Down Sizing the Workforce!

Introduction

Due to a number of factors, which include increasing efficiency, a down turn in trade, the loss of a contract, or the introduction of new technology and systems, it may be necessary for a business to reduce the number of its employees.

A reduction in the workforce can be achieved in a number of ways: natural wastage, voluntary redundancies, compulsory redundancies or a combination of all three.

Natural Wastage

Obviously, natural wastage i.e. the non-replacement of staff when they leave, is the simplest form of reducing staff numbers and will not entail any particular procedure being followed or expose the employer to potential liability (unless there is an independent issue in respect of the termination of employment).

But the problems with relying on natural wastage to achieve a reduction in employee numbers are obvious too.

The employer will not be in control of the number or type of employee leaving. Employees may leave who the employer would actually prefer to retain; and the employer would not have any influence over when the desired reduction in numbers would be achieved.

It may be that an employer with an aging workforce will plan to retire employees when they reach retirement age. But if this method is going to be adopted, it will require proper planning. From October 2006, an employer will be required to notify the employee of his intentions to retire the employee when the employee reaches retirement age. Such notice will have to be given between 6 and 12 months before that date, and an employer will not be able to have a retirement age of under 65 unless this can be objectively justified. The employer will also be under a duty to consider any requests made by the employee to work beyond the retirement age; although there is no obligation to grant a request.

For other employees, the ‘waiting game’ associated with natural wastage will simply not be viable, especially if the need to reduce employee numbers is as a result of a sudden loss of business.

If this is the case, then redundancies will have to be considered.

Voluntary Redundancies

Where it becomes necessary to consider redundancies, to ease the process, and potentially save time, it may be possible to reduce the number of employees by way of voluntary redundancies.

Usually, this will involve offering a redundancy package made up of more that the minimum requirements of redundancy pay and notice. Where employees are perhaps thinking of moving on or for financial reasons would like to receive a lump sum, then voluntary redundancy can be an attractive option.

In asking for volunteers, the risk to the employer is usually low. An employee who has volunteered to be made redundant is unlikely to complain about it afterwards, although as a belt and braces approach, it would be sensible to make the redundancy package subject to signing a compromise agreement to exclude any future employment claim.

As with all proposals, careful planning will be needed and it is important to emphasise to employees at the outset that they will not be guaranteed voluntary redundancy if they apply for it. This is to ensure that the appropriate skills mix, which should have been identified at the beginning, is retained in the business.

Where compromise agreements are not being used, then regard should be had to the statutory procedures which will also afford the employer protection should the employee change his or her mind after volunteering. This would involve inviting the employee to a meeting to discuss the contemplated redundancy and offering the employee the right of appeal in the event they change their mind. Any standard letters should be adapted to cover this particular situation.

Compulsory Redundancies

Even where an employer relies on voluntary redundancies, perhaps assisted by any natural wastage or recruitment freezes, it may still be necessary to implement compulsory redundancies.

In so doing, attempting to keep the redundancies to a minimum, consultation and a fair procedure are key to making the process as smooth as possible for all involved.

It is well established that a fair procedure encompasses:

• warning the employees affected of the potential redundancies;
• consulting with the employees and their representatives about ways to reduce redundancies and on the objective selection criteria to be adopted;
• applying that selection criteria appropriately and fairly; and
• consulting again those employees affected about their selection and alternative employment.

It is also important to ensure that appropriate adjustments are made to the selection criteria if it places disabled employees at a disadvantage, or would result in other unlawful discrimination (for instance, including maternity leave in a score for absence).

Where the employer is proposing to dismiss fewer than 20 employees, then the statutory dismissal procedures will also apply and must be incorporated into the redundancy procedure. As a minimum the statutory dismissal procedure will require the employee affected to be invited to a meeting and given a copy of their score sheet in advance of the meeting. The employee will also be entitled to a right of appeal and an appeal meeting should be arranged if the employee does appeal.

Collective Redundancies

If the employer is proposing to make 20 or more employees redundant within a 90 day period then it is essential that the statutory procedures relating to collective redundancies, as set out in the Trade Union and Labour Relations (Consolidation) Act 1992 (the ‘Act’), are followed.

This means the employer has a duty to consult with the appropriate representatives of any of the employees who may be affected by the proposed dismissals. The consultation must begin in good time and must start at least 30 days before notice of dismissal is given. Where the employer is proposing to dismiss a 100 or more employees, consultation must begin at least 90 days before the notice of dismissal is issued. It is not possible to use the employees’ notice periods as part of the collective consultation period.

An employer should also notify the Department of Trade and Industry using a HR1 form within the same time limits.

For the purposes of collective consultation, “appropriate representatives” are either representatives of a trade union recognised in respect of those particular employees or employee representatives who have been elected or appointed. Where employee representatives need to be elected in order to carry out the collective consultation, the requirements under the Act must be followed.

Any such elections must take place before the start of the collective consultation period.

The employer must give the following information, in writing, to the appropriate representatives:

• the reasons for the proposal;
• the numbers and descriptions of employees whom it proposes to dismiss as redundant;
• the total number of employees of any such description employed by the employer at the establishment in question;
• the proposed method of selecting those who may be dismissed;
• the proposed method of carrying out the dismissals, including the period over which the dismissals are to take effect;
• the proposed method of calculating the amount of any redundancy payments to be made.

Where there has been a failure in respect of collective consultation an employment tribunal may award the affected employees up to 90 days’ pay. In most cases, as the protective award is a punitive sanction, the maximum amount will be awarded.

Even if the collective consultation procedures are followed, the employer must still act ‘fairly’ towards each individual employee, and whilst the statutory dismissal procedures will not apply, it will still be necessary to consult individually with each employee and consider alternative employment. A redundancy policy setting out the procedure which will be followed will be helpful for both employers and employees.

Payments

Employees who have more than two year’s continuous service will be entitled to receive a statutory redundancy payment. Where employees have a contractual entitlement to an enhanced redundancy payment, this will need to be honoured. Under the Employment Equality (Age) Regulations 2006, an enhanced redundancy payment which takes into account length of service will be lawful provided it is calculated in the same way as a statutory redundancy payment although the employer may treat a week’s pay as not being subject to a maximum amount (currently £290) and he may multiply the amount allowed for each year of employment by a figure of more than one. In addition, the employer may further increase the total by multiplying it by a figure of more than one.

Employees will also be entitled to receive notice pay and payment for any accrued but untaken holiday.

Summary

In summary, if an employer needs to reduce its workforce, it is likely that compulsory redundancies will need to be made, especially if quick changes are required due to the needs of the business. Legislation lays down the minimum requirements to be followed in respect of dismissing employees, although the requirements differ depending on the numbers involved. Employers need to be aware of these requirements and must always bear in mind the general concept of fairness. Keeping employees informed of the process being adopted should assist with alleviating anxiety and an appropriately drafted redundancy policy detailing the procedure to be followed would be of benefit to managers and employees alike.

Please contact Yvonne Atherton for further information.

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