy.
• Where an employee is selected for redundancy, notice will be given in accordance with the terms of the employment contract.
• Employees will be have the opportunity to appeal the decision.
• Attempts will be made to identify suitable alternative employment for redundant employees right up to the date their employment ends.
• The offer of any alternative employment may be subject to a trial period where it is appropriate to do so. More information will be provided to you about the operation of a trial period if an alternative role is offered to you.
• If you are selected for redundancy you will be entitled to reasonable paid time off during your notice period to attend interviews for other roles or attend training courses. You should liaise with your [line manager/HR] regarding any time off you require for these purposes.

Redundancy payments

Employees should be informed that eligibility for a statutory redundancy payment will be subject to them having a minimum of two years’ continuous service.

Statutory redundancy pay is calculated in the following way, subject to a cap of 20 years’ service:

• Half a week’s pay for each full year under age 22
• One week’s pay for each full year aged 22 or older, but under 41
• One and half week’s pay for each full year aged 41 or older

Where the employer does not intend to have the employee work out their notice period, the calculation for the purposes of the statutory redundancy payment should be taken to the date when employment would have ended had notice been worked.

Where an employee is declared insolvent and made redundant, they can claim their statutory redundancy payment through the Redundancy Payments Service.

A redundant employee can lose the right to a statutory redundancy payment if they have unreasonably refused an offer of suitable alternative employment. It is recommended that employers take advice if considering this option, as there is a great deal of subjective analysis involved, which a tribunal would take into account.

Redundant employees may be entitled to an enhanced redundancy payment where there is contractual provision for it, or in cases where they can establish a custom and practice of enhancing redundancy pay in previous redundancy exercises.

Where enhanced redundancy payments are offered, employers may wish to consider requiring employees to enter into a compromise agreement, thereby receiving additional payment in return for signing away rights to bring claims in respect of their employment.

Redundancy payments, including enhanced contractual or non-contractual sums, can be paid tax free up to a maximum of £30,000. However, there are complex rules around sums attributable to notice and employers may wish to take advice on the tax position of termination payments before finalising an agreement with the employee.

Top tips

Pulling all of that together, here are seven practical tips for completing a fair redundancy procedure:

1.     Pre-empt questions as much as possible

2.     Track and publish FAQs

3.     Ensure objectivity at all times

4.     Ensure the skill sets the business needs are driving the process

5.     Be clear about timescales

6.     Be clear about your team: who does what and when?

7.     Be responsive in consultation – genuinely listen and consider points employee is raising.