Legal News | 14.06.23
Restructuring & Redundancy – preliminary considerations
Article 1 of 6
The UK economy continues to experience challenging times. According to the Office for National Statistics, 71% of businesses are concerned about their business, and 22,109 companies failed in 2022. As employee salaries often form a large portion of the business costs, redundancies are not an uncommon byproduct of restructuring in times of economic instability. Indeed, ACAS (Advisory, Conciliation, and Arbitration Service) has reported that 41% of large employers and 20% of small and medium businesses are planning to make redundancies.
However, redundancies should be carefully considered, as reducing the workforce may be a more onerous exercise than expected and the needs of the business could fluctuate. It can be difficult to entice a workforce back when it is known that the employee/employer relationship is volatile, a lesson learned in the post-pandemic hospitality sector. In certain situations, alternative options might provide a suitable remedy, such as hiring freezes, redeployment, deferring new joiners, reduction in hours, or renegotiating wages. If redundancies are nevertheless necessary, it is imperative to follow a fair procedure to avoid claims of unfair dismissal.
The circumstances which meet the statutory definition of redundancy are set out in section 149(1) of the Employment Rights Act 1996. To summarise, the definition identifies three sets of circumstances: business closure; workplace closure; and a reduced requirement for employees to do work of a particular kind. If none of these three circumstances apply, an employee who has been employed for more than two years may have a claim for unfair dismissal. Therefore, the business should be certain it finds itself in a genuine redundancy situation before proceeding with redundancies.
Another element to establish is how many employees will be made redundant. If the business proposes to make redundant 20 or more employees within a 90-day period, two obligations arise. The employer needs to conduct a collective consultation and notify the Secretary of State. This step should not be ignored, as a failure to serve an effective notification to the Secretary of State is a criminal offence.
If the proposed redundancies involve less than 20 employees, the employer must follow a fair procedure in relation to each employee involved. For this reason, employers should avoid applying a one-size-fits-all approach to every employee. In addition, the complexity of the process may increase, for example, where an employee is on maternity, adoption or shared parental leave as special rules apply.
Other articles in this series:
Article 3: Redundancy – Collective Consultation
Article 4: Redundancy – Consultation
Article 5: Redundancy – Scoring
Article 6: Redundancy – Outcome