How should an employer proceed if a restructuring process could potentially involve redundancies?
A business restructure does not necessarily mean that redundancies are inevitable, for example, where changes are made for operational rather than for financial reasons. But in some cases, the loss of jobs may be unavoidable. In this guide, we look at the key legal issues for employers dealing with restructuring and redundancy.
Undertaking a process of restructuring and redundancy
When we talk about restructuring and redundancy, this is where changes are made to the organisational structure or roles within a company or organisation, removing the need for work of a particular kind.
A potential redundancy situation might arise where you decide to restructure the way in which things are undertaken within your business, for example, where labour-saving technology has made various jobs obsolete.
Equally, you may find that you can no longer employ one or more members of staff where significant financial cutbacks are needed, including reducing your payroll liabilities following a serious decline in the profitability of your business.
How can complaints for unfair dismissal be avoided?
Redundancy can be a fair reason for dismissal, assuming a genuine redundancy situation exists.
Employees with two years’ service or more have the right to not be unfairly dismissed. Any failure to follow a fair procedure will normally render the dismissal unfair.
A fair procedure comprises three main stages:
- Following a fair selection process
- Following a fair consultation process
- Considering alternative employment options
Following a fair selection process
When making employees redundant, you must decide a fair basis upon which they will be selected for potential redundancy, ensuring that you do not discriminate against certain individuals or groups of individuals because of things like their age, disability, sex, race, religion or belief.
Common methods of redundancy selection can include:
- An employee’s skills, qualifications and/or aptitude
- An employee’s standard of work and/or performance
- An employee’s disciplinary and/or attendance records, although you would need to discount any pregnancy and maternity or disability-related absences to avoid any discrimination here
It may be possible to select someone based on their length of service, such as under a last in, first out basis, although caution should be taken that this does not expose the organisation to complaints of age discrimination. This is because younger employees are more likely to have a shorter length of service than older workers. It is therefore better to only use this method in a ‘tiebreaker’ case or in conjunction with other selection criteria.
Following a fair consultation process
When terminating employment by reason of redundancy, this can only take place after the appropriate consultation process has been followed. This will allow you to respond to any representations made or objections raised by or on behalf of employees, and to consider any reasonable alternatives to dismissal.
It is essential that you follow a fair consultation process before making any final decisions to make employees redundant. This means that you must directly discuss your proposals for restructuring and redundancy with your employees and any employee representatives. You will need to explain the business reasons for your proposals, the proposed pool of employees at risk of redundancy, the selection process and any available alternative employment.
Where you are proposing to make 20 or more employees redundant within any 90-day period– including terminating contracts and offering new terms as part of a restructure – you must also consult on a collective basis. This means that you must provide certain stipulated information with any recognised trade union(s) or employee representatives with a view to reaching agreement. You must also consult with employees individually alongside any collective consultation.
For between 20 and 99 proposed redundancies the consultation must begin 30 days before the first dismissal takes effect, and 45 days for 100 or more proposed redundancies. You must also notify the Secretary of State using Form HR1 and may be fined for any failure to do so.
At the end of the consultation period, where alternative options cannot be agreed, the final step is giving any affected employee their notice of redundancy. This should be done in writing, providing reasons and giving each individual one final opportunity to discuss your proposed decision.
Where the loss of jobs is unavoidable, you must inform the employee of your decision to make them redundant, both face-to-face and by letter, setting out the employee’s last day of service and explaining their right to appeal.
Considering alternative employment options
An important part of any restructuring and redundancy process is to consider whether there are suitable alternative vacancies within your business by way of alternative to dismissal.
If alternative employment can be found for an affected employee, an offer to redeploy should be made unconditionally and in writing, without the need for an application. It must also be made before expiry of the employee’s existing contract and start within 4 weeks of their previous job role ending.
An employee who accepts an offer of an alternative role should be given a trial period of 4 weeks, or longer if agreed in writing, to assess the suitability of their new position. Following this trial period, if both you and the employee decide that the job is unsuitable, they will still be able to claim any statutory or contractual redundancy pay to which they may be entitled.
It is worth noting that if the employee refuses to accept a suitable alternative role without good reason, they may lose their entitlement to redundancy pay.
Employee redundancy entitlements
Once an employee has been selected for redundancy, this may give rise to various statutory or contractual entitlements, including:
- The provision of redundancy pay
- The provision of notice pay
- The provision of reasonable time off work
The provision of redundancy pay
Employees who are made redundant may have the right to either statutory or contractual redundancy pay. In the absence of any enhanced contractual entitlement, to qualify for a statutory redundancy payment the employee must have been dismissed by reason of redundancy and have two years’ continuous employment with your company or organisation.
This is calculated using a formula involving a week’s pay, currently capped at £538 (from 6 April 2020), the employee’s length of service and their age bracket:
- 0.5 week’s pay for each full year they were employed under 22 years old
- 1 week’s pay for each full year they were employed between 22 and 40
- 1.5 week’s pay for each full year they were employed and 41 or older
This redundancy payment is also capped at 20 years, equating to a maximum of £16,140 (£538 per week maximum x 1.5 week’s pay x 20 years in total).
