Top tips on avoiding costly mistakes when making redundancies

Redundancies are sometimes unavoidable, but getting it wrong can prove costly to businesses. Richard Allison takes a closer look

Many UK companies are being forced to slim down their costs in the current recession to remain competative and this often means having to lay off staff.

The poultry sector is no exception with one Norfolk turkey company announcing 130 job losses last month and Vion UK (Grampian Country Food Group) shedding 820 jobs.

While many larger companies have detailed procedures in place, some smaller firms do not and they risk being caught out by a costly claim for unfair dismissal. Last year saw 44,491 employers taken to employment tribunal for unfair dismissal with the average payout costing employers just under £8000.

Principally an employer must first write to the employee letting them know that they are at risk of redundancy, detailing the situation and inviting them to a meeting to discuss the matter further. After this, there should be a consultation period.

With redundancies of 20 people or more (collective redundancy), the consultation must include discussion with a recognised trade union, plus the Secretary of State must be notified 30 days before the first dismissal takes place. If there are more than 100 employees involved this period increases to 90 days.

Factors to be covered in the consultation dependon on the numbers of include the number and category of at-risk employees, the method and criteria of selecting affected people and the dismissal procedure. It should also cover how the payments will be calculated and consider any alternative measures to job losses.

In fact, it’s worth looking at alternatives when considering the high cost of making redundancies. The Chartered Institute of Personnel and Development (CIPD) recently estimated that each redundancy costs an average £16,000.

CIPD chief economist John Philpott says: “Businesses are under huge pressure right now and restructuring is a fact of economic life that can never be ruled out.

“But while making redundancies can seem one of the most straightforward ways of cutting costs, redundancy itself has its own hidden costs. These are due to the effects of job losses on survivor employees, such as higher staff turnover and reduced productivity.

Alternatives include freezing recruitment plans to avoid endangering existing jobs, pay freezes or cuts and pay deferral schemes. It is likely that employees will be happy to settle for job security rather than a pay rise, or even agree to cut hours.

With many manufacturers seeing reduced demand, reducing overtime or cutting hours is a straightforward way of cutting costs. Also nearly one-fifth of firms in the CIPD survey said they were making greater use of flexible working.

Secondments to other companies are an ideal way of increasing staff skills and retaining them, while reducing costs. Moving staff from quieter areas of the businesses to cover needs elsewhere can help keep staff motivated and save on recruitment costs.

If there are no viable alternatives, then the employer should write to the employee again inviting them to a further meeting, confirming that the decision has been made to make their position redundant.

Employers should let the employee know that they are entitled to have a representative with them at the meeting that can either be a work colleague or trade union representative.

Then the employer should hold a meeting with the employee and notify them of the decision reached, allowing time for an adjournment. The decision from the meeting should always then be communicated to the employee by letter and it should also inform them of their right of appeal. If the employee wishes to appeal, an appeal meeting should be arranged.

Remain objective and ensure that a fair selection criteria is used when deciding which employees will be made redundant, says David Green of MTA Solicitors. It is not recommended to use “last in first out” and it is important to note that part-time employees have the same statutory rights and protection as full time employees.

For example, use a points based system to work out general performance and what each individual brings to the business. Employers should look back over the annual reviews, attendance and disciplinary record. This will ensure that the selection for redundancy is objective and fair and in accordance with the criteria set.

One factor often overlooked in the whole process is the impact it has on survivor employees and one good tip, is to keep employees up-to-date and in the picture, giving as much warning as possible, advises MTA Solicitors.

“Keeping employees involved prevents rumours from spreading across the work force and a low staff morale.”

Avoid the drip-drip effect. For employee morale it is far better to announce redundancies in one swoop than to constantly revisit such uncertainty.

“Remember, remaining employees will remember how well or how badly you treated your staff,” he says.

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