P&O Ferries has been in the news over the last week after it made 800 staff redundant in one fell swoop via a pre-recorded video message! P&O’s action ignored important UK employment laws, which set out specific processes that must be followed when employers are making redundancies, particularly if they are to be carried out on a large scale. This led to Business Secretary Kwasi Kwarteng and Labour Markets Minister Paul Scully writing to the CEO of P&O Ferries last week requesting information about why a proper redundancy process was not followed.
Not only can failing to follow a proper redundancy process lead to reputational damage for your business, as demonstrated by the backlash P&O is facing, but it can also leave you exposed to legal claims from your staff. To help you avoid these pitfalls, we’ve set out a refresher below on how to carry out a redundancy process, including template documents to help you streamline your process.
Redundancies: First steps
It’s important to ensure that you’ve considered all other possible alternatives before making an employee redundant. For example, these could include moving employees around within your business or ending the contracts of temporary or contract staff. Redundancies should always be your last resort.
If you do decide that redundancies cannot be avoided, you must follow a proper procedure. This is particularly important if the employees you’re making redundant have been continuously employed by you for two years or more; these employees could bring unfair dismissal claims against you if you don’t follow the correct procedure. Even if the staff you’re making redundant have been employed for less time, it’s best practice to follow a fair and transparent process. This will not only help to maintain good morale amongst your remaining workforce, but will also minimise the risk of discrimination claims against you.
Redundancies: Following a proper process
1. Inform your staff
You should inform all staff who have the potential to be affected by any upcoming redundancies that your business is about to go through a redundancy process. In a small business, this will usually mean that all of your staff should be notified.
You can use this template letter to warn staff about proposed redundancies.
It’s important that you keep employees who’ve been selected for redundancy as up to date as possible at each stage of the process, ensuring that you actively consult with them and listen to their input. This includes discussing any alternatives to redundancies and what your selection process will be. If you don’t do this properly, you run the risk of the process being deemed unfair and you could face legal claims from staff.
If your business is proposing to make 20 or more employees redundant within 90 days (as was the case with P&O), you must inform and consult with their trade union or employee representatives, in addition to the normal requirements of consulting with staff individually. Further guidance on large-scale redundancies is outside the scope of Sparqa Legal’s service and it is recommended that you seek legal advice if you will be making them. For access to a specialist lawyer in a few simple steps, you can use our Ask a Lawyer service.
2. Make a redundancy pool
Unless you’re closing your entire workplace, you must consider creating a pool of employees from which to choose; you cannot simply select a particular employee for redundancy at the outset. If you don’t think about how to make a pool for redundancy, it’s highly likely that any subsequent redundancies will amount to unfair dismissals.
Your redundancy policy may set out how your business will approach creating a redundancy pool; if it does, you should follow any process specified. If you don’t have a policy, whilst there are no hard and fast rules about how to create a pool, you should make sure you create one from which you can make a fair and reasonable selection.
For further guidance about how to create a redundancy pool, see our Q&A on Redundancy processes.
3. Make a provisional decision
Reach a provisional decision about which employees are to be made redundant by using a fair, objective and transparent system. It’s important to make sure you don’t discriminate when doing this.
You should make your decision by applying selection criteria to your redundancy pool; you can use our template Selection criteria form to do this. Bear in mind that if you have a redundancy policy, you should check whether this sets out pre-agreed selection criteria that you will use in the event of a redundancy situation.
Common selection criteria include things like performance, disciplinary history and relevant skills, experience and qualifications. There are some selection criteria that should be avoided, such as age, duration of service, pregnancy and whether an employee has a flexible working arrangement. For further guidance about how to decide on selection criteria, see our Q&A on Redundancy processes.
4. Inform employees who have been selected
After you have applied your selection criteria to your redundancy pool, you should select the employee(s) with the lowest score for redundancy. The next step is to inform them they have been selected for redundancy and give them a genuine opportunity to challenge their selection and consider alternatives, including considering them for other suitable jobs within the business.
You can use this template letter to notify employees of their provisional selection for redundancy.
5. Carry out individual consultations
Once you have informed employees that they have been provisionally selected for redundancy, you should arrange private consultation meetings with them. You should attend these with an open mind about whether you will actually make that particular employee redundant and whether other options may be appropriate, such as moving the employee elsewhere within the business.
Use our template consultation meeting agenda to guide your meeting.
Follow up this meeting with written confirmation of what was discussed and to set up the next stage of your consultation. Whether this will involve a further discussion of substantive points, an interview for another position within the business, or you moving on to a final consultation meeting will depend on what points arose out of the first meeting.
Our Redundancy toolkit contains appropriate template letters for each of these scenarios.
6. Give appropriate notice
Once you have made your final decision, you should send a notice of dismissal to each employee, which confirms that they are being made redundant and tells them what their notice period is. This letter should also confirm whether or not they will be entitled to a redundancy payment, and if so how much.
You can use this template letter to provide notice of dismissal.
Note that you do not need to give your employee the opportunity to appeal your decision unless you say that you will in your redundancy policy (if you have one). However, ACAS does recommend that employers allow an opportunity to appeal; this can help to demonstrate you’ve followed a fair process.
7. Respect your employee’s right to look for alternative work
If the employees you’re making redundant have been continuously employed by you for two years, you must give them a reasonable amount of paid time off work during their notice period so that they can look for other work, or to undertake training for future work. You’re not legally required to pay your employees more than 40% of their normal week’s pay for any time they take off for this purpose, but you may choose to.
Other staff don’t have this right, but it’s usually good practice to allow flexibility where possible.
8. Make redundancy payments
If your business offers an enhanced redundancy package, you must ensure that you pay this. Check your employees’ contracts and/or the terms of your redundancy policy to make sure you get this right.
If you don’t offer enhanced redundancy pay, you must pay statutory redundancy pay to redundant employees who have two or more years of continuous employment with your business. The amount of pay they are owed will depend on their age, length of service and rate of pay, but the amount is capped at £16,320 (this is increasing to £17,130 from 6 April 2022). You can find out more about making statutory redundancy payments in our Q&A on Redundancy processes.
Your notice of dismissal (see above) should include a written statement indicating how the redundancy payment has been calculated. Failure to provide this written statement is an offence, punishable by a fine.
Need a helping hand? Use our Redundancy Toolkit!
If you’re thinking about carrying out a redundancy process, our Redundancy toolkit provides all of the template documents you’ll need (including those referred to in this blog) and contains a how-to guide to lead you through the process. This will help you to ensure that your redundancy process is fair and legally compliant, reducing the chance of any employees suing you.
The content in this article is up to date at the date of publishing. The information provided is intended only for information purposes, and is not for the purpose of providing legal advice. Sparqa Legal’s Terms of Use apply.
Before joining Sparqa Legal as a Senior Legal Editor in 2017, Frankie spent five years training and practising as a corporate disputes and investigations lawyer at leading international law firm Hogan Lovells. As legal insights lead, Frankie regularly contributes to Sparqa Legal’s blog, writing content across employment law, data protection, disputes and more.