Planning for redundancies in smaller businesses

We outline the redundancy basics relevant to small businesses, including what happens and how to ensure due process, as well as a guide on the calculation of redundancy pay. We also look at what’s on the horizon for employment law and redundancies in 2022. For more on the legal issues relating to redundancy – see the redundancy Q&As.

The first step in any redundancy is to establish that it is a genuine (legally recognised) redundancy situation, by ensuring it falls within one of the following:

• business closure
• workplace closure, the closure of one of several sites, or relocation to a new site
• diminished requirements of the business for employees to do work of a particular kind.

Selection and consultation

Employers must think about how many redundancies are being proposed as rules differ depending on the number of redundancies. While this is regardless of business size, those with less than 250 employees are more likely to make fewer redundancies which involves a slightly less onerous procedure as noted below.

First, employers must identify which employees are at risk of being selected for redundancy. There needs to be a clearly defined group of employees – this is called a selection pool. Difficulty may arise for smaller businesses when creating selection pools as it is likely that there are less people in each role or with similar skills. This may create a ‘pool of one’ situation. In unfair dismissal cases, the employer must show the Employment Tribunal that their decision to use a pool of one was fair (Wrexham Golf Co Ltd v Ingham EAT/0190/12 – in this case the EAT held that it was reasonable to use a pool of one where there was only one person in a particular role). Employers deciding on a pool of one must be careful as Tribunals can view it as a device to target someone. Advice for smaller businesses considering a pool of one is that if it is unclear that the employee is a genuinely standalone employee, then use a wider pool to avoid the heighted risk of losing an unfair dismissal claim. It is worth noting however, that if the decision to use a pool of one can be justified, it can be a useful tool to reduce consultation time (and resources).

A fair redundancy procedure involving individual consultation must be followed in all cases. Since the start of the pandemic, it has been permitted to hold these meetings virtually, and this is likely to continue. If 20 or more redundancies are being proposed in a 90 day period, collective consultation obligations will also arise, and the employer must notify the Secretary of State. Where there is a collective redundancy (20 or more people), employers may speak to elected representatives initially, before individual consultations.

During consultation, employers must explain to those at risk of redundancy (each selection pool) the reasons for potential redundancies, and which jobs are at risk. This also provides a chance for employees to ask any initial questions. Consultations must take place before the business makes any decision on who is being made redundant. It is good practice for employers to issue a letter confirming the information provided during the first meetings.

Where there is a proposed reduction in the number of employees who all do the same or a similar role, or employees with the same or similar skills, employers must set a criteria for assessment and score each potentially redundant employee against this. To help ensure the scores are objective, at least two line managers should conduct scoring.

After the scoring process has taken place, those provisionally selected for redundancy should be invited to an individual meeting, which can take place virtually. During this meeting, employers should:

• provide full details of the employees’ scores
• set out the terms of redundancy
• consider any comments from the employee
• provide details of any alternative roles within the business or consider other alternatives to redundancy.

Appeals and dismissals

Upon deciding to make an employee redundant, the employer must inform them of this at a further meeting (the employee is entitled to be accompanied by a trade union representative or work colleague). A letter should be sent to them confirming:

• the decision to dismiss the employee as redundant
• the termination date, including any notice period or payment in lieu of notice.
• a financial statement which details the calculation of redundancy payment and any other payments to be made

There is some legal debate as to whether or not the right of appeal should be offered in redundancy situations, in Gwynedd Council v Barratt [2021] EWCA Civ 1322 it was held that the lack of any appeal or review procedure does not of itself render a redundancy dismissal unfair. However, it is one of the factors to be considered when determining the overall fairness of the dismissal. Where the original selection for redundancy is in accordance with a fair procedure, the absence of an appeal is not fatal to the employer's defence.

Smaller businesses with limited resources may therefore make the decision not to offer the right of appeal, however, although it could pose more difficulties in the present it could reduce an unfair dismissal finding in the future and in our view, is good practice to do so.

Redundancy pay

If an employee has worked for an employer for two years or more, they will usually be entitled to statutory redundancy pay. The amount they are entitled to depends on their age, length of service and salary. It is worked out on the following basis.

• One and a half weeks' pay for each complete year of service (up to 20 years) in which the employee was aged 41 or over at the beginning of the year.
• One week's pay for each complete year of service (up to 20 years) in which the employee was aged 22-40 at the beginning of the year.
• Half a week's pay for each complete year of service (up to 20 years) in which the employee was under the age of 22 for any part of the year.`

The maximum weekly pay currently caps at £544 and the maximum statutory redundancy pay is £16,320. Employers can also choose to pay employees more than the statutory amount, as a gesture of good will. Redundancy payments of up to £30,000 are non-taxable.

Potential changes in redundancy law

Currently, the law affords additional protection for women who are on maternity leave, or those on shared parental leave in redundancy scenarios. A woman on maternity leave has the right to return to the same job (or, in limited circumstances, a suitable alternative with no less favourable terms and conditions). Even in circumstances where there is a genuine reason to make their role redundant, employers must offer suitable alternative work if they have it. Employees on maternity leave should be given this as a priority over other employees.

There are a number of potential upcoming changes to employment law this year, which may see provisions to further extend this protection. It has been suggested that the changes may mean that a woman could not be made redundant from the start of pregnancy until 6 months after returning to work (unless the employer is closing the business or ceasing to work in that area). Women who experience a miscarriage could also be protected for 6 months after their pregnancy ends, or after the end of any entitled leave.

The proposed Employment Bill is also expected to make a number of further changes to the law which may include:

• the immediate right to request flexible working
• changes to how tips and gratuities are distributed
• increased protection from workplace sexual harassment.

Given the significant ramifications these changes could have, it is important for all employers to keep abreast of the latest developments.

About the authors

Anna Fox

Anna is a trainee Solicitor at Miller Samuel Hill Brown LLP

Calum Maclean

Calum is an employment Solicitor at Miller Samuel Hill Brown LLP