Many of you will have read or heard about the recent announcement that BAE Systems is proposing to close down its Portsmouth-based shipbuilding operations, with the loss of more than 900 jobs.  These large-scale business closures often hit the headlines.  After all, their impact is felt not only by the staff members themselves, but also on the community as a whole.

West Sussex has been rocked by similar news over the last few weeks.  Novartis, the global pharmaceutical giant, has announced proposals to close its Horsham site, having ‘down-sized’ its operations over the last few years.  Reports suggest that as many as 371 local jobs are at risk.  When a situation of this nature arises, what legal principles apply and what should employees be looking out for?

Is this just a ‘proposal’ or something more?

The decision to close a business (or part of a business) is rarely taken lightly.  It requires careful thought and forward-planning.  Normally an employer will only ‘go public’ with its intentions once it is fairly clear about what it intends to do.  Even then, employers will normally take great care in what they say, to ensure that their ‘message’ is carefully controlled

No well-advised employer will start by telling staff that they are definitely going to be made redundant.  Instead, the employer will employ the use of words such as “proposed” and “potential” when describing the redundancy situation.  This is intended to emphasise the fact that no final decisions have yet been made and there is still the prospect that their plans will change.  Admittedly, it can often feel like this is mere ‘window dressing’, but it is important to bear these words in mind when assessing the employer’s position.

What about consultation?

No dismissal by reason of redundancy should be confirmed without the employer first undertaking a proper consultation process.

Collective consultation

If a business intends to make 20 or more people redundant within a 3-month period, then an obligation to collectively consult arises.  In a nutshell, this means that the business should:

• allow affected employees to elect employee representatives;

• provide the employee representatives with key information regarding the proposed redundancies; and

• consult with the employee representatives regarding the redundancies with a view to reaching agreement on measures to:

• avoid the redundancies;
• reduce the number of redundancies; and
• mitigate the consequences of the redundancies.

During the consultation process, everything should be up for grabs, including the question of whether the redundancies should proceed at all.  The two sides are highly unlikely to agree on the need for and the number of redundancies.  Even after discussions, they may still be poles apart.  But that should not discourage employees and their representatives from pressing these issues and making their case.

As regards the ‘mitigation of the consequences of the redundancies’, this often boils down to money.  It is always worth exploring whether the employer is prepared to offer an enhanced financial package to the redundant employees.  If they are, what are the terms and can they be improved any further?

A couple of other points to note:

• The consultation process should last no less than 30 days where 20 to 99 redundancies are proposed, and no less than 45 days where 100 or more redundancies are proposed; and

• If an employer fails properly to collectively consult with its staff, then each employee can claim an award of up to 13 weeks’ pay.  So the stakes can be quite when you are talking about tens or even hundreds of redundancies.

Individual consultation

In addition to the collective consultation process, employers are obliged to consult individually with each affected employee.  This will typically take the form of a series of letters and meetings.  The employer will explain how the redundancy situation affects the individual employee.  The employee should have the chance to voice his or her own thoughts on the situation.  Crucially, the parties should discuss whether there is any way of avoiding the employee’s dismissal by reason of redundancy (e.g. by identifying other employment opportunities).  Employees, as well as employers, should give this particular issue very careful thought.

Redundancy entitlements

If, despite people’s best efforts, the employer decides to make staff redundant, what is the ‘redundancy package’ going to look like?

Contractual rights

The first thing to consider is the terms of the employment contract.  In particular, how much notice does the employer have to give?  It is likely to be a minimum of one week for each year of service.  However, longer notice periods of 3 to 6 months (or even more) may apply in some cases.

When an employer formally notifies an employee that their employment will be terminating, the employer will be obliged to give the agreed period of notice or make a payment in lieu of notice.  When checking that a payment in lieu of notice is correct, it is important to understand whether it includes ‘compensation’ for pay and benefits or just pay.

In addition to notice monies, employers will normally pay to their employees a sum in lieu of any accrued but untaken holiday entitlement.  In the right circumstances, this can be worth quite a lot of money.

Statutory and enhanced redundancy payments

Employees with at least 2 years’ continuous service are entitled to receive a statutory redundancy payment.  This is calculated according to a statutory formula and takes account of an employee’s age, length of service and gross weekly wage.  However, it is important to bear in mind that the ‘weekly wage’, for these purposes, is capped at a maximum of £450.

Sometimes, employers will provide an enhanced redundancy payment that is worth more than the statutory entitlement.  Precisely what enhancement an employer chooses to offer is often down to them.  But this is something that is frequently negotiated as part of the collective consultation process.

Anything else?

It is worth considering whether, as part of the redundancy consultation process, the employer can be persuaded to provide any other payments or benefits that will make the employees’ lives easier.  They need not be solely financial.  For example, what about ‘outplacement support’, to help employees find new work?  This is commonly provided to redundant staff as part of a redundancy package and can provide very valuable assistance.

Settlement agreements

Where an employer offers its staff an enhanced redundancy package, they may make it conditional on the employee signing a ‘settlement agreement’ (formerly called a ‘compromise agreement’).  The settlement agreement will, as its name suggests, settle any claims that the employee has against his or her employer.

Employees are required to take independent legal advice on settlement agreements before they can become binding.  This ensures that they understand what they are agreeing to and why.  The employer will normally contribute towards the cost of the legal advice that the employee is required to take.

Want to know more?

At stevensdrake, we understand how upsetting it can be when you find yourself at risk of redundancy.  It can all seem very confusing and it can be hard to work out what to do for the best.  If you are in this situation and need further information or advice, please contact James Willis, our Head of Employment, on 01293 596931.