Redundancy is high on the agenda for many manufacturing companies. Mark Young explores the legalities firms need to consider when making redundancies and some effective instruments which can soften the blow to both employee and employer
After many years of becoming fitter and more competitive, the UK manufacturing sector has been able to avoid large scale redundancies of late. But redundancies are making headlines again. Recently released figures from the Office for National Statistics show there were 78,000 redundancies in the three months to November 2008, bringing the total to 101,000 for the year to date, the highest figure since ONS employment records began in 1995. Manufacturing has borne its fair share of the job losses. Big name firms to announce large culls last month include food producer Bernard Matthews (100 staff), Corus (2500), computer maker Dell (1,900), Jaguar Land Rover (450), JCB (674), Nissan (1200), Newcastle Production – producer of Findus frozen foods (420), Tulip International – maker of Spam and Stagg Chilli (303) and porcelain maker Wedgwood Waterford (367). Between them, these companies announced redundancies of well over 7,500 employees in just over a fortnight.
While there are legal obligations to limit redundancies, and the Government also encourages companies to do so, large scale redundancies are a hard fact of life in times of economic uncertainty. When in January Nissan announced 1200 workers at its Sunderland plant were being cut from the payroll, business secretary Lord Mandelson said: “Nissan have taken this decision today in order to secure its future success. The government stands fully behind that.”
Although the Japanese car giant has suffered a freefall in new registrations in the UK – 26 per cent fewer in December compared with the previous month — and has slashed its production target by a quarter for 2009, from 400,000 units to 300,000, its contribution to the economy is still big enough for it to command recognition from Whitehall. Enough, in fact, that just days before Nissan’s cuts were announced the Prime Minister publicly commended the company’s policy to retrain workers during production downtime in the event they were made redundant. This forms part of the outplacement service which the firm is providing for the 1,200 axed.”
The law relating to the process of making redundancies is complicated and the Advisory, Conciliation and Arbitration Service (ACAS), an independent government body, publishes guidelines on how businesses should conduct themselves when engaging with the issue. An ACAS reference, Redundancy Handling, is available as a free download (see bottom).
Hannah Strawbridge, a solicitor from NorthgateArinso Employer Services in Bury, which provides legal advice, HR services, personnel and recruitment to employers, specialises in defending companies against claims brought by ex- or current employees in employment tribunals. “Think about why you have decided to make redundancies,” she says. “Dismissal by reason of redundancy will only be ‘fair’ in law if it is genuinely due to a business closure, a workplace closure, or a reduced need for employees. If the real reason why you are looking to dismiss is for another reason — for example, poor performance, or misconduct — ensure that these issues are dealt with properly as these dismissals are unlikely to be seen as genuine redundancies and therefore may expose you to claims of compensation for loss of earnings from ex-employees.”
In a sign of the times, NorthgateArinso’s advice line to employers took 900 calls in December 2008; in January that year it took 400. Strawbridge outlines a synopsis of the measures a business must consider to prevent exposure to financial liability.
1. Efforts to avoid redundancy
A company must explore whether it can reduce the number of staff it is intending to dismiss, or whether it can avoid compulsory redundancies altogether. Such measures include: restricting or freezing the recruitment of permanent staff; reducing the use of temporary staff; retiring all employees at the normal or default retirement age; filling vacancies from among existing employees; reducing overtime by as much as production requirements permit; reducing hours of work, for example, by the operation of short-time working; redeploying employees for different work for which there is a requirement either at the same or at a different location, and initiating job shares.
2. Consultation with staff
When these options have been explored and redundancy is rendered unavoidable, companies must enter a consultation period with the ‘at risk’ employees. Employers who are going to make 20 or more employees redundancy, at one establishment, over a period of 90 days or less, have a statutory duty to consult representatives of any recognised independent trade union, or if no trade union is recognised, other elected employees. During the consultation, ‘at risk’ employees’ own views on ways of avoiding the dismissals and mitigating their effects must be explored. Mandatory consultation periods are 30 days where 20 to 99 staff are to be made redundant, and 90 days if 100 or more staff will go; both must be within a period of 90 days.
3. Duty to provide essential information
The following information must be made available to the staff that are to be made redundant or their representative: the reasons for the proposals; the numbers and descriptions of employees it is proposed to dismiss as redundant; the total number of employees of any such description employed at the establishment in question; the way in which employees will be selected for redundancy; how the dismissals are to be carried out, taking account of any agreed procedure, including the period over which the dismissals are to take effect; and the method of calculating the amount of redundancy payments to be made to those who are dismissed.
4. Employees assessed fairly
Employers must be objective and fair in selecting which members of staff are to be made redundant. As well as race, religion, sex, age, disability and sexual orientation, the decision cannot be based on an employee’s trade union arrangements, representation or position as an elected representative of other members of staff with regards to things like health and safety, pensions or redundancies themselves. In addition, an employee cannot be selected for redundancy on the grounds that they have taken part in legal industrial action against the firm, for maternity related issues, because of their part-time or full-time working pattern or for tax reasons.
Acceptable selection criteria for redundancy include relevant skills or experience, standard of work performance or disciplinary record.
