The right choice for redundancies

Making redundancies is never easy but in the current financial climate some are inevitable. Mark Leach reports on the legal technicalities and also considers some viable alternatives

Job losses are being announced on a regular basis and it now appears inevitable that this trend will continue. The financial sector is particularly affected by the current downturn. In addition to being aware of the issues in terms of potential claims from their insureds, brokers and insurers must also ensure that their own houses are in order. The insurance industry, like others, is now more aware than ever of the correct processes to follow when contemplating redundancies, but they must ensure they carry out sufficient consultation and involve the employees.

While a case of genuine redundancy should be straightforward to make in these economic times, employers should recognise that downturns often bring increases in litigation. Employees, well versed in their rights, will seek to challenge redundancy decisions, as they try to hold on to employment or obtain some comfort of compensation to help tide them through a period of unemployment.

Fair redundancy terms

Traditionally, insurance companies and banks have provided generous redundancy terms to their own employees. These often have the effect of enabling those employers to 'buy' themselves out of claims, particularly if the generous terms are accompanied by compromise agreements. Given the generosity of many terms, there is an increased use of compromise agreements ensuring that the employer providing terms exceeding the statutory minimum does not then face claims.

Generous terms have also helped attract significant numbers of willing volunteers for redundancy. However, the number of volunteers is likely to fall with uncertain employment prospects. Many employers have reviewed their terms over the years, and only the longest standing (and therefore oldest) employees are likely to benefit financially. A voluntary redundancy exercise can become expensive for employers, as those employees on long-standing generous terms are more likely to volunteer. Refusing an application for voluntary redundancy due to the cost of longstanding terms has obvious age discrimination risks. In those circumstances, employers may be advised to avoid a voluntary redundancy option altogether.

Three areas are key for businesses of all sizes - multinational insurers or small high street brokers - in ensuring a fair redundancy process: alternatives, consultation and selection.

Alternatives to redundancy should be considered at the outset and could include: a period of agreed temporary lay off; reduced hours or short-time working; targeting volunteers; agreed variations to pay and benefits.

It is impossible not to be aware of the economic downturn, and employees at risk may be prepared to be flexible as they seek to hold on to their jobs. It may be worth raising these and other possible costs savings, which might reduce the number of redundancies required or avoid them altogether. An optimistic workforce may be prepared to agree to, for example, short time working for a six-month period, so that employment is retained in the hope that market conditions will improve. A meaningful consultative dialogue about alternatives will also underpin the fairness of any subsequent redundancy dismissals.

A workable consultation process is critical. Where 20 or more dismissals are proposed from one 'establishment', then there is a legal requirement to consult on a collective basis, either through recognised trade unions or, where there are none, other appropriate employee representatives.

The term 'establishment' usually means one site in the case of multi-site organisations, although where those sites do not operate with a sufficient degree of autonomy, then the organisation as a whole may be regarded as one establishment.

It is now clear from case law that the consultation should be around the redundancy itself. There should be consultation about, for example, a proposed site closure. Care should be taken to involve representatives at this stage of the process and in order to demonstrate meaningful consultation, organisations should avoid, for example, board or other management minutes confirming a site closure in advance of collective consultation. Any executive decision should be expressly subject to consultation.

Employers should then participate in collective consultation, ensuring that they are represented at an appropriately senior level in the process. The employer should be able to demonstrate that the participants had sufficient power to engage in consultation and that the consultation could have made a difference.

As a minimum, collective consultation must be about ways of avoiding redundancies, reducing the numbers to be made redundant and mitigating the consequences of any redundancies. However, employers often also consult about methods of selection of employees for compulsory redundancy - including the pools/areas of employees from which redundancies are to be made and the criteria are used to select employees from within those pools/areas.

Selecting the right employees for redundancy is critical to the ongoing success of the business, as well as the fairness of the process.

Survival of the fittest

It is often noted that redundancy must not be used as an easy short cut to dismiss poorly performing employees. However, employers will usually want to ensure that the outcome of a redundancy process is the retention of high-performing employees - and so the dismissal of its worst performing employees - and the retention of a workforce that is best able to deal with the difficult times ahead. With this in mind, most employers now include in their selection criteria issues relating to performance and relevant skills.

A robust and well-implemented appraisal or performance development system will be invaluable in these circumstances, and those organisations that have implemented these will be grateful to the HR managers that have pushed for them in the past.

Where selections are being made from large pools, then it is often necessary for a range of managers to participate in the selection process. In those circumstances employers should take care to include arrangements to minimise the possibility of an inconsistent approach between one manager and another.

For example, guidance on what would constitute an appropriate score should be provided, a more senior manager may be appointed to oversee the scoring process and also interview and test managers in their approach to scoring individual employees.

Crucially, any selection should be provisional only at this stage and the employees should be invited to comment on the scores provisionally awarded to them against various criteria. The employer should listen to all comments that the employee has and consider, in the light of those comments, whether the scores initially awarded are appropriate.

- Mark Leach, employment partner at Weightmans LLP.

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