Monday, 1 December 2008

Shutting up shop - how to get redundancy right

With the news this week Woolworths has gone into administration, it is inevitable that the New Year will see a number of store closures, and the accompanying redundancies. With this in mind, set out below is a brief overview of the redundancy process.

1) What is redundancy?
This is when an employer dismisses an employee because it will be closing down the employee's work place 9as in this scenario) but it will also apply where an employer will not be carrying on the part of the business in which the employee works, or it needs fewer employees to do that type of work.

Redundancy is a potentially fair reason for dismissal. But, unless the employer follows a proper procedure in a genuine redundancy situation, there is a risk the dismissal will be found unfair. In the event that an employee is successful in an unfair dismissal claim, they could be awarded up to £63,000 (£66,200 for dismissals after 1 February 2009). Store closures which involve making 20 or more employees redundant within a period of 90 days or less, require an employer to follow a collective consultation procedure in addition to consulting individually with employees.

2) When is a redundancy dismissal fair?
There must be a genuine redundancy situation and a fair selection process. There must be appropriate warning and consultation, a fair selection process and consideration must be given to suitable alternative employment for the employees in question. For retailers this could mean offering to move an employee from shop floor to warehouse (or vice versa) or to another store.

3)What is the process for collective redundancies?
A collective redundancy situation arises where an employer proposes to make redundant 20 or more employees at one establishment within a period of 90 days or less. An employer must consult with appropriate representatives at least 90 days before the dismissals take effect if 100 or more employees are to be made redundant, or otherwise at least 30 days before.
The consultation process must include consultation about ways of avoiding the dismissals and of mitigating the consequences of the dismissals. The employer must disclose in writing to the representatives certain information including the reasons for the proposals, the number and description of employees to be made redundant, and the method of selection. Failure to consult adequately or at all can lead to an Employment Tribunal making a protective award (of up to 90 days' pay per employee).
An employer contemplating closing a store may well find that it is caught by the collective redundancy regime, and it is therefore important to allow a sufficient period of time to carry out the consultation process before the firm dismissal takes effect.

The Fashionista says that since the purpose of a redundancy programme is to reduce costs, it makes good financial sense for employers to get specialist advice upfront when considering a store closure to ensure they get the process right and minimise the risk of expensive and time consuming Tribunal claims and possible damages awards.