Page last updated at 00:01 GMT, Wednesday, 11 March 2009

Pitfalls of making staff redundant

Money Talk
By Martin Edwards
Head of employment law at Mace & Jones

People in a job centre
Thousands of people have been made redundant in the past few months

Employment law is notorious for pitfalls, but in 25 years of advising employers and employees, I have seen more mistakes made with redundancies than in any other area.

The trouble is that, in this field, common sense alone is not enough.

Each time there is a recession, claims of unfair redundancy clog up the employment tribunals.

Compensation for unfair dismissal may be up to £66,200 per person - more in some exceptional cases - and this does not include the cost of a redundancy payment.

So there is plenty at stake, and this justifies taking great care.

Bear traps

There are four main ways in which making someone redundant can be unfair.

The first classic error is if they are not genuinely redundant. Employers cannot simply get rid of staff they don't like with a false claim that their position is redundant.

I recall being amazed by an employer who made someone redundant "as a punishment" for laziness. If you plan to dismiss someone, be clear about your real reason.

The second danger is unfair selection.

If you need to make a few people redundant out of a group doing similar jobs, you must justify your choices objectively.

Sometimes employers devise selection criteria and elaborate selection procedures.

Apparently objective selections may be legally risky.

Taking into account staff attendance records may seem fair - but if an employee's absence is due to a disability, it may be discriminatory to hold that against them.

In the 1970s, trade unions often insisted that redundancies should be based on "last in, first out", but times have changed.

The older a worker is, the longer their service tends to be.

Some lawyers argue that taking length of service into account constitutes age discrimination. No wonder employers think they cannot win!

They do need to be able to justify using of length of service as a selection factor.

For instance, the need to retain skills acquired through long experience might sometimes be a reasonable justification.

Attitude

Employers often make subjective selections.

Martin Edwards
Compensating an unfairly sacked employee for the value of lost pension rights alone can lead to high awards
Martin Edwards, Mace & Jones

I remember wincing when I heard an employer explain to a tribunal that he retained one secretary rather than another because "it was like comparing a Rolls Royce to a rusty old banger".

Was the fact that the secretary he kept was young and pretty, and the long-serving lady whose job was axed was rather less glamorous also in his mind?

The tribunal was not impressed, and he had to pay up.

Attitude is another tricky selection factor.

An employer who claims that a person selected because they did not have a good attitude will be embarrassed if it turns out that the same employee was given an excellent appraisal rating only months before.

Talk to workers

The third bear-trap is consultation.

To make a person redundant without first consulting with them about the proposal, is almost bound to be unfair.

Once there is a plan to make cut-backs, it should be discussed with the person (or people) affected.

Failure to give adequate consideration to alternative action is the fourth danger area.

There may be plenty of options - including a shorter working week, pay cuts, or redeployment to another branch of the business.

Never make assumptions about how staff will react to a redundancy consultation.

For instance, an employee who has always seemed greedy may seem sure to reject a possible pay cut.

But if there is no discussion, the employee may claim they would have preferred half-pay to redundancy.

Even if it is not true, the employer will face a heavy bill.

Negative reaction

One snag with consultation is that many employers fear that disgruntled redundancy candidates will demotivate the rest of the workforce, or even commit acts of sabotage.

I once acted for a caterer who feared a canteen cook facing dismissal would put something nasty in the soup.

The over-riding need to safeguard the business should be balanced with treating the person as fairly as possible.

Special rules apply to consulting trade unions or other employee representatives about redundancy.

But the employer should still talk directly to the affected employees.

Some may not agree with the union's stance, and they have a right to be considered as individuals.

Compensation

The cost of a tribunal case that goes badly wrong can be massive, and not just in terms of compensation or the cost of management time.

Tribunal hearings are open to the public - including journalists, given that cases brought by brave underdogs make good copy.

Employers can find themselves embarrassed by the media spotlight.

Compensation will cover not only the employee's lost earnings and benefits, but also future losses - which allows the tribunal to indulge in speculation.

Compensating an unfairly sacked employee for the value of lost pension rights alone can lead to high awards.

Employers who defend claims unreasonably may find that the tribunal also orders them to pay the employee's legal fees.

The technical legal rules mean that it is easy to make expensive mistakes.

The best value tends to come from advisers experienced in defending clients successfully before a tribunal.

The ACAS helpline offers a free and impartial service.

Another option is advice from a consultancy call centre, although these helplines tend to give very defensive guidance.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.



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