Taking the pain out of redundancies?

It is sign of the times that many businesses are looking at making redundancies within their teams. If you haven’t already looked at it, there is a good chance that you will be soon. In what are already painful times, is it possible to take the pain out of redundancies?

Employment Law and HR process regularly get accused of making a difficult situation worse when it comes to redundancies. There are often obvious candidates for redundancy within a team, and the idea of putting everyone at risk of redundancy and unsettling them all further in the interests of fairness (during already unsettling times) is often seen as an undesirable approach, even if that is what the law, and HR best practice, would expect you to do.

The destabilising effect of putting a whole team “at risk” includes worrying them about their futures, which impacts on productivity and service levels; and potentially results in employees leaving who you never wanted to leave. Those who do remain after the process has concluded often suffer from survivor syndrome, and things might never be the same for them. And that is without even considering the management time and operational paralysis which can get in the way of the business adapting and moving forward (which is particularly relevant in the current climate).

In business and commercial terms, the risk associated with a full and “fair” process can be greater than the legal risk of a potentially “unfair” selection for redundancy.

So, is it possible to make pain-free redundancies? The short answer is, of course, no.

But it is possible to focus the pain in a particular area, and over a more concentrated period of time, so that only the people who are ultimately made redundant are directly affected – and this is how you do it:

  • You need to ensure that you have a legitimate “business case” for redundancy. Protecting (or improving) profit is just as legitimate as stemming losses, but you need to show that the business’ requirements for employees doing a particular type of work have reduced or will reduce. This should be put together in a document that you would be happy sharing with a court or employment tribunal (if needed).
  • Consider what the needs of your business are and create a set of selection criteria (these must be legitimate and non-discriminatory criteria), and then carry out a scoring exercise in the background. This does not necessarily have to be as rigorous as your scoring would be under a full process.
  • Arrange an informal meeting with (each of) the employee(s) identified as being selected for redundancy under your background scoring process and explain the situation to them at the meeting. The meeting may well be the first they have heard of the redundancy risk. This can also be done remotely over the phone, or by video call.
  • Then, as a second part of that same meeting, move onto a “pre-termination negotiation” or “without prejudice conversation” to explain your expectation that they are likely to be selected as redundant, and you would rather avoid a full process. You would then offer them an enhanced severance package in return for them entering into a settlement agreement. Be specific about what enhancement you are offering, and that it wouldn’t be available if you need to go through a full process.
  • Give them a copy of the business case document and ask them to go away and consider the offer in principle. It is usually best to allow them some time away from work to do this, but that is not always the case. You should give them enough time to consider the offer, and then once you have agreed the enhanced package in principle, a formal settlement agreement can be drawn up and provided to the employee.
  • The employee will need to take advice from a lawyer on the terms of that settlement agreement, and you will be expected to pay a contribution towards their legal costs for that (and it is in your interests to do so), following which that agreement can hopefully be wrapped up within a few days (although it can take longer).

Unless you are very familiar with this process, you should take legal advice at each stage of every individual case as you go through it. There are various complexities, nuances and risks, which a good lawyer will guide you through.

The result, hopefully, is an employee leaving with more money than they would otherwise have received; more quickly than it would otherwise have taken you; without unnecessarily unsettling the rest of the team who remain in place; and ensuring the legal risks have all been covered off under a binding settlement agreement in relation to a process that could otherwise have been subject to a legal challenge.

This approach is not appropriate in every case, but it is often the best way to achieve the right outcome. There will be a financial cost, but many businesses would consider that to be money well spent.

Once you get to larger numbers of potential redundancies (20 or more within a specified time-frame) you must follow the “collective consultation” requirements, which are prescribed by law and are unavoidable. The result of collective consultation often means that you cannot use the approach outlined above, but there are elements of it that you can still use, potentially alongside voluntary redundancies for example.

The content of this article is not intended to be specific legal advice. If you require any assistance in relation to this area of law, please contact the author of this article Matt Huddleson.