First published: October 7th, 2020
Last Updated: September 9th, 2022
Avoid these common redundancy risks
With consumer sentiment down in recent economic data, many business owners are preparing for the worst.
The pandemic reduced revenues across various industries and many business owners are struggling with increased costs. If your business has been affected, you’re probably looking at ways to reduce your outgoings.
With labour costs often making up a large portion of overall business costs, reducing the cost of labour may well be the only option for your business. And, despite your best efforts to avoid losing staff, you might need to make redundancies to stay afloat.
Why is redundancy risky?
Even though making redundancies might be the only way to protect your business during a downturn, it’s also one of the most technical areas of employment law.
If you don’t complete a redundancy process in line with the law, your business will be exposed to the risk of potential claims under:
- redundancy legislation
- employment equality legislation, and
- unfair dismissals legislation.
Objective selection process
One of the key elements of a redundancy procedure is running fair and objective selection processes. As part of this exercise, you should also retain documents recording why certain employees were selected over others.
Being able to demonstrate the objective criteria used for employee selection in a redundancy situation will minimise your risk of suffering a discrimination claim linked to your procedures.
Employee consultations
You also need to ensure that you put a consultation procedure in place to allow employees who are at risk of redundancy to participate in the process.
Employee consultations should allow the employee to suggest possible alternatives to redundancies.
Unfair dismissal risks
Redundancy is a fair reason to terminate employment. The risk of redundancy-related unfair dismissal claims tends to arise in two ways.
First, it needs to be clear that a genuine redundancy situation exists. In economic downturns for example, many redundancies will be justified by a lack of work and therefore fewer employees are needed to complete the work.
Second, you need to demonstrate that you followed fair procedures before making the role redundant.
If either, or both of these elements are in question, you might be exposed to the risk of an unfair dismissal claim.
Business risks of a botched redundancy process
If you fail to comply with the redundancy legislation, you leave your business exposed to significant financial downsides. If an employee succeeds with an unfair dismissal claim, they may receive up to two years’ gross salary in compensation.
You should also consider the reputational consequences of a badly managed redundancy process. Any subsequent claims by employees and negative experiences have the potential to negatively impact your reputation as a business.
Those left behind
While there has been a strong rebound from the pandemic, there are no guarantees in business and sometimes there is no alternative to making redundancies.
One final issue that is sometimes overlooked is the risk of alienating employees who avoided redundancy.
It’s vital to do as much as you can to foster a positive working environment for the employees who remain on with your business.
After all, a time of great change can be difficult for many employees. Regular and ongoing communications with staff are vital once the redundancy process has concluded.
Need help managing your redundancy process?
Peninsula HR consultants know exactly how to manage a redundancy process that cuts out costly legal errors.
Your HR expert handles all your redundancy paperwork and even consults with your staff to make the process as easy as possible.
And as always, you get 24/7 access to HR advice to help you instantly solve urgent issues.
To speak to an expert now and get the latest guidance on redundancy, call 1800 719 216.
