Collective Redundancy What Musk employers do to comply

One of Elon Musk's first decisions as Twitter's new owner has been to cut the company's global workforce. It has been reported in the press that UK employees who face redundancy were asked to nominate employee representatives earlier this month in advance of a consultation process.

So what does the UK's redundancy regime require employers to do when they are making a large number of employees redundant? This briefing sets out the key considerations for employers when contemplating a collective redundancy exercise.

Is there a genuine "redundancy" situation?

An employer must show that there is a genuine redundancy situation. This will happen when there is a reduced need for employees to carry out certain work or where the business or the employee's workplace is closed down.

What is a "collective redundancy"?

Assuming that there is a genuine redundancy situation, collective redundancy is where an employer proposes to dismiss (by way of redundancy) 20 or more employees at one establishment within a period of 90 days or less.

But what's "one establishment"? One establishment is a local unit where the dismissed workers carried out their duties. This can sometimes be clear - for a national retail company, this may be individual shops for example. However, unfortunately, it is not always straightforward and some employers will need to consider this question carefully or seek advice.

What are an employer's obligations on a collective redundancy?

• Consultation requirements

Employers must consult with the appropriate representatives of the affected employees, such as a recognised trade union or appointed/elected representatives – this appears to be happening at Twitter. The statutory process requires the employer to approach the consultation with an open mind and genuinely try to reach an agreement, not just pay lip service to the requirements. The goal of the consultation should be to avoid or reduce dismissals and mitigate their consequences.

Another issue employers face is when they want to make redundancies quickly, often because of financial pressures. However, there are specific requirements for when the consultation must begin by: in most cases this will be at least 30 days before the first dismissal takes effect but where there are 100 or more dismissals at one establishment, the consultation must happen at least 45 days before the first dismissal.

• Notice requirements

An employer is also required to notify the Secretary of State for Business, Energy & Industrial Strategy that it is planning to make collective redundancies, on a form HR1. Usually this must be done at least 30 days before the first dismissal takes effect. However, just like the consultation requirements, when there are 100 or more employees notice must be given at least 45 days before the first dismissal.

Failure to do this is a criminal offence punishable by a fine.

• Redundancy payments

Employees with at least two years' service who are made redundant are entitled to a statutory redundancy payment, calculated on the basis of their age, salary and length of service. This is subject to a statutory limit which is currently £17,130. Some employers have contractual redundancy policies which provide for greater compensation payments on redundancy.

What are the risks for employers if they do not carry out the collective redundancy exercise properly?

As well as the potential reputational damage, failure to follow a collective redundancy process properly can be expensive for an employer for the following reasons:

• Protective awards

An employee can bring a claim if their employer fails to comply with the notification and consultation obligations for collective redundancy. A successful claim can result in the employer being ordered to pay an award of up to 90 days' gross pay per dismissed employee – this is known as a protective award. The 90 days gross pay is not subject to the statutory week's pay limit which applies to statutory redundancy payments. Ignoring the consultation requirements can be expensive, especially where dismissed employees have high salaries.

• Unfair dismissal /discrimination claim

In addition to protective awards, if (for example) the redundancy selection process is unfair or possibly discriminatory, an employee may bring an unfair dismissal or discrimination claim. If the employee's claim is successful, the employer may have to make a compensatory award to the employee. While in the vast majority of unfair dismissal cases these compensatory awards are subject to a statutory limit, in cases of discrimination they are uncapped.

If you would like more information about collective redundancies, please contact Crowley Woodford.

Authors: Crowley Woodford, Partner; Ella Stokes, Junior Associate