Redundancies: The last resort

While much of the talk around current business challenges centres on recruitment and retention, for some struggling companies the pressing issue they are grappling with is the unwanted spectre of redundancies.

One in four small firms plan to close, downsize, or restructure if energy bills relief ends in April, according to a Federation of Small Businesses survey last November. That figure rises to 42 per cent in the accommodation and food sector.

Large firms are not immune. Mark Zuckerberg’s Meta announced 11,000 layoffs in November. And according to reports Amazon boss Andy Jassy has warned more job cuts are on the horizon this year as it continues to look at staffing levels.

Louise O’Rourke, consultant at Burnley headquartered Cube HR, says: “Redundancies, it’s a word that sends shivers down the spines of employers and employees alike. There’s no denying that it’s one of the most challenging, and sometimes emotional, times a workplace can experience.

“Firstly, businesses should always ensure that redundancies are the last resort, it’s important to consider all alternatives before deciding on this.

“Other options to explore include, voluntary redundancies, change of working hours, moving employees into other roles, stopping overtime, putting a stop on recruitment, or, if your employment contracts allow it, temporary staff layoffs. If you do decide to follow through with an alternative you must still make sure you follow a fair process and it’s important to look at your staff’s contracts to ensure there are no contractual breaches.”

If redundancies are the unfortunate option you’re left with, it is important to deal with the process compliantly and sensitively. Louise says: “Redundancies cannot be used just to dismiss unpopular or difficult employees.

“Part of the process will be to determine if the redundancy is genuine. Reasons for redundancies include an organisation changing location, changing the types or number of roles needed to do certain work, a reduction in the work available or an organisation closing down.

“For a redundancy to be genuine an organisation must be able to demonstrate an employee’s job will no longer exist. When you’ve determined this, make sure that your managers are aware of the ACAS redundancy process, ensuring this process is followed fully will be what protects your business from any claims at a tribunal.

“Redundancy should always be a proposal until it is confirmed so ensure that you communicate and consult with staff so that they understand what is being proposed and why, and whether they can think of any way of mitigating the redundancies that you might not have even considered.”

Sally Eastwood, associate partner at Lancashire based Farleys Solicitors, warns it is important to follow a fair process and failure to do so may lead to employment tribunal claims.

She says: “You will need to decide the appropriate selection criteria to be taken into account when deciding which employee or employees to select for redundancy. For example, standard of work and performance, skills qualifications or experience and disciplinary record.

“You will need to be able to demonstrate that you have adopted a fair selection criteria and procedure to protect the business against unfair dismissal claims.”

Sally adds: “Employees with over two years’ service have protection in law from unfair dismissal and an entitlement to statutory redundancy pay if they are dismissed by reason of redundancy. Employees may also have various contractual entitlements and some claims can still arise without two-years’ service.

“The use of settlement agreements as an alternative to compulsory redundancies can result in prompt, amicable and advantageous employee exits and outcomes for your business.

“Settlement agreements can also be used to fast-track employee redundancies and remove the risk of grievances and claims, including those arising from disputed redundancies, against a company and its directors and officers.”

Gill Molloy, group tax partner at Champion Accountants, says: “There’s a good reason that the saying often associated with redundancies is ‘last in, first out’; because every year of service an employee has given to a company is a cost to the business if they are made redundant.

“As an employer, you have an obligation to pay a week’s notice for every year an employee has worked for you, up to a maximum of 12 years.

“This, however, only applies to those with two or more years’ service, with employers only required to give one week’s notice for those employed between one month and two years.

Often, the discussion around the financial implications of redundancies is not simply ‘can I afford to keep employee X’, but ‘can I afford to make employee X redundant’.”

She adds: “Lots of companies have been built on a mantra of ‘our people are our biggest asset’ and it’s worth remembering that philosophy when it comes to redundancies.

“Yes, make the tough decisions early, before challenging finances spiral, but also be mindful of the importance of looking after good people.

It is always wise to hang on to valuable talent and those who are operationally critical to the company’s financial future.”

Louise O’Rourke says communication is vital. “You should think of how to support your staff at risk, think about offering counselling or financial wellbeing sessions, or offer more face-to-face meetings to keep the communication going.

“Redundancies don’t only affect those at risk, but they can have a knock-on effect on the business as a whole. The employees who remain may be unsettled and feeling vulnerable and if they think you’ve treated their colleagues insensitively or without respect you may create a negative work culture.

“Ultimately, if redundancies are necessary then consider how you would feel in the employee’s shoes, be understanding, be open and honest and don’t make any promises which are unrealistic and can’t be kept.”

Lisa Kennery, director of Blackburn accountancy firm Pearce, says: “Redundancies within any business is a stressful time and should be dealt with delicately.

“There is a process to follow and I would recommend all businesses to follow this no matter what size. One step in this process is to consult with staff and ask for alternative suggestions.

“Until these conversations take place you won’t know how flexible your staff will be. If redundancies do happen, you as the employer could link with similar businesses in the area to attempt to place staff in new roles. The key is having those open and honest conversations and communicating at every stage.”