Being ‘bumped’: the new alternative to redundancy

pharmafile | May 21, 2008 | Feature | Business Services |  careers, recruitment, redundancy 

The pharmaceutical industry is currently in the midst of major restructuring, with many of the sector’s leading companies in the process of shedding jobs and making redundancies.

This can be a difficult time for everybody concerned, but if all sides know the correct procedures and follow them, the scope for unfair dismissal (and subsequent challenges) will be reduced.

For employers, one of the golden rules in making redundancies is to keep a full paper trail of the process. This can be a cumbersome task where large numbers are involved, but the alternative would be to have little or no documentation as evidence of the process, and in the event of a claim for unfair dismissal, this would make the case much harder to defend.

Redundancy: the basics

Redundancies are a form of dismissal and so once an employer has decided it needs to make redundancies, there are basic steps it must follow to avoid falling foul of the law that protects employees from being unfairly dismissed.

In summary, a redundancy dismissal could be unfair if the employer:

* Does not consult with individuals.

* Does not properly consider the selection pool from which the redundancies will be made.

* Makes the selection on unfair grounds.

* Doesn’t offer suitable alternative employment.

* Doesn’t follow a fair dismissal procedure.

Avoiding redundancy

Employers need to consider whether there are ways of avoiding redundancies, e.g. putting recruitment on hold, seeking voluntary redundancies, offering suitable alternative employment (including retraining), voluntary early retirement, short-term working and restricting overtime. Options may be discussed with those identified as being at risk of redundancy. However, the first step will be to identify the pool of employees from which those who are to be made redundant will be selected. This is not as straightforward as it sounds, because the employer needs to think more widely than simply to decide that a particular person is no longer required, unless that person performs a very unique role that is disappearing or obsolete.

Selection

Following dismissal, if an employee lodges an unfair dismissal claim, tribunals will consider the pool from which the redundancy selection was made when they assess the issue of fairness, and an initial consideration will be the application of the selection criteria. Employers should note that an otherwise fair selection criteria applied to the wrong group of employees could affect the fairness of a redundancy and therefore the dismissal.

If an employer simply dismisses an employee without first considering the question of a pool, the dismissal may be unfair but if the employer has genuinely considered the pool, it will be difficult for an employee to challenged the employer’s choice of pool. To help identify the pool, the employer might consider:

* Whether others are doing similar work to the group from which selections were made.

* If employees’ jobs are interchangeable, in which case a wider pool might be appropriate.

* Whether the selection pool was agreed with the union or employee representatives.

Selection criteria

Having considered the selection pool, the tribunal will then consider the criteria applied in selecting particular employees for redundancy. The selection criteria must be objective (selection on subjective grounds is likely to be unfair), and should not simply be personal opinions so should instead be verifiable, e.g. against attendance, performance and other personnel records. Potentially fair selection criteria include:

* Performance and ability on an individual basis. It is important to ensure that criteria are clearly defined from the outset and that performance and ability can be verified, ideally by written records held by the employer such as performance appraisals. Where there aren’t any such records, scoring should be done by more than one person so that subjectivity is minimised.

* Attendance record. However, employers needs to take care to ensure that where an employee’s absence is connected with a disability, pregnancy, maternity, or other family-friendly leave, the absence is discounted, i.e. does not count against the employee, otherwise the employer risks a discrimination claim.

* ‘Last In, First Out’: This was once frequently used but employers who use it risk claims of discrimination on grounds of sex against female employees, who may have taken time off to have children, or against newer, often younger employees, who may similarly have shorter periods of service and which may therefore amount to indirect age discrimination.

Discrimination

Redundancy selection criteria that discriminate directly on grounds of sex (including pregnancy), race, sexual orientation, religion or belief, disability or fixed-term or part-time status are likely to be deemed unfair by a tribunal (in addition to a finding of unlawful discrimination). Selection on the basis of age alone will be unlawful direct discrimination and it is unlikely that it will be possible to objectively justify selection on that basis.

Criteria that have an indirectly discriminatory effect are also likely to render dismissals unfair unless the employer is unable to demonstrate an objective justification for using such criteria.

Applying criteria fairly

If fair selection criteria are unfairly applied, the dismissal will be unfair. An example of this was where an employee with a near perfect attendance record awarded only 50% of the available points for attendance was held to have been unfairly dismissed.

The basic process

Once the employer has decided which employees are at risk of redundancy (i.e. the pool), they need to write to the employees to notify them that their job is at risk. Where the employer proposes to make 20 or more employees redundant within 90 days or less, it must consult with representatives of the affected employees and also notify the Department for Business, Enterprise and Regulatory Reform (DBERR).

Consultation will be on an individual basis and must begin in good time, with certain minimum time periods applying depending on the scale of the redundancies proposed: where 100 or more redundancies are proposed, consultation must begin at least 90 days before the first dismissal takes effect while for less than 100 redundancies, the consultation period is 30 days.

Once the employees who are to be made redundant have been selected, the employer needs to hold dismissal meetings and confirm the decision in writing, also providing the employee with the right of appeal.

Bumping

When a whole industry seems to be shedding staff, some employees may take the view that they would prefer to take a step down the career ladder to keep a job, than risk trying to get another job elsewhere. Employment tribunals have looked at whether the employer should consider this process, known as ‘bumping’.

