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Labor and employment law challenges in business transformations

United Kingdom

Workforce restructuring

The key practical issues in workforce restructuring include:

  • Legal justification
  • Works council and employee representatives’ process
  • Labor administration process
  • Costs and timing
  • Litigation risk

Applicable legislation

Collective redundancy in the United Kingdom is governed by the Trade Union and Labour Relations (Consolidation) Act 1992 (TULCRA).

An employer proposing to dismiss, as redundant, 20 or more employees at an establishment (defined by the courts as the entity or unit to which the employees are assigned to carry out their duties) within a period of 90 days or less would trigger the requirement to collectively consult.

As well as being required to collectively consult, an employer will also have to undertake individual consultation with each of the individual employees who it is proposing to dismiss as redundant pursuant to the Employment Rights Act 1996.

Required legal justification

As part of the collective consultation process, the employer must provide legally justifiable reasons for the proposed dismissals, e.g., closure of a factory.

There is conflicting case law on the issue of whether or not the employer is required to consult on the underlying business reasons or rationale for the redundancies, e.g., why the factory is closing and whether there are any alternatives to the closure.

Works council/unions or other employee consultation requirements

Consultation requirements with works council/unions

The employer must inform and consult appropriate representatives of the affected employees. “Appropriate representatives” are the following:

  • If the employer recognises an independent trade union in relation to the affected employees, then “appropriate representatives” will be representatives of the trade union
    Or
  • In any other case, whichever of the following employee representatives the employer chooses:
    • Employee representatives appointed or elected by the affected employees, otherwise than for the purposes of the current collective consultation, who have authority from those employees to receive information and to be consulted about the proposed dismissals on their behalf
      Or
    • Employee representatives elected by the affected employees, for the current consultation process

The employer must provide to the appropriate representatives of the affected employees at least the following information in writing:

  • Reasons for the proposed dismissals
  • Numbers and descriptions of employees who are proposed to be dismissed as redundant
  • Total number of employees of any such description employed by the employer at the establishment in question
  • Proposed method of selecting employees who may be dismissed
  • Proposed method of carrying out the dismissals, with due regard to any agreed procedure, including the period over which the dismissals are to take effect
  • If the employer is intending to voluntarily pay redundancy payments over and above the statutory redundancy payment, the proposed method of calculating the amount of any redundancy payments to be made to employees who may be dismissed
  • Certain required information about the employer’s use of agency workers and
  • Notification (the Form HR1) provided to the Secretary of State of the fact that the employer is proposing to make redundancies

The information must be in writing and must be delivered to the appropriate representatives individually, mailed to the address provided to the employer by the appropriate representatives or, where the appropriate representatives are trade union representatives, mailed to the trade union’s head or main office.

There is no specified time by when the information must be provided. However, the provision of information is required before the consultation process can commence.

After this information is provided, the employer is required to undertake consultation with the appropriate representatives of the affected employees, with a view to reaching agreement, on ways to do the following:

  • Avoid the dismissals
  • Reduce the number of employees to be dismissed
  • Mitigate the consequences of the dismissals

Consultation requirements with other employee representatives

See “Consultation requirements with works council/unions” for more information on information and consultation requirements with “appropriate representatives.”

Consultation requirements with employees

As well as being required to collectively consult, an employer will also have to undertake individual consultation with each of the individual employees who it is proposing to dismiss as redundant. Individual consultation will not satisfy the requirement to collectively consult with the appropriate representatives of the affected employees.

There are no express legal barriers to open communication with employees on a collective redundancy. However, it is recommended that the employer and the appropriate representatives should seek to agree on a procedure in this regard, including provision for individual meetings (in order to undertake individual consultation) as well as collective consultation.

Approval/notification of the labor authorities or other government authorities

Approval of the labor authorities or other government authorities are not required to dismiss any employees; however, an employer that is proposing to make redundancies must notify the Secretary of State using Form HR1 by providing the following information:

  • Employer’s details
  • Employer’s contact details
  • Establishment where redundancies are proposed
  • Timing of redundancies
  • Method of selection for redundancy
  • Number of redundancies at the establishment
  • Nature of the employer’s main business
  • Whether the establishment will be closed
  • Reasons for the redundancies
  • Information on the consultation process

Form HR1 must be received by the Secretary of State at least:

  • 30 days before the first dismissal takes effect when the employer is proposing to dismiss as redundant between 20 and 99 employees at an establishment within a period of 90 days or less
    Or
  • 45 days before the first dismissal takes effect, when the employer is proposing to dismiss as redundant 100 or more employees at an establishment within a period of 90 days or less

Form HR1 must be delivered or sent by post to the address notified by the Secretary of State. The form is not required if the proposal is to dismiss as redundant 19 or less employees at one establishment.

