Making Redundancies in the Third Sector

Mark Ellis, CEO, Ellis Whittam

With many organisations in the third sector facing the effects of the recession - even big names the likes of Shelter and the NSPCC have made job cuts - it is vital that third sector organisations understand their legal obligations if forced to downsize.

An October 2008 survey by the Charities Commission suggested that one in twelve of the charities which reported a decrease in donations said they had had to make redundancies as a direct result.

Crucially, third sector employers need to beware the legal requirements to achieve a fair redundancy. So, let's get back to basics…

What is Redundancy?

An employee is potentially redundant if:

You stop (or intend to stop) carrying on business for the purpose of which that employee is employed by you; or
You stop (or intend to stop) carrying on business at a place where the employee is employed; or
Your requirement for employees to carry out the type of work carried out by the employee either ceases or diminishes; or
Your requirement for employees to carry out the type of work carried on by that employee at the place where he is employed either ceases or diminishes

If your circumstances do not fit the above definition then the employee cannot be redundant.

Warn

Communication is key. Whilst the whole exercise is nasty and unpleasant for all involved, don't try to do it secretively. You should warn all those people that might be affected at the earliest opportunity that:

There is a possibility of redundancy and explain why
You will group employees in to a selection pool or pools and apply objective criteria to select those at risk
You will consult with those at risk - the purpose of the consultation being to discuss selection and to try to avoid redundancy dismissal
You will not know the outcome until the end of the procedure!

Pool

If compulsory redundancies are necessary you will need to establish a pool of employees from whom you might select those to be made redundant.

All or some of those within the pool may ultimately be made redundant. A pool of employees may be made up of those who work together at a particular site or who carry out the same type of work. Where a particular category of work is performed by employees in two or more departments, or in different grades, or on different shifts then you need to decide if a single selection pool exists or several pools.

In essence, you need to group employees doing the same or similar jobs in the same pool so that you can make a fair selection from it. Your aim is to avoid the argument - if sued by Tim - that if you had considered Fred then Tim would not have been dismissed!

You avoid that argument if either (1) Fred's job is not interchangeable / comparable with Tim's (i.e. there is no reason to place them in the same pool) or (2) by placing Fred in the same pool as Tim in the first place, comparing the two and then selecting Tim!

Care needs to be taken when assessing the makeup of the pools to ensure that groups are not made up of a disproportionate number of employees of one type, which might look like discrimination against that type. A good example of this would be a pool of part-time employees. Many part-time employees are women and a comparable pool of full-time employees may contain a larger proportion of men. In addition employees have a right not to be treated less favourably due to their part-time status.

Select

Once a pool has been established, the next step is to choose those at risk of redundancy. Back to the example, why Tim not Fred?

To do this you need to devise redundancy selection criteria which must be where possible objective, non-discriminatory and applied consistently across the pool. The criteria must contain a certain amount of objectivity. It is suggested that between 5 and 10 criteria are used.

The types of criteria which could be used for selecting an employee include skills, performance and attendance/disciplinary record. You are free to select the criteria that are important to your organisation - provided they are not discriminatory and that they are reasonably objective.

Gain agreement from the pool to the planned selection criteria and scoring.

Consult

Consultation with those employees at risk of redundancy is essential. Remember that the point of consultation is to discuss the possibility of redundancy with those selected as at risk from the pool - and to try to avoid redundancy dismissal if it is possible to do so.

Typically, having selected employees as at risk, consultation will involve at least two meetings at which selection scores and alternatives to avoid that person's dismissal are discussed.

If you fail to consult with employees and representatives where necessary, any redundancy made will almost certainly be unfair.

If you are planning to make 20 or more employees redundant in one place of work within a 90 day period, it will also be necessary to notify the Department for Business, Innovation & Skills (BIS) by letter or using form HR1. It will then be necessary to consult with workplace representatives which may either be trade union representatives or elected employee representatives if no trade union is recognised.

If you are required to consult with employees in this way, any consultation must start in good time and at least 30 days before the first redundancy where there are 20 to 99 proposed redundancies or 90 days in advance where there are 100 or more proposed redundancies. If you fail to carry out such collective consultation where necessary, affected employees may claim something called a protective award which requires an employer to pay remuneration for a period of up to 90 days to the individuals concerned.

Non Compulsory Redundancies

One option for employers facing the need to make redundancies is to offer voluntary redundancy as an option to staff. Great if it works for your organisation, however, as it tends to be long standing and more mature members of staff who volunteer, redundancy packages can be more expensive. In addition, you may be left with an imbalance in skills and experience in remaining staff.

Redundancy Payments

Currently, employees with two years' service who are dismissed by reason of redundancy are entitled to a statutory redundancy payment, unless they are less than 18. Remember that employees are also entitled to normal notice or termination too.

The amount of statutory redundancy payment is currently calculated by working back from the date of termination and allowing:

1.5 weeks' pay for each year of continuous employment in which the employee was aged 41 or above;
1 week's pay for each year of employment in which the employee was aged 22 to 40;
0.5 weeks' pay for each year of employment that the employee was aged 18 to 21.

The maximum number of years that can be reckoned is 20.

Following Redundancies

It good practice to consider providing assistance to employees made redundant. For example help to prepare CVs, help to make job applications and help with the tax and social security implications of any termination payments made.

Checklist

Is there a genuine redundancy situation?
Will there be 20 or more redundancies at one establishment within 90 days?
If so, determine the number of days consultation required; and
Complete form HR1 and submit to DTI and
Identify employee representatives
Discuss proposals with employee representatives and give sufficient time for the representatives to respond
Consider voluntary redundancy as an option
Is there a need for selection?
Define pools
Choose selection criteria
Agree planned selection criteria
Apply selection criteria
Individual consultation
Look at alternative work
Avoid discrimination - offer suitable vacancies to those on maternity or adoption leave. Look at offers of alternative employment with reasonable adjustments for disabled employees
Issue notice of termination
Counselling and assistance?
Redundancy payment and notice pay

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