Legal Legal Advice

Redundancy: how to avoid an unfair dismissal claim

7 Oct 2022
The prospect of making redundancies is one that fills most small business owners with dread, and not without good reason. Small business owners quite naturally feel a duty of care and a sense of moral obligation towards members of the team with whom they have most likely spent several years working closely. However, yielding to the temptation to postpone a restructuring process can spell disaster for small businesses. And the sooner the nettle is grasped, the less drastic the redundancy process needs to be.

How do you make someone redundant?

There are three key grounds on which a fair redundancy process can be based: economic, technical and organisational. These broad categories allow the employer considerable scope for justifying a redundancy process. For example, the loss of a major client would constitute a reasonable economic justification, the introduction of a new piece of machinery or software might decrease the number of man-hours involved in a process and constitute good technical grounds or merging two departments with overlapping responsibilities would constitute sensible organisational grounds for redundancy.  

Small business owners need to follow the correct process to avoid unfair dismissal claims

Whatever the reason, it is important that the correct process is followed and due consideration is given to alternatives to redundancy and who else in the organisation might be affected before a final decision is made. Typically, the process involves an initial discussion or letter, followed by two formal meetings separated by a consultation period of perhaps a week. The purpose of the first meeting is to make the employee aware that redundancy is being considered and the reasons that a redundancy situation exists. The employer has a duty to make the employee aware of any other roles that are available within the organisation (even if it is highly unlikely that the employee would consider taking them), and consider any other options that might avoid the situation. In addition to providing time for both parties to reflect on alternatives to redundancy, the consultation period plays a key role in taking the heat out of what can be at times an emotional and difficult process. When both parties reconvene for the second meeting, it is quite often the case that the discussion is both rational and constructive (even if the first meeting was the exact opposite).

How to calculate redundancy pay

If no acceptable alternative to redundancy can be identified, then the employer is within his or her rights to dismiss the employee on the grounds cited above. The employee is likely to be entitled to statutory redundancy pay and contractual and/or statutory redundancy notice (our Redundancy Pay Calculator does this for you). Many employers also choose to top up the statutory minimum if they are in a financial position to do so. It is well worth getting good advice when going through this process, as the penalties for making a mess of the process can be costly both in terms of costs and time if the process goes to an employment tribunal. It is also often possible take advantage of certain tax breaks that apply to the redundancy process and de-risk the process further by using a compromise agreement to encourage the employee to explicitly agree that they have been treated properly, waiving all rights to a subsequent unfair dismissal claim. Our fixed fee HR hotline allows our customers to access employment solicitors at every point of the process, meaning that the process can be dealt with efficiently and correctly with the lowest possible chance of a subsequent unfair dismissal claim. By the way, if you haven't had a quote from an accountant recently, why not drop in to our London head office or try our Instant Accounting Quote?