Corporate Insights Podcast | Understanding the complexities of redundancy and TUPE

Transcript Nick Newman: Hi, and welcome to the third episode in our Weightmans Corporate Podcast series. I'm Nick Newman. I'm a partner at Weightmans practicing in employment law for around twenty years. The client base for myself and my team includes large multi-site retailers, online retailers, and hospitality clients. The advice we provide covers the whole range of employment law issues, including matters such as reorganisations, redundancies, and transfers. Over to my colleague, Ingrid, who joins me today. Ingrid McGhee: Thanks very much, Nick. My name is Ingrid McGhee, and I'm a partner here at Weightmans based up in Glasgow specialising in employment law. I've worked in the legal profession for nearly twenty years now and have worked with many clients in the retail and leisure space. So as Nick says, we deal with all sorts of employment queries, but I would say that my area of specialism has naturally evolved to project work involving wholesale changes to terms and conditions of employment, restructuring, and reorganisation. So that naturally involves the two areas we're covering today, which are redundancy and the Transfer of Undertakings (Protection of Employment) Regulations, more commonly known as TUPE. Nick Newman: So as Ingrid just alluded to, today's podcast is going to consider the complex issues of redundancy in TUPE, matters which can sometimes be pretty tricky for our clients to navigate. It certainly isn't uncommon for Ingrid and I to put our heads together and discuss especially complex matters, making sure we give our clients the correct commercial solutions to their problems. When there are large groups of affected employees, getting things wrong can be very expensive indeed. More to come on that later. Firstly, Ingrid, why is it particularly important at this time? Ingrid McGhee: Well, it's clear to see that the UK retail and leisure sector continues to face significant disruption, to be honest, Nick, and a lot of challenges. So several household names like Marks and Spencer's, Boots, John Lewis, and H&M, for example, have announced store closures or downsizing plans for this year alone. These challenges are a result of the increased online shopping. I know I'm probably a bit of a victim to that myself, but I do prefer to do much of mine online these days. So that has a knock on impact on, how people shop, the supply chain issues, staff retention, and recruitment, and continued pressure to run a lean but efficient operation. As part of any downsize, whether that's planned or proposed, there remain important employment law considerations for businesses, which we will now explore. Nick Newman: So firstly, looking at redundancy and individual consultation and by way of reminder, in order to fairly dismiss an employee by reason of redundancy, an employer must ensure that there is a genuine redundancy situation. It must adopt a fair procedure, and the dismissal decision must be reasonable. Tribunals are often on the lookout for sham redundancy procedures and clearly do not take kindly to employers using the redundancy label to try and hide an ulterior motive. When large numbers are involved, additional considerations are needed, which Ingrid will speak to later. But what is redundancy? For individual redundancy purposes, an employee's dismissal must be wholly or mainly attributable to the employer, either carrying out or intending to carry out a business closure, or carrying out or intending to carry out a workplace closure or relocation, or having a reduced requirement for employees to carry out work of a particular kind either at all or at their current place of work. We tend to refer to redundancies as either a need to delete roles from a business or reduce the numbers of employees who are in a particular role. So imagine a hypothetical retailer. If a particular store is closing, the entire workforce of that store might be at risk of redundancy. Whereas if there is a need to reduce the number of sales staff because you have over recruited, that would involve looking at the sales staff group and developing a fair way to reduce their numbers. It's really important, as I've mentioned, to adopt a fair procedure. Consider all the options to avoid or at least reduce the need for redundancies, Things like stopping bonuses, operating more efficiently, restricting over time might be some of the ways to do this. Ensure that the right process is adopted. Indeed, query whether or not there is an existing procedure set out in any of your employer handbooks. It's vitally important to check this, and I would always recommend a quick look at the ACAS website too. It has loads of helpful guidance for employers on there. We would always recommend supporting and training those people who will be involved in the implementation of the redundancy process. This is particularly important if, for example, your store managers are going to be dealing with a redundancy process themselves. Things like template letters, meeting minutes, and the like will always help in my view. Planning is key. Consider how you will approach the consultation process. This is always time well spent. There will be a need for initial meetings with potentially affected staff, perhaps done by way of a news break or similar. Make a provisional selection of those employees or groups of employees who are to be made redundant and hold individual consultation meetings. Sometimes more than one round of consultation meetings will be warranted. To some extent, this is your ability to win the hearts and minds of employees. Listening to what they have to say and considering their suggestions is expected of you as the employer. This includes where relevant, considering what recognised trade unions have to say as well. If alternative options are not feasible, then you might need to finalise the redundancy selections and give notice to those who are being made redundant. Usually at a final meeting with each of them, having