Offering voluntary redundancies before deciding who will suffer compulsory redundancy is a good way of preserving morale among the team.
The cost of getting it wrong
Employees with over 12 months’ service are able to bring potential claims for unfair dismissal where their employers dismiss without recourse to the law in this area. Furthermore, employees with over two year’s service also have the right to receive a statutory redundancy payment. This can be an area of contention if calculated wrongly “so it pays to get it right first-time,” says Strawbridge. This payment is calculated by taking the employee’s gross weekly wage (capped at a maximum of £330 rising to £350 for dismissals after 1 February 2009) and multiplying it by a number based on the employee’s age and by the number of year’s full service the employee has completed.
Also, it is recommended that companies make sure other payments are made. On being given notice of redundancy, employees are entitled to receive all contractual payments owing, for example notice pay (where the employee is not obliged to work the notice) and any accrued but outstanding holiday pay.
Companies also have a statutory duty to inform the Department of Business, Enterprise and Regulatory Reform (BERR) of their intentions if they plan to make more than 20 staff redundant. “One of the most important tips I can give is to deal with any grievances properly and in line with the law,” said Strawbridge. “It is likely to be a stressful time for employees as well as for the business, and grievances may be raised when emotions are running high. Ensuring issues raised by employees are dealt with promptly and thoroughly may help prevent tribunal cases being brought by disgruntled employees by highlighting issues at an early stage and demonstrating that the business listens to its workforce.”
Getting this process wrong can have expensive consequences. She adds: “In summary, the financial implications of getting any part of this process wrong can be catastrophic for businesses within the current climate and it is imperative that advice is taken early on — prevention is undoubtedly better than cure.”
Benefits of outplacement support
While the term itself may be a euphemism, outplacement support can be an invaluable service, both for employers and employees. From an employer’s perspective it can reduce the likelihood of legal action, help to portray a firm as an ethical employer and improve staff retention rates. From the point of view of outgoing staff, it can turn the transition from casualty into opportunity.
Outplacement can be provided internally by the company or by consultancy firms. Outplacement is not, as its name might suggest, simply finding a new job for employees who are made redundant — although this would be the best outcome for both parties, especially in terms of maintaining a good reputation in and outside the firm. Outplacement is the process of making the transition from employment within the firm to the next stage in a person’s life as comfortable as possible.
It can include specific retraining in new disciplines and even new industries, provide help with CVs and interview skills, the provision of job vacancy details and assistance in domestic relocation. Companies can also provide employees with paid days off during notice periods to look for new jobs or to seek personal/life advice, and they can provide help by working out employees’ skills and strengths as well as finance management services.
Many people decide to start their own businesses when they are made redundant, especially if this is a route that they had not investigated due to a lack of capital — the severance package they receive following redundancy may be big enough to allow this. In this case, a business’s outplacement service for these employees may be of assistance in educating them about tax self assessment, creating relationships with suppliers and distributors, finding premises, obtaining further finance or marketing efforts.
To illustrate its value, recent research by employment consultancy Reed Consulting revealed 78% of people thought the provision of outplacement could improve a company’s general reputation, while 55% believed outplacement could benefit the company’s image as an employer of choice for future candidates.
It also found 25% of top performers at a company leave within 90 days of a major redundancy announcement, and 65% believe outplacement for staff who are to go helps to retain those that stay.
Stuart Lindenfield, head of transition services at Reed in London, says: “Our study shows that organisations recognise the value of outplacement support to help improve their reputation, increase their ability to retain key staff during times of change and support line managers to deliver the message with a clearer conscience.
“The findings reveal that the provision of support is expanding with 78% stating that the need for outplacement would grow in the coming year, or stay at current levels. Successful transitions need careful planning and the engagement of all stakeholders as early as possible.”
Critiques of outplacement services are often concerned with the rigidity of a generic, ill-defined program which does not account for the personal needs of the people it serves.
This is simply poor outplacement. Good outplacement helps people by addressing their individual circumstances, requirements and wants. The message is be wary of poorly executed or outsourced outplacement. If the perception of the service by outgoing staff, colleagues who are remain with the company or third parties is that the exercise was a token gesture by the company mainly for PR purposes, it could have the opposite effect and damage the firm’s reputation, as well as providing no real benefit to the outgoing employees. One-to-one sessions between staff and outplacement agent are therefore essential.
When redundancy is on the agenda, decisions about the number of jobs to be cut and which employees will leave are difficult decisions for any executive tasked with the job. Regrettable as they may be, they are unavoidable when the alternative is insolvency. As several household name manufacturers know very well, by making tough but right decisions at the right time, the futures of those remaining staff and brighter prospects for the business can be secured.
The 44-page Redundancy Handling booklet can be downloaded as a PDF from www.acas.org.uk
Hannah Strawbridge and NorthgateArinso are contactable on 0845 077 8881 or at www.northgatearinsoemployerservices.com.
All advice and guidance given in this article is provided as a general introduction to the subject matter and does not constitute a comprehensive guide or proper legal advice. Professional legal advice should be sought prior to any action involving severance or redundancy.