Jane Green: Clear thinking needed on redundancy

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Arecent tribunal case provides a welcome reminder that “common sense and fairness” should be applied when implementing redundancy selection criteria.

But with changes to consultation periods just introduced (6 April) and further change on the horizon, common sense is not enough to navigate the maze of collective redundancy provisions, transfer of undertakings (TUPE) regulations and the City Code on Mergers and Takeovers.

In Mental Health Care (UK) Limited v Biluan the employer was criticised for using a series of competency tests, normally used for recruiting staff, as part of its redundancy selection procedure. This process was conducted by HR and involved a written test, an individual interview and a group exercise. None of the HR team had any experience of working with the individuals being assessed and they did not obtain assessments from managers who had worked with them.

Two employees brought successful unfair dismissal claims against the employer. The tribunal found that the employer’s “blind faith in process” had led to it losing touch with common sense and fairness. This case highlights that employers should be cautious when departing from a conventional approach based on objective criteria applied by managers with knowledge of the individuals at risk.

As well as this general obligation to act fairly when it comes to individual selection, where 20 or more job losses at one establishment are affected, an employer has an obligation to provide particular information and consult with employee representatives for at least 30 days on their proposals.

Where 100 or more jobs losses are proposed the minimum consultation period was 90 days but reduced to 45 days on April 6. Penalties of up to 90 days pay per head for non-compliance will remain unchanged. The process is further complicated where the redundancies are triggered by a business transfer or change of service provider where the TUPE Regulations apply to employees. Similar, but not identical, obligations apply to ensure both the outgoing and incoming employers inform affected employees about the transfer of employment and its implications.

Currently, an incoming employer must share its plans with the outgoing employer, who then advises its affected employees. The incoming employer cannot, however, safely rely on any consultation that takes place pre-transfer to defend unfair dismissal or non-compliance complaints later. Employees are told what is on the horizon, but no consultation will take place until after the transfer, when their new employer will effectively start again applying the collective redundancy process. Failure to follow the correct TUPE process can lead to penalties of up to 13 weeks’ pay per affected employee, in addition to any penalty for non-compliance with the collective redundancy rules.

The government plans to amend TUPE from October 2013 and is consulting on whether to require incoming employers to consult with employee representatives on collective redundancies before the transfer, in order to limit the process to one exercise.

There would be no requirement to facilitate that process on the part of the outgoing employer, who may find it disruptive. However, in some cases the change may offer a less cumbersome process, for example, where the incoming employer has no intention of operating the business in the locality and has no premises to which to transfer the employees. The government is also considering whether or not to allow an outgoing employer actually to dismiss employees as redundant on the basis of the incoming employer’s plans.

For listed companies, there are a number of additional obligations under the City Code on Takeovers and Mergers. In particular, the Code imposes an obligation to provide information and documents about the offer to the representatives of the employees of the bidder and the target company.

Employers contemplating redundancies must ensure they carefully consider how employees are selected, so required skills are retained. Where large scale lay-offs may be required, the interplay between the various legal provisions will need particular attention. With further changes due this year, a thorough understanding of the evolving landscape, and common sense, will go a long way towards avoiding costly mistakes.

• Jane Green is a partner and head of the employment & pensions team at Maclay Murray & Spens LLP