Making redundancies

Employment law specialist, David Hacker, answers a question on redundancy in the 'Ask the Expert' feature in the January issue of South East Business Magazine.

We are a small company that has been struggling for some time and unfortunately we need to make a couple of redundancies, do we need to give employees the option to take voluntary redundancy first?

The simple answer is no you do not although there are reasons why you may decide that it may be a good idea to do so. Redundancies obviously create a lot of uncertainty and can have a negative effect on morale. By consulting with employees and explaining the situation that is facing the company and asking for volunteers there is perhaps more scope for ensuring that the people who no longer wish to be employed at the company take the voluntary redundancy package.

The other advantage of voluntary redundancy is that the company does not then have to engage in a competitive scoring process whereby anyone who is potentially affected by the redundancy has to be rated against their colleagues, potentially further affecting morale.

If you are offering a voluntary redundancy scheme then you may need to offer a financial enhancement above the normal statutory terms. As you may be aware in a redundancy situation an employee is entitled to their notice pay, any accrued but untaken holiday and a statutory redundancy payment based on age, length of service and weekly salary. Employers generally offer an enhancement over what an employee would receive on a compulsory redundancy basis as an incentive in a voluntary situation.

The potential downside of a voluntary redundancy scheme however, is that it does not necessarily lead to the “right” people leaving the business. In a compulsory redundancy situation the employer has to draw up objective criteria for scoring each employee and those that score the lowest are the ones that are then likely to be made redundant. The employer therefore has control. Having said that, just because voluntary redundancy is offered it does not mean that the company has to accept all applications. Generally therefore and depending on the size and nature of the business I would say that offering a voluntary redundancy option would be a good idea for the company.

Please call our Employment Law team on 020 8290 0440 to discuss redundancies issues further.