The importance of a fair redundancy process

The last 12 months have not been easy for the business sector.

One consequence of COVID-19 is that many employers are likely to assess their staff numbers this year. With revenue having taken a hit during the crisis, many are likely to be facing decisions around headcounts and possible redundancies.

As well as being a tough situation for a business to find itself in, making redundancies is also one of the most technical areas of employment law. If you don’t comply with the law during a redundancy process, the penalties can be severe.

Is there a genuine redundancy situation?

The first question to ask is does a genuine redundancy situation exist? Deciding that you want to restructure your business does not necessarily mean that a genuine redundancy situation exists. You must have evidence to demonstrate that a genuine redundancy situation exists before beginning a redundancy process.

The most common reasons for redundancies tend to be:

  • Financial difficulties.
  • Technical advances (a new technology means less employees are needed to do the same amount of work).
  • Closure of the business.
  • Demand for the employer’s goods or service decreases causing a shortage of work.

Once you have established that there is a genuine redundancy situation, you need to ensure that:

  • The employee had the benefit of fair procedures prior to the dismissal.
  • The selection process was fair.

Employees who have reason to question any of these procedural steps may seek to pursue an unfair dismissal claim.

Redundancy risks

There are significant financial risks for employers who fail to comply with redundancy law. We look at a recent example below.

WRC decision: the expensive consequences of a poorly run redundancy process

The employee worked as an accounts administrator in a hotel. She was the victim of harassment and alleged that the general manager had sent her inappropriate texts. Upon raising the issue, subsequent payroll errors and omissions that affected her salary occurred. Shortly after these incidents, the general manager made her position redundant and she received all redundancy and notice payments owed to her.

The employee provided evidence that her role was advertised soon after her redundancy. Her claim queried whether her redundancy was genuine, why she was the only staff member made redundant, and the objective basis for her selection.

After examining both sides’ submissions, the Adjudication Officer found no evidence that the employer had:

It was apparent no objective standards were applied to select the employee for redundancy. The Adjudication Officer in turn ruled that the employee was unfairly selected. As an employee working in the hotel sector, she failed to find another job during the pandemic and was unable to mitigate her loss.

She was awarded compensation of €60,000, almost two years’ salary, to take account of both the loss suffered and future loss.

The importance of a genuine redundancy situation

A restructuring situation can often be cited as justification for redundancies. However, a restructure must not be used to manufacture a redundancy situation. There must always be evidence to support your argument that a genuine redundancy situation exists. A thorough redundancy process, based on fair procedures, must then precede the termination of employment. This is crucial as the above case shows that the costs of getting it wrong could cripple your business.

The recent WRC decision also highlights the benefits of having a documented redundancy procedure in place. This policy document should detail the notification, consultation, and selection process that any final redundancy decisions will be based on.

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