This process can sometimes involve making one employee redundant, but then transferring an employee from their job (normally a higher paid one) into the vacant role.

Even in the less complicated scenario where a well-paid employee is offered a lower paid job with no incumbent, employers may wonder where they stand legally on effectively offering a choice between demotion and redundancy.

The short answer is that bumping is perfectly legitimate if procedures are followed correctly. And in fact not at least considering such a move could leave them open to a claim of unfair dismissal.

In one tribunal case, a senior editor in a publishing firm was selected for redundancy on the basis that he was the company’s most expensive employee. He lodged a claim for unfair dismissal and won, one of the reasons given by the tribunal being that his employer should have considered making a more junior employee redundant and offering their job to him, instead of simply assuming that he would be unwilling to accept the lower salary.

However, in another case it was found that a dismissal was not unfair where an employer had failed to consider dismissing a long serving junior employee in order to retain a more highly experienced senior employee.

The tribunal reached very different conclusions in these two cases, reflecting the importance of the particular details and context of each case.

But the message is nonetheless clear: employers should not simply assume that a senior employee will not accept a more junior post. Several factors will be relevant, including how different the jobs are, the actual difference in remuneration between them and the difference in length of service between the two employees.

Unfortunately, situations will need to be considered on a case by case basis and employers should ensure they obtain appropriate legal advice in each case.

Top 10 tips for executives facing restructuring

1. In most cases, an employee must have been employed for one year before they can claim unfair dismissal in an employment tribunal. However, there are six fair reasons to dismiss an employee including by reason of redundancy. The others are capability, conduct, that the employee could not continue without breaking a legal duty or restriction, retirement, or “some other substantial reason”.

For a dismissal for any of these reasons to be fair, the employer must at least follow a minimum dismissal procedure (the statutory disciplinary and dismissal procedure). If they fail to do so and the employee lodges a claim at an employment tribunal and wins, the tribunal can award an uplift in damages.

2. The employee should be notified that their post is at risk, and must have a consultation period to assess any alternatives to redundancy, (including considering suitable alternative employment). If no alternative is identified, the employee should be invited to a dismissal meeting at which they are entitled to be accompanied by either a colleague or a trade union representative. The employer should then confirm the dismissal in writing and that the employee has the right of appeal.

3. If 20 or more redundancies are being proposed in a 90 day period then collective consultation will be necessary and the employer must also notify the DBERR (formerly the DTI) of the proposed redundancies. There are set deadlines for them to do so. Where the number of redundancies triggers the need for collective consultation, employees will need to put forward representatives with whom the employer will consult on their behalf. Elections may be needed to select representatives, but employers must still consult with employees on an individual basis.

4. Questions often arise about what is ‘suitable alternative employment’ and each case has to be assessed individually but pay, job title, status, responsibility and location will all be relevant factors.

5. Where companies restructure, employees can often find themselves being offered a position which they don’t consider ‘suitable alternative employment’. But if an employee refuses an offer of suitable alternative employment made prior to the date when the redundancy takes effect (or within four weeks of that date) they will lose their entitlement to statutory redundancy pay if the refusal was unreasonable. When considering this issue, a subjective and an objective test must be applied. The question of the suitability of the alternative employment is objective but the question of whether an employee unreasonably refuses is subjective and each individual case must be considered on its particular circumstances.

6. The amount of statutory redundancy pay an employee receives is calculated on length of service, age and weekly pay, but the weekly pay is capped to £330 and the length of service is capped at twenty years. Some employees have enhanced redundancy clauses irrespective of length of service which are set out in their contracts or staff handbooks. Otherwise, an employee needs two years’ service with their employer to be eligible for statutory redundancy pay.

7. Employers may want an employee to sign a ‘compromise agreement’ when they are made redundant. This is a binding contract which records the terms of the agreement and payments to be made, in consideration for which the employee agrees to waive any potential claims. To be a legally binding document, the employee needs to obtain independent legal advice and employers will usually pay some or all of these legal costs.

8. Where an employee is made redundant, the first £30,000 is often paid free of tax and NI contributions, as it is deemed compensation for loss of employment. However, care is needed where the £30,000 exemption is claimed but the employment continues in another form, for example, if a director continues as a non-exec director or as a consultant, because HMRC may subsequently question the authenticity of the termination.

9. The law protects employees from being dismissed unfairly where the employer has automatically selected them for redundancy for a particular reason. Examples include a reason connected with pregnancy, maternity or parental/dependent care leave, or with certain health and safety reasons or because the employee has blown the whistle about the employer’s practice or breaches. In such situations, an employee does not need one year’s service to be able to claim that their dismissal was unfair.

10. If the employee considers that their redundancy is not genuine and that in fact they have been dismissed for a discriminatory reason, they first need to lodge a written grievance with the employer stating the allegations. The employer has 28 days to deal with their grievance issues before an employee can lodge a claim.

Finally, if you are an employee considering legal action, check your home contents or car insurance policies. If you are concerned your dismissal has been unfair or on discriminatory grounds, you may find your policy covers legal expenses for employment claims.

For advice on redundancy or any other employment law issue, contact Brigit Foster on 01865 811757 or email bfoster@darbys.co.uk .