With recession looming, redundancy may become inevitable
by David Clifton, one of thePublican.com's legal team from London solicitors Joelson Wilson
The tragic events in New York may have served to precipitate a worldwide recession. Share prices in leisure and pub-operating companies have been hit hard, with particular attention focused on branded operations. Time will tell whether this sector of industry will be as hard hit as the air travel industry.
With the prospect of a recession looming, employers will be looking hard at the numbers of staff they employ and redundancies may well be inevitable. Whether you are an employer intending to make a number of employees redundant or an employee who is threatened by redundancy or has been made redundant it is important to be familiar with the procedures involved. As an employer you can avoid the pitfalls and as an employee you can protect your rights.
When can a redundancy situation arise?
It can arise in a number of circumstances - where a business closes down either temporarily or permanently, or where the employer requires fewer employees to do work of a particular kind, for example, following a downsizing. Less obviously, it might arise where dismissals take place in one part of a business but where there is no overall reduction in the numbers employed because the employer is taking on new recruits in other parts of the business.
On what basis can an employer select an employee for redundancy?
An employer can use any fair and objective criteria for selecting employees for redundancy. Suitable criteria may include a points system based on skill and knowledge or be based on "last in, first out". In the past, age has been used as a criterion but this will not be appropriate once EU legislation comes into effect to prevent age discrimination.
It is illegal to select an employee for redundancy using race, sex or disability as a criterion.
Is it necessary to consult employees before dismissing them for redundancy?
The short answer is yes. If an employer fails to inform and consult with employees individually prior to dismissing them by reason of redundancy the employer runs the risk of being on the receiving end of successful unfair dismissal claims.
In addition, if an employer is proposing to dismiss 20 or more employees within a 90-day period the employer is under a statutory obligation to inform and consult with the employees' trade union or other elected representative. In these circumstances the employer also has a duty to inform the Department of Trade and Industry of the proposed redundancies.
What must the consultation include?
An employer should give an explanation as to why the job is under threat, details of the selection criteria, how that criteria will be applied and how any redundancy payment will be calculated. The employer should also consult on ways to avoid the dismissals and reduce the number of employees to be dismissed. In particular, any alternative employment for the employee in the company should be considered.
Is an employee entitled to time off when given notice of dismissal because of redundancy?
If an employee has been continuously employed for two years or more, he or she is entitled to reasonable time off with pay during working hours to look for future employment or to make appropriate arrangements for training.
How much notice of redundancy must an employer give?
An employee is entitled to one week's notice for every year worked up to a maximum of 12 weeks. Where an employee has completed over one month but less than one year the notice is one week. If the employee's contract provides for a different period of notice, then the longer notice period applies.
Who is entitled to a statutory redundancy payment?
In general, an employee who has been made redundant is entitled to a statutory payment if they have been continuously employed for two years or more. However, certain classes of employee are excluded.
How is the statutory redundancy payment calculated?
It is calculated by reference to age, length of service and average weekly wage. An employee is entitled to one-and-a-half week's pay for each year in which he or she is 41 or over, one week's pay for each year between 22 and 40 inclusive and half week's pay for each year between the ages of 18 and 21 inclusive.
With employees over the age of 64 the amount is reduced by one twelfth for each month over that age. When calculating the amount, the maximum number of years to be taken into account is 20 and the current maximum weekly limit for redundancy pay is £240. If the contract sets out more generous redundancy terms then these will prevail.
- If you require advice in relation to redundancy or insolvency, ensure that you instruct a specialist firm of solicitors or accountants experienced in this area of the law.
Insolvency law
While on the subject of bad news, it is relevant to mention briefly the changes proposed to the law of insolvency.
At the end of July, the government published a White Paper designed to encourage the taking of risk and the rescue of viable businesses and to provide fairness to creditors. The following are the principal proposals:
- Restriction on appointment of administrative receivers
- Abolition of Crown preference
- Reduction of the discharge period for most bankrupts from three years to 12 months.
Additionally, on April 2 of this year the Insolvency Act 2000 introduced a provision whereby directors intending to apply for a company voluntary arrangement with creditors can obtain a 28 day moratorium, which removes the immediate threat of secured creditors enforcing their security or repossessing their goods.