Employee selection criteria

The employer must undertake a fair selection process in order to determine which employees are to be made redundant. The selection criteria must be objective and capable of independent verification. Unless there is a collectively agreed or customary selection pool/criteria, the employer has a degree of flexibility as to how selection takes place — provided such selection takes place in a fair way and is capable of independent verification. If possible the selection pool/criteria should be agreed upon with the employee representatives or trade union.

Potentially fair selection criteria include:

  • Performance and ability
  • Years of service
  • Attendance records
  • Disciplinary records

There is no special protection afforded to certain employees. However, the employer must implement the selection process without any discrimination.

An employee’s dismissal will be automatically unfair if they are selected for redundancy on a number of grounds, including pregnancy, maternity leave or their status as an employee representative.

In the event that employees on maternity leave are selected for redundancy, they will be afforded certain preferential rights to be automatically offered a suitable alternative vacancy (where one is available).

Actions required to limit the negative impact and social plan

The employer is required to consult with the appropriate representatives of the affected employees with a view to reaching agreement on ways to do the following:

  • Avoid the dismissals
  • Reduce the number of employees to be dismissed
  • Mitigate the consequences of the dismissals

However, there is no obligation to reach an agreement and the employer is not necessarily required to take any action as a result of this consultation.

Individual consultation should also take place with affected employees over the reasons for the proposed redundancies, the selection criteria to be applied and its application to that employee, and the existence of suitable alternative employment.

Internal alternative employment/redeployment

The dismissal of an employee for redundancy may be unfair if the employer fails to undertake a reasonable search for suitable alternative employment.

Other measures

No other external measures are required.

Estimated timeline

The time taken to prepare for a collective redundancy process will depend upon both the nature of the workforce and the nature of the redundancies to be proposed. It could range from a number of weeks to a number of months.

There is no prescribed legal timeline in the legislation for either an individual or a collective redundancy process. However, the consultation process must begin in “good time” (with a view to reaching agreement either with the individual or with the appropriate representatives). For an individual process the timing need only be reasonable in the circumstances. For a collective process, the consultation must start no later than:

  • 30 days before the first dismissal takes effect when the employer is proposing to dismiss as redundant between 20 and 99 employees at an establishment within a period of 90 days or less
    Or
  • 45 days before the first dismissal takes effect, when the employer is proposing to dismiss as redundant 100 or more employees at an establishment within a period of 90 days or less

The legal timeline required will depend on various factors and all of the circumstances and is fact-specific. For example, the approach and expected time taken for a consultation process will depend on whether trade union representation is present. The presence of trade union representation can significantly increase the amount of time required for consultation and can make individual consultation more difficult. If there are no appropriate representatives already in place for the affected employees, an election process will be required and this will further increase the time required.

Estimated costs

Mandatory costs

The employer is required to pay statutory redundancy compensation to employees with two years’ continuous employment, calculated using the following formula:

  • One and a half weeks’ pay for each complete year of service in which the employee was aged 41 or over at the beginning of the year
  • One week’s pay for each complete year of service in which the employee was aged 22-40 at the beginning of the year
  • Half a week’s pay for each complete year of service in which the employee was under the age of 22 for any part of the year

A week’s pay for the purposes of the above calculation is capped.

In addition to this, the employer will be required to give (or pay in lieu where applicable) statutory notice of:

  • One week for employees with at least one month but less than two years’ service
  • One week for each year’s service (up to a maximum of 12 weeks) for employees with at least two years’ service.

Customary additional costs

There may be customary additional HR legal costs associated with redundancies if the employees have a right (whether contractual, implied or through custom and practice) to a longer notice period or enhanced redundancy compensation.

