Credit Crunch Set to Create Redundancy Dilemma for Small Businesses
The last thing FSB members probably want to hear is more doom and gloom about the “credit crunch”, but here it is anyway! If you are lucky enough that it has not hit you or your business yet you are in a minority, the latest evidence of the downturn in the economy is the number of employees that are becoming surplus to requirements:
The Observer on 27th July reported that redundancies in the housebuilding and financial services sector were happening at the rate of 6000 per week and that the Chartered Institute of Personnel and Development estimtated that around 22 per cent of employers expect to make redundancies this summer. Employers Law on 20th November 2007 reported that both Norwich Union and the BBC may shed staff numbering in the thousands.
Whilst FSB members may not be considering redundancies on that scale, dismissing surplus staff is just as much of an issue for small businesses, and no less vital as a potential method of ensuring the business survives during the economic downturn. Unfortunately for small business it is also probably a more traumatic process for all involved if employees are small in number and a close-knit team.
However, there is wisdom in addressing the issue of redundancy even when you do not want to face it, and preparing and planning ahead may help your business to survive the tough times. Those businesses that do survive are often those that take swift measures to cut back on costs. The last thing that businesses want to have to do is to make employees redundant, but very regretfully, in hard times there is often simply no other viable option, and taking advice and planning is vital. The sooner you start to plan the better.
You should seek legal advice prior to putting your plans into action. Whilst legal advice is an additional cost, if you handle the redundancies badly your business could be faced with a large employment tribunal claim and the greater legal costs incurred in dealing with it.
Common pitfalls for employers when making redundancies are not knowing when an employee is legally speaking “redundant”, not being aware of entitlements to redundancy pay, failing to select candidates fairly for redundancy, and failing to follow the correct procedures before dismissing, which includes failing to properly consult and consider alternative employment.
Employers need to have a careful look at their redundancy policies and make sure they have kept up with current employment laws, such as those on age discrimination. The traditional “last in first out” approach may now not always be lawful if the result is to discriminate on grounds of age and is not recommended by ACAS’s age discrimination guidance. All employers, not just larger ones, need to be careful to consult sufficiently with those staff who may be affected by redundancies, and to consider with them possible alternatives to redundancy such as working fewer hours or changing to different kinds of work. They must decide fair criteria when selecting who will be made redundant, looking for example to objective assessment of performance , disciplinary records and attendance.
There are alternatives to going through the rigmarole of redundancy procedures, such as the compromise agreement, whereby a mutual agreement is reached between the employer and employee to bring the employment contract to an end; The employee agrees not to pursue a complaint to a court or tribunal in return for the employer paying the employee a sum of money in compensation for their employment terminating. The sum offered is usually in excess of the statutory redundancy payment as an incentive to the employee to take the deal, and the employer benefits from not having to jump through all the hoops of the redundancy procedures, and from the certainty that there will not be a tribunal claim made against them.
Sandersons specialises in employment law for employers, and can advise on all aspects of making redundancies and what lawful alternatives are available.
Contact Sarah Coates-Madden on scoatesmadden@sandersonssolicitors.co.uk for further information.
Sandersons Solicitors
17-19 Parliament Street
Hull
HU1 2BH
Tel: 01482 324662
Fax: 01482 223110
e-mail: enquiries@sandersonssolicitors.co.uk
Source: Federation of Small Businesses, July 2008