Five myths of redundancy

An unfortunate reality of the current climate is that we are frequently being asked to advise on redundancy situations. The law surrounding redundancy is complex especially as it has evolved over time primarily through case law. As a result, a number of myths have developed as to what employers can or cannot do.  Here we address some of the common myths.

If an employee is underperforming, I can make them redundant

The law is clear that redundancy should only be considered in specific circumstances. These are:

• Business closure (i.e. the whole company, who can forget Woolworths) 
• Workplace closure (i.e. a particular office, shop or site)
• Diminished requirements of the business for employees to carry out work of a particular kind.

A redundancy process should therefore not be used for the sole purpose of dealing with an underperforming employee. This should be addressed through a performance management process. If an employer cannot demonstrate the genuine existence of a redundancy situation, any subsequent dismissal of the employee could be unfair. 

That’s not to say that an employee who is poorly performing cannot be selected for redundancy if such a situation does arise. In particular, where a pool of employees are at risk of redundancy, the purpose of a selection process is to ensure the business retains the employees most able to meet the needs of the business going forwards. Performance is most likely to be included as one of the criteria on any selection matrix.

Individual consultation must last for at least 14 days and involve three meetings

In a situation where less than 20 employees are to be made redundant (meaning collective consultation does not apply) the law does not prescribe how long consultation must last for, nor does it prescribe how many consultation meetings must take place.

The principles regarding consultation in a redundancy situation have developed through case law and it is clear that consultation is fundamental in order for any redundancy dismissal to be deemed fair. A lack of consultation would most likely result in a finding of unfair dismissal.

The less time taken to conduct the consultation could lead a Tribunal to question whether the consultation was genuine. In one particular case, it was determined that: 

• Consultation should take place when the proposals are still at a formative stage (i.e. no decision made)
• Employees should be provided with adequate information on which to respond (i.e. reasons for the proposed redundancy)
• Employees should be given adequate time in which to respond
• Employers must give conscientious consideration of the employee’s response to the consultation.

Notably ACAS does not recommend a minimum period of consultation and perhaps this is because it will vary depending on the situation. Of course there will be situations where consultation may appear to be pointless, take for example a whole business closure due to insolvency but that still does not mean consultation should not be attempted. 

An employee on maternity leave cannot be made redundant as she has priority over others at risk of redundancy 

Where it is not practicable for an employer to continue to employ an employee on maternity leave due to redundancy, the employee on maternity leave is entitled to be offered a suitable alternative vacancy where one exists.

This is a rare example of positive discrimination. If the employer does not comply with this requirement, the employee will have a claim for automatic unfair dismissal. It is known as the Regulation 10 protection (as it is set out in Regulation 10 of the Maternity and Parental Leave etc Regulations 1999).
 
However, Regulation 10 is only triggered once the employee has been selected for redundancy. 

Therefore, if, for example, there is a reduction in roles (so the role is remaining but fewer employees are needed), the employee on maternity leave should not be automatically given a remaining role (thus taking her out of a selection pool). To do so could run the risk of being sex discrimination against any male employees in the pool. Of course the employee should not be selected for redundancy because they are on maternity leave.
 
However, once an employee has been selected for redundancy (either because they were unsuccessful in the selection pool or their role is being removed), the employee on maternity leave would have priority for any other suitable alternative roles.

If there are no other suitable alternative roles she may be made redundant.

An employer does not have to search for alternative employment in associated companies, only in the company in which the employee is employed

An employer must make reasonable efforts to look for suitable alternative roles and that would include associated companies where possible. Whether this is possible will depend on the nature of the association between the companies, for example how much connection and control there is between the other companies 

The legislation does specifically refer to associated companies when looking at the definition of an employer’s business when identifying if there is a redundancy situation. This indicates that where an employer can easily identify that there are vacancies in an associated employer, these should be considered.

If an employee is made redundant, they cannot return to work for the same company for 6 months otherwise they will have to repay redundancy payments

This is most certainly a common myth. If an employee is reemployed by the same employer after receiving a statutory redundancy payment, this does not have to be repaid. However, the employee must be aware that receipt of a statutory redundancy payment will break their continuity of employment for the purposes of calculating entitlement to any future redundancy payment. 

For the purpose of entitlement to a statutory redundancy payment, employees will maintain their continuity despite already receiving a statutory redundancy payment where they are reinstated or re-employed and the terms on which they are reinstated or re-engaged include provision for the employee to repay the redundancy payment, and it is actually repaid.

There are, however, very few cases where this will apply as the employer is under a duty to look for alternative employment for the employee before dismissing for redundancy, and an employee who is paid redundancy pay would not usually be re-employed by the same employer. 

If that does happen it could bring into question the legitimacy of the redundancy. Statutory redundancy payments are paid tax free and if an employee returns to work for the same employer, certainly if immediately, HMRC may question whether a tax free payment should have been made.

Some employers will provide enhanced redundancy payments to employees who are made redundant. It is entirely open for them to implement rules in respect of those enhanced redundancy payments should an employee later return to work for the same company, or indeed an associated company. This should be made clear to the employee when they are made redundant but also if they apply to return to the company at a later date.

Finally, it should be noted that the rules relating to redundancy payments can differ where a public body is the employer such as in the NHS or local government.