The employer may also provide (in addition to what the employees are entitled to) additional notice, redundancy compensation or some other payment on the condition that employees sign settlement agreements in which they waive claims they may have against the employer. However, such a settlement agreement cannot waive claims for failing to inform and consult.

It is also common for outplacement support to be provided to redundant employees.

Additionally, the consultation process would also incur HR legal costs.

Legal costs may also arise if the employer chooses to seek legal advice, which is recommended.

Hiring restrictions post-redundancy

There are no legislative barriers restricting hiring after implementation of a collective redundancy. However, rehiring immediately following a collective redundancy may indicate that the employer did not undertake a reasonable search for alternative employment for the employees dismissed as redundant, which could potentially lead to the employee’s dismissal being found to be unfair. It could also potentially undermine the original grounds or rationale for the redundancy reason being relied on.

Litigation risk

Interested parties

Once the process is over, the following interested parties can bring lawsuits related to the redundancy process:

  • Unions/other representatives: A claim for failing to inform and consult in accordance with Trade Union and Labour Relations (Consolidation) Act 1992 (TULCRA) must be brought in the Employment Tribunal before the last of the proposed dismissals takes effect or within the period of three months starting with the day on which the last dismissal occurs.

    There are restrictions as to who can bring a claim for failing to inform and consult:
    • A claim of a failure to inform and consult a recognized trade union can only be brought by the trade union.
    • A claim of failure to inform and consult other appropriate representatives can only be brought by one or more of the representatives to whom the failure relates.
    • A claim relating to a failure to arrange an election of employee representatives or to comply with the rules on elections can be brought by any affected employee or any of the employees who has been dismissed as redundant.
    • In any other case (i.e., in any other circumstance of failure to inform and consult), a claim may be brought by any of the affected employees or any employee who has been dismissed as redundant.
  • Impacted employees: can claim for unfair dismissal on the following grounds:
    • If the impacted employees are not individually consulted or the consultation process was generally unfair
    • If the impacted employees were selected for redundancy for an unfair reason
    • If the impacted employees were selected for redundancy for any discriminatory reason
    The right to bring a claim for unfair dismissal is available to employees who have been dismissed (provided that they are an employee and qualify to bring such a claim by virtue of having two years’ continuous service or through the circumstances of their dismissal, meaning that the two-year qualifying period does not apply). Broadly, the employee must bring a claim for unfair dismissal within a period of three months starting with the effective date of termination.

Litigation cannot stop or slow down the collective redundancy process as all the potential claims would arise following the completion of the collective redundancy process.

Damages and other remedies

Litigation could lead to two types of remedies, as well as criminal sanctions.

Damages for unfair dismissal

A successful claim for unfair dismissal could result in a basic award of:

  • One and a half weeks’ pay (capped) for each year of employment in which the employee was aged 41 or over at the beginning of the year
  • One week’s pay (capped) for each year of employment in which the employee was aged 22-40 at the beginning of the year
  • Half a week’s pay (capped) for each year of employment in which the employee was under the age of 22 for any part of the year

The basic award is not payable where a statutory redundancy payment has already been paid.

A compensatory award (which in some circumstances may be capped) and an additional award may also be made (and will be made where an order for reinstatement is made and the employer refuses to comply with such an order).

The court may also order a protective award of up to 90 days’ gross pay (which is uncapped) in respect of each employee for failure to inform and consult.

Compensation awarded for dismissals based on discriminatory grounds is uncapped.

Reinstatement

The court may also make an order for reinstatement or re-engagement. An additional award will be made where an order for reinstatement is made and the employer refuses to comply with such an order.

Criminal sanctions

Failure to provide the appropriate notification to the Secretary of State, as set out above, is a criminal offense and the employer may be subject to a criminal conviction and a fine. Directors, managers or officers of the employer may also be liable.

It is a criminal offense if the employer fails to provide a written statement showing how a redundancy payment has been calculated. The penalty for this offense is a fine.

Country-specific issues

No other key legal issues particular to the United Kingdom apply except to restate that both collective and individual consultation can occur at the same time, depending on the numbers involved.

Contact

Primary Contact for United Kingdom Labor and Employment Law

Justin Roberts
Ernst & Young LLP
+44 20 7806 9317

Global Labor and Employment Law Guide
Workforce restructuring
2016-07-01
United Kingdom
GB

Contacts