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Supporting SMEs with redundancy reality

View profile for Philip Richardson
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Redundancy guide for employees

UK businesses are sadly facing the harsh reality of financial viability in a pandemic landscape where government support stops at the close of October.

Corporates spanning airlines, automotive, banks, retail, hospitality and utilities have already taken the difficult decision to move to redundancy to protect their commercial trajectories with c.100,000* job losses planned during the pandemic according to reports.

For SMEs the financial reality hits equally hard and redundancy considerations are often a more personal experience in smaller businesses, where employees are familiar faces rather than payroll numbers.

Small to medium sized businesses may need guidance and counsel to prepare their ground for difficult conversations around the job cuts that will inevitably help save their businesses from closure in a post Covid-19 landscape and until business ramps back up.

Here Philip Richardson, Partner and Head of Employment Law for Businesses at Stephensons Solicitors LLP provides 10 questions and answers to help anchor the thinking for SMEs considering redundancy at these challenging Covid-19 commercial crossroads.

1. What constitutes a redundancy?

Redundancy occurs when a role is no longer needed or there is a reduction in the type of work needed.  This usually happens when a place of work closes down or there are fewer staff needed for the work to be undertaken. If this happens, this normally results in an employer needing to consult with the employees to advise them about the risk and follow a fair selection process. 

2. What happens in a consultation period?

An employer should follow a fair consultation period by holding meetings with the employees placed at risk by informing them of the business reason for redundancy and then explaining how this affects them. If a business requires fewer employees to do the type of work they undertake, they must follow a fair process when selecting individuals for redundancy. Where an employer contemplates making 20 or more redundancies in the workplace, they must follow a process known as collective consultation.

3. What does collective consultation involve?

Your employer should meet with you to discuss the risk of redundancy so that you are informed at all times. If your employer is considering making 20 or more redundancies at one time this should be done by consulting with you collectively and there are specific rules relating to the consultation process that should be undertaken in those circumstances. This involves having elected representatives who will consult with staff over a minimum period of at least 30 days before the redundancies take effect. A failure to follow a collective consultation process will result in potential claims, including claims for unfair dismissal and a protective award.

4. What is a protective award?

A protective award is paid where, in a redundancy situation which involves collective consultation, a company has failed to engage in consultation with you. The amount of compensation awarded by a Tribunal can be as much as 90 days’ pay. If your employer cannot pay this as they are insolvent, you can still reclaim up to 8 weeks’ pay from the Insolvency Service.

5. What selection process should an employer follow to select employees?

There is no set procedure that an employer should follow but it is recommended this is as transparent and objective as possible. Some employers use the last in, first out principal but this carries with it the risk of bias or being discriminatory. More companies commonly use a selection process whereby individuals are selected according to a number of objective criteria which look at assessing their capability skills or their competencies. It is recommended that employees should be able to comment on their scores before a decision is made as to whether they should be selected for redundancy. Any criteria used should be free of bias or discrimination.

6. What are employees’ rights in a redundancies process?

The employer should be able to justify its decision for redundancy and also follow a fair process. This will involve consulting with an employee at all stages and giving the employee the opportunity to ask about the business reason for redundancy and their selection for redundancy if they disagree with it.   If an employee is made redundant, the employer should notify them in writing giving them an opportunity to appeal that decision, should they wish.

7. Can my employer make me redundant during the Covid-19 pandemic?

Regrettably the present pandemic is affecting many companies and organisations meaning that trade or business may suffer, resulting in the risk of redundancies. Notwithstanding the government’s furlough scheme and other incentives to avoid having to make redundancies, should a company need to make redundancies as a result of the Covid-19 pandemic, they need to ensure that they can fully justify the redundancy and follow a fair process. 

8. What is an employee entitled to if they are made redundant?

If a member of staff has been employed for 2 years or longer, they will be entitled to a statutory redundancy payment which is governed by how long they have worked for their employer, their rate of pay and their age. If the employee has a contract of employment, it may state that they are entitled to an enhanced redundancy payment. The employee should also be entitled to a period of notice, as set out in their contract. If they have no contract, they will be entitled to notice pay which is equal to a week’s pay for every year they have worked for the company (capped to a maximum of 12 weeks based on 12 years’ service or more). In addition they will be entitled to their normal pay up until the termination date along with any accrued but outstanding holiday pay.

9. What are the present terms of furlough for an employee?

The employer can continue to keep an employee on furlough until the scheme closes in October.  From 1st July employees can return to work part time and will continue to receive at least 80% of their pay under the scheme up to a maximum of £2,500.00 per month. This continues until October but will adjust with different proportions being paid by the government and your employer. The government has made it clear that the scheme will close at the end of October. However, the government has expressed its intention to mitigate against the risk of high unemployment by paying a bonus of £1,000.00 for each furloughed employee a company retains until January 2021.

10. Can an employee still be made redundant while on furlough?

Yes although the furlough job retention scheme and the government incentives are designed to cut unemployment, ultimately many companies will be forced to make redundancies. If an employee does lose their job and is entitled to redundancy pay then this is calculated based on the monies that they earned before being placed on furlough leave.

Notes to editors

*Reference attribution