warned them in advance about the potential outcome. Even though you might consider it futile, I would always recommend offering an appeal. You never know. That might be the difference between being able to remedy a flaw in the earlier process or facing an employment tribunal claim. Remember that looking for alternative employment is a necessary part of the process and one which should continue throughout. And finally, it's worthwhile remembering that this is a stressful time for your staff. Support them throughout and make sure you consider anyone who is absent as well, such as those on sickness absence or maternity leave. There are additional protections for some people, which is beyond the scope of this podcast. But if anyone is absent from work, this might be an additional reason to seek advice. Ingrid McGhee: So we thought it was worth touching upon collective consultation, which kicks in when a business is looking to dismiss or make redundant twenty or more employees within a 90 day period, and this usually relates to twenty or more employees in the same location or site. So when employers are considering dismissals, which could be part of a dismiss and reengage process, which is also known as fire and re-hire, or redundancies at those numbers, they are required to collectively consult with those impacted through their elected representatives. Now this is a really prescriptive process all contained within the Trade Union and Labour Relations Consolidation Act 1992, should you wish to know that. But we refer to that as TULRACA, which I don't actually think is the right way to pronounce that abbreviation either. But, anyway, that's how I've done it for the last twenty years. And I would always recommend that legal advice is sought if you are about to embark on a process involving dismissal in these numbers. So beyond my one recommendation of please do get legal advice, I would say that before you embark upon this process, here are some of my top tips. So make sure you have a plan and a timetable. So for example, who's gonna lead the consultation process? How will you support those elected as representatives, or is there gonna be a recognised trade union you will be consulting with? And, again, how long do you intend to allow for consultation? Make sure you build a really robust plan and timetable. Be clear on when consultation should begin, which is in good time. And if you are facilitating an election process, which you will be required to do under the legislation, make sure you include training and support for employee representatives so they know what their role involves. Again, compare scripts or communication strategy so you have consistency and clarity in the process and all your paperwork, and make sure you do keep a paper trail. It's very important to do that, especially if challenged at a later date about how you embarked upon any collective consultation process. And you've got to remember that dismissals cannot take effect before either thirty days or forty five days if you are proposing to dismiss or make redundant a hundred employees or more in a ninety day period. And that's after you submitted your HR one form, which you must send to the redundancy payment service. Again, employers are required to consult with representatives with a view to reaching an agreement, but that doesn't necessarily mean that agreement will ultimately be reached. So you just must be able to demonstrate, if challenged in particular, that you took proactive steps and efforts to try and reach an agreement and also include discussions around avoiding dismissals, reducing the number of of employees to be dismissed, and mitigating the consequences of the proposed dismissals. So in practice, this really does mean fully engaging with consultation with an open mind. Be ready to listen to and discuss any proposals put forward by employees and or their representatives. And, again, please make sure you do not predetermine the outcome of the process. As I say, keep an open mind. And lastly, I would say don't forget to build in an individual consultation process as part of any collective consultation regime. It's important to make sure that you individually consult with those that are impacted before you conclude any redundancy process. So why is it important to get this right? Well, businesses may be subject to unfair dismissal claims for employees if they get this wrong. And, again, that relates to employees who have at least two years continuous service. But farther, if an employment tribunal find that an employer has failed to comply with its obligations under these regulations, it can make a protective award of up to ninety days gross pay, that is gross pay, per affected employee. That can have a huge financial impact on a business, which could leave businesses in considerable financial difficulty if the numbers are excessive or significant, in respect of these processes. Nick Newman: So as alluded to earlier, getting things wrong can be very expensive. First, on an individual basis, as Ingrid's just highlighted, looking at redundancies, of course, failures to follow the correct procedures can result in either procedural or substantive unfair dismissals with the associated compensation being awarded. If we get things wrong from a collective consultation basis, as Ingrid mentioned, the risks increase significantly. The relevant legislation sets out that an employer who fails to give appropriate notice to the secretary of state by way of an HR1 form commits a criminal offense and is liable to a fine. Directors and other post holders can be guilty of a criminal offense personally and prosecuted accordingly. Equally, as Ingrid just mentioned, employers failing to follow the rules on collective consultation also face what we refer to as a protective award. This punitive sanction of up to ninety days pay for each affected employee can be very, very expensive indeed. This is the starting point rather than a worst case scenario, so it really does pay to follow the rules. Ingrid