If your business needs to dismiss employees, make sure you go about it in the right way. Anthony Thompson gives a salutary lesson from UK experience
With the gloomy economic horizon, business reorganisations and redundancies are inevitable. In times of mobile phones and blackberries, employers may be tempted to cut corners and attempt a quick fix by dismissing employees without following proper procedures. However, a recent employment tribunal decision demonstrates that society’s ever-increasing reliance on gadgetry does not negate the need to respect employee rights.
Recently in the UK, an employment tribunal held that employees were unfairly dismissed by Laurence Scott & Electromotors when they were sacked by telephone by the company’s administrators while it sought a buyer for the business. There were no discussions about the redundancies – just a plain telephone call. You may be thinking that this is deja vu – in 2003, many of the 2,500 employees of UK’s The Accident Group were dismissed by text message.
Although there may well have been practical business reasons for taking quick decisions, such haste can ultimately prove costly. The reality is that employers have legal obligations when redundancies are contemplated and Kroll, the administrators, showed scant regard for them, to their peril.
Where an employer proposes to make 20 or more employees redundant in one establishment in a 90 day period, there needs to be collective consultation. The employer must consult with the employees’ trade union representatives (if a trade union is recognised by the business) or elected employee representatives about ways of avoiding the dismissal, reducing the number of employees to be dismissed and mitigating the consequences of the dismissal.
In a single site operation, the ‘establishment’ is readily ascertainable. If, however, the business has more than one site, all the combined sites can be considered as ‘one establishment’, as each site does not need to have its own independent management. Ultimately, it is for the employment tribunal to decide what constitutes an establishment.
The consultation exercise should begin in good time, but start at least 30 days before the first dismissal takes effect. Where 100 or more employees are to be made redundant, consultation should commence at least 90 days before the first dismissal. There is also an obligation to notify the Secretary of State for Work and Pensions where the employer proposes to make redundant 20 or more employees. Failure to notify the Secretary of State is a criminal offence and an employer could be fined up to £5000.
What does consultation entail? There is no statutory definition. It is intended to be a process of dialogue between employer and employees (and their representatives) about the procedure to be followed. During the consultation process, the employer is obliged to disclose in writing:
the reasons for its proposals
numbers and descriptions of the employees facing redundancy
total numbers of employees of any such description employed at the establishment in question
proposed method of selecting the employees who may be dismissed
proposed method of carrying out the dismissals, with regard to any agreed procedure including the
period over which dismissals are to take effect
proposed method of calculating the redundancy payment to be made.
If the employer fails to comply with its obligations to consult collectively, it may be liable to pay a protective award. This is an order that the employer pay remuneration to any employees affected by the proposals – whether they are to be dismissed or retained – for a period up to 90 days. For the purposes of calculating the protective award, ‘a week’s pay’ is capped in the same way as when calculating a statutory redundancy payment (ie £330 gross).
In exercising its discretion to make and award, the employment tribunal must treat it as a sanction on the employer rather than as compensation for the employee. The size of the award is ultimately dependant on the severity of the failure by the employer. The trend is for maximum awards to be ordered, and only reduced if the employer has valid reasons for not consulting.
Employees must be selected on the basis of objective criteria. It used to be the case that selection could be based solely on length of service. However, reliance purely on length of service might be discriminatory on the basis of age (ie as favouring more senior employees). More commonly, selection is based on a number of
factors such as skills, flexibility, performance, disciplinary and sickness records. Once selected, employees should receive notice of termination in accordance with their contracts of employment. The length of notice should be at least the statutory minimum period of one week (after one month’s service) and a week for each complete year of service, to a maximum of 12 weeks for 12 years’ or more service.
During the notice period, the employer should consider the employees for alternative employment within the business. If an alternative role is offered to an employee and the offer is refused, the employee may lose the right to a statutory redundancy payment. The employee is, however, entitled to reasonable time off to attend interviews. If an alternative role cannot be found, an employee is entitled to receive a redundancy payment if he or she has at least two years’ continuous service at the effective date of termination (EDT). The EDT is usually the date when the notice period expires.
Redundancies are usually the last resort when personnel changes need to be made. However, whether the dismissals arise out of a need to restructure or reorganise the business or from genuine financial strife, an employer is obliged to consult with its employees. Mobile communications have modernised our social
interaction and made us more accessible but the courts have sent out a message that this is no substitute for following old-fashioned good practice whatever the circumstances.
Anthony Thompson is an associate, Hextalls LLP, www.hextalls.com