Having notified an employee of your decision to make them redundant, you must provide him or her with a written statement setting out the amount of statutory redundancy payment they are entitled to and how you have reached that figure. This can be included within their redundancy decision letter.
In the event of any disagreement over your calculation, or you fail to make the payment due no later than an employee’s final pay date, or an agreed date soon after, they will be able to make a claim for payment to an employment tribunal.
The provision of notice pay
When making an employee redundant, you must provide them with a minimum period of notice. This can be either statutory or contractual.
Where there is no contractual provision for a period of notice on termination of employment, redundant employees will still be entitled to a minimum paid statutory notice period, even where they are not required to work their notice. An employee may not be required to work any notice period if their contract of employment allows you to provide pay in lieu of notice.
The statutory notice period depends on how long your employee has worked for your company or organisation. This is calculated as one week’s notice if they have worked for you for between a month and 2 years, and two week’s notice – with an extra week for each year worked – up to a maximum of 12 weeks.
In circumstances where you fail to give an employee the correct notice, or pay in lieu of notice, this will amount to wrongful dismissal. This is essentially where you break the terms of an employee’s contract during the dismissal process by failing to provide them with what they are contractually or statutorily entitled to.
The provision of reasonable time off work
Where an employee is to be made redundant, and they have been continuously employed by you for a period of two years by the date their notice period ends, they are entitled to a reasonable amount of time off work, either to look for another job or to arrange training to help them find another job.
However, the length of time an employee can take off work will depend on their circumstances. Further, regardless of how much time is taken, the most you will be required to pay the employee during any absence is 40% of one week’s pay.
This is the total amount and not the amount per week. By way of example, if an employee gets paid £750 a week for a 5 day working week, the most you would have to pay them for their time off is £300 (40% of their weekly pay).
Engaging with employees during the restructuring and redundancy process
Whatever your reasons for restructuring your business, it is important that all those affected are treated fairly and proper procedures are followed.
It is also important throughout a restructuring and redundancy process that employees know exactly where they stand with regards to their final pay and notice rights, and what else they may be entitled to if they are made redundant. This could include, for example, the right to take reasonable time off work to secure alternative employment.
Employees must be kept informed of the plans and potential timescales for the company or organisation, as well as given advice on their redundancy rights and entitlements. This should help employees to plan ahead, alleviate immediate concerns and improve overall staff morale for the remaining workforce.
Managing your employer reputation and staff morale during a process of restructuring and redundancy can be a complex process involving individuals, unions, employee representatives, senior management and line managers. This is also likely to be an extremely difficult and stressful time for everyone involved, where the future of both the business and individual careers may be on the line.
Prior to selecting people for redundancy, you should always first consider any alternative options to dismissal, for example, reducing or banning overtime, restricting new recruitment, laying off self-employed contractors or freelancers, or short-time working or temporary lay-offs. You could also consider voluntary redundancies, where this can be an effective means of cutting costs to enable your business to stay afloat, whilst minimising stress and maintaining morale.
DavidsonMorris’ employment lawyers can help with all aspects of organisational restructuring and redundancy. Working closely with our specialist HR colleagues, we provide comprehensive guidance on how to approach and implement workforce changes to minimise legal risk while ensuring commercial goals are achieved and employee engagement is optimised. For help and advice, speak to our experts.
Restructuring and redundancy FAQs
What does restructuring mean in HR?
In HR terms, restructuring can involve splitting an organisation into separate parts, the merger of two or more organisations, or the transfer of some or all of an organisation's activities to another. It could also mean entirely eliminating certain activities.
Is restructuring the same as redundancy?
Restructuring is not the same as redundancy. A company or organisation can often be restructured, for example, involving the redistribution of work among the same number of employees, where redundancies will not need to be made.
What happens in a restructure?
A restructure refers to the reorganisation of a company or organisation to modify all or some of its financial and operational aspects, usually when the business is facing serious financial pressures. This can be done, for example, by reducing the requirement for employees to work in certain areas.
What does job restructuring mean?
Job restructuring is when the nature and responsibilities of an employee's position is changed. This could involve, for example, the addition of tasks to an employee’s workload or even a higher level of responsibilities.
What impact does redundancy have on an organisation?
Redundancy, especially when handled unfairly, can create legal risks and also have an impact on the remaining workforce. It can seriously affect staff morale, resulting in a reduction in employees’ level of performance and a drop in overall productivity.
What is difference between restructure and redundancy?
Restructuring a business, for example, to cut costs in an economic crisis, does not necessarily equate to redundancies. Some business restructures will ensure the continued employment of all members of staff, provided they agree to any changes to their contract.
What is a restructure employment?
A restructure employment could involve the redistribution of work or redeployment among the same number of employees in an organisation. In some cases, however, restructuring can result in the loss of jobs through redundancies.
Can you restructure without consultation?
In certain circumstances, including where an employer decides to dismiss and offer re-engagement on new terms to 20 or more employees, there is a legal obligation to collectively consult recognised trade unions, but it is good practice in any restructuring.
Last updated: 9 June 2020