McGhee: So when businesses downsize or close, a two pay transfer could take place. So for example, there could be a transfer of a lease whereby the services carried out by the new tenant would be similar or the same as business carried out, and therefore the employees employed at that relevant premises could to be transferred to the new tenant. When there is a sale of a part of a business, the employees who work in that division could also to be transferred to the new owner. And another scenario is when a business decides to outsource a particular function. So let's say, for example, cleaning services or payroll to a third party provider. All employees employed in house or internally to perform that function could transfer to the new contractor. So you can see depending on what strategic decisions are made by a business, TUPE transfers could apply, and there is a separate legal process and framework in relation to informing and consulting with those impacted in those circumstances under the TUPE regulations. And, again, failure to follow that regime would entitle employees to claim thirteen weeks gross pay. So, again, it's an area of law and employment process that businesses need to be familiar with, get right, and without a doubt, seek legal advice before starting that. Nick Newman: At Weightmans, we have around seventy employment lawyers on hand to assist if needed. We would always suggest a quick scoping call with your lawyers is sensible, even more so going forward due to some changes which are happening in the near future that Ingrid will speak to soon. We can help at all stages, whether it be on strategy to avoid redundancies, the process itself, notifying the secretary of state by way of the HR1 form, GP considerations, organisational change projects of which Ingrid is a particular specialist, or worst case scenario, cradle to grave support when you're facing employment tribunal litigation. If in doubt, pick up the phone and call us, not least because of some of the changes that are on the horizon, which Ingrid will speak to next. Ingrid McGhee: Yes. As Nick says, there are a number of things that you should be aware of as part of horizon scanning. So with the employment rights bill having been announced in many aspects of the proposal still being subject to consultation, I would recommend that businesses keep an eye on the following areas. So the first one is in is in respect of the developments in fire and rehire. So at the moment, the way that the bill is worded and the proposals have been, put forward, it wouldn't allow employers to dismiss and reengage as part of a variation of terms and conditions program, which is something that we as advisers would commonly advise our clients on. So this is a process we're all very familiar with. And, again, it's usually embarked upon when consultation has perhaps not worked and agreement has not been reached with the relevant employees. But as the bill is currently drafted, any dismissal and re-engagement program on that basis would be considered an automatically unfair dismissal unless it could be shown that the business was in serious financial difficulty. And we all know, Nick will agree, I'm sure, that that is not always going to be the case and perhaps limits the scope in which businesses can plan ahead. So employers may want to then have overly reliant processes in respect of express variation clauses in employment contracts. And, again, if you don't have a variation clause or you're not entirely confident that what you have is perhaps fit for purpose, that is something that may need to be revisited before these changes kick in. The second area is around the establishment point. Now I've touched upon collective consultation, and I mentioned that collective consultation kicks in when you make twenty or more employees within a 90 day period redundant or you're looking to dismiss in one establishment. Now that principle was cemented in the Woolworths case heard back in two thousand eight. And whilst there have been some gray areas at times through case law, it is a principle that's commonly relied upon by many businesses and indeed us as advisers. But the employment rights bill now proposed is suggesting that the establishment point will be wider, and that would include the business and employer as a whole. So we wouldn't necessarily be allowed to rely on a site by site basis for those numbers to be impacted. In practice, I think that will be a very challenging area for businesses to get a hold of because they will have to monitor perhaps redundancies across the business and not just at particular sites. How our business is gonna plan to understand how that is gonna impact on a wider scale, what infrastructure or reporting systems will businesses need to put into place to ensure that that you're not tipping over the numbers effectively of twenty or more within a 90 day period. And, again, it's that 90 day period. It's a rolling period, so you'd need to understand and plan collectively as a business, and it might dilute some of the autonomy that number of sites may have as well within your business or or structure. The other area around this is there are potential protective award proposals to increase this to 180 days rather than the current 90 day period. So, again, that would have another huge financial impact on businesses should they get either the establishment point wrong or just general, obligations under the collective consultation regime as well. So I'd say it's fair to say that there's a lot going on in this space and even more to be aware of. So if you need any help and support with change management that could involve due pay, dismissals, or redundancies, please do get in touch with us all here at Weightmans. We're a full service firm, so have expertise beyond employment legal support. So that would include corporate tax, real estate, pensions, and business immigration, just to name a few. So we'll be able to help you with any aspect. So from Nick and I, thank you very much for listening.