In times of economic turmoil, redundancies are seldom far away. Against the backdrop of the cost-of-living crisis, unease in the financial markets resulting from political uncertainty and the continuing legacy of the Covid-19 pandemic, many companies are making cutbacks and having to find efficiencies in order to survive.
When an employer proposes to dismiss 20 or more employees at one establishment by reason of redundancy within a period of 90 days or less, it triggers an obligation for that employer to inform and consult collectively with all affected employees. But what are the key considerations for employers in these circumstances? Contrary to the perception of many, a collective consultation redundancy doesn’t have to be complicated or something to fear! Here are five top tips.
Where a trade union is recognised, that union must be consulted.
Otherwise, the collective consultation duty means that the employer must consult with “employee representatives”, who are simply individual employees within the group of potentially redundant staff members who have been chosen by their colleagues to represent the wider group in discussions with the employer.
Consultation in these circumstances cannot start until representatives are chosen, so typically the employer will ask for volunteers to act as employee representatives and an election might be required to decide who is appointed.
The number of employee representatives is a decision for the employer, but it should ensure sufficient representatives to represent the interests of all affected employees, having regard to the number and classes of those employees. For example, where 30 employees of a retailer are at risk of redundancy and the affected workforce includes 20 sales assistants, 5 stockroom staff and 5 people in accounts, the employer should consider whether to have representatives for each of these three teams or whether to have a representative (or several representatives) for the entire affected workforce.
No affected employee should be unreasonably excluded for standing for election, and all affected employees are entitled to vote, and to vote for as many candidates as there are representatives to be elected (in relation to each employee’s class of employee). Voting should be conducted in secret wherever possible.
Where collective consultation obligations apply, the employer must also formally notify the Secretary of State for the Department of Business, Enterprise and Industrial Strategy (“BEIS”) of the potential redundancies. The notification is effected by submitting a Form HR1 to BEIS.
Unlike when consulting with potentially redundant employees on an individual basis, a collective redundancy is subject to specific statutory rules on how long the consultation process must last. In effect, these rules prevent any dismissals from taking place for a fixed number of days from the start of the collective consultation process (i.e. when the Form HR1 is completed and sent to BEIS and the employee representatives). Where 20 – 99 employees are at risk of redundancy, collective consultation must begin at least 30 days before any dismissals take effect. Where 100 or more employees are at risk, this period increases to 45 days.
Your obligations don’t end once you have consulted with the employee representatives. Where an employee has at least two years’ continuous employment they enjoy the statutory protection against unfair dismissal, which means that you are obliged to warn and consult with such employees on an individual basis as well. Even if there are employees with under two years’ service a company might want to consult with them individually anyway, depending on the circumstances.
One-to-one consultation usually means that the employer must meet with each person to discuss their potential redundancy, give them a fair and proper opportunity to fully understand the reasons for their potential redundancy and to express their views. The employer must also properly and genuinely consider each employees’ comments before reaching a final decision as to whether to dismiss them.
Finally, the employer is under a duty to look for suitable alternative employment for each potentially redundant employee to avoid their dismissal. However, there is no obligation to guarantee alternative employment, providing the employer has genuinely considered whether any appropriate roles exist and has given each affected employee the opportunity to apply for such role(s). Different rules may apply to those who are pregnant or on maternity leave.
The individual and collective consultation processes are separate obligations, however typically where an employer consults collectively with the affected workforce, the individual consultation process will be more streamlined and focused on individual redundancy terms (e.g., the relevant financial payments and notice entitlement due to each individual) and any suitable alternative roles. This is because many issues relating to the redundancy will already have been raised by the employee representatives and dealt with by the employer by the time individual consultation takes place.
As set out above, the legal obligation to consult on an individual basis only applies to employees with two years’ service or more.
However, the obligation to consult collectively applies to all affected employees, whatever their length of service. Any employees who are dismissed by reason of redundancy without taking part in the collective consultation process may have a potential claim against the employee (albeit not a claim for unfair dismissal). This potential liability is dealt with in more detail at 5 below.
Sometimes employers choose not to comply with the obligation to collectively consult. A well-publicised example was the decision in March 2022 by P&O Ferries to dismiss 800 of its employees without notice and without any consultation at all.
The specific potential benefits and disadvantages of opting not to collectively consult are outside the scope of this article, partly because they can vary hugely depending on the relevant circumstances.
However, a failure to consult collectively where the obligation applies (or a breach of the rules around the election of employee representatives) may result in claims by affected employees in the Employment Tribunal. The Tribunal has the power to award a “protective award” of up to 90 days’ pay per affected employee against the employer. Any such employees with more than two years’ service may also have a claim for unfair dismissal against their employer.
A failure to give the proper notification to BEIS is a criminal offence, and an employer convicted for an offence of this kind will be liable on summary conviction to a potentially unlimited fine. Individual company directors of the employer may also be personally liable for prosecution.
As such, the consequences for an employer who flouts their collective consultation (or BEIS notification) obligations can be severe, and depending on the size of the workforce the cost can be significant, potentially running into tens or hundreds of thousands of pounds.
In the case of P&O, the company was able to reduce the risk of claims from its outgoing employees by making offers of financial settlement to each affected employee which were equal to (or in excess of) any potential award each individual could hope to recover in the Tribunal. In this way, P&O, whilst still needing to spend significant sums of money in making payments to affected staff, was able to circumvent the management time (and uncertainty) which a full consultation process would have involved.
In August 2022, the Insolvency Service (who had been asked to conduct an investigation into P&O’s alleged breach of its duty to notify BEIS) confirmed that there was no realistic prospect of a conviction in relation to P&O’s failure to notify BEIS, and as such it will not be prosecuting the company in this regard. This will no doubt signal to employers who can afford to enter into settlement agreements with each affected employee that by doing so they could (on the facts of each particular redundancy situation) avoid not only their financial obligations to each employee, but any potential criminal liability as well.
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