A change in business needs can result in cost reductions and having to run a business more efficiently. This could be a consequence of company performance, financial challenges or changes in the market sector, but whatever the reason a business finds itself in this position, the way this process is managed is likely to involve either redundancy or restructuring. These are terms that are quite often discussed together, but have very different definitions, and how an employer approaches each issue has to be considered carefully as the process can be incredibly complex.
The consequence of mis-managing redundancy or restructuring could be employment tribunals for unfair dismissal or discrimination, which brings with it meetings and consultations with unions, employee representatives and senior management. This can be a damaging process which can start to impact on company morale, trust and the overall culture of the business. So here we have put together a short guide to explain the key differences between redundancy and restructuring and how you should approach each issue with your employees.
What is redundancy?
Redundancy is a type of dismissal where a trading situation occurs that results in an employee’s position and role no longer being needed. In other words, the employee’s position is obsolete and therefore redundant. This is usually as a result of the closure of a business, the closure of a specific workplace, or a reduction in the need for employees to perform certain types of work. The redundancy process is covered by a series of legal statutes and strict procedures, which have to be followed, otherwise the employer is potentially open to unfair dismissal claims. It may also be exposed to a protective award of up to 90 days pay per employee if collective processes are ignored.
What is restructuring?
There is no legal structure or definition to company restructuring, but broadly speaking it is a process which aims to make a business operate more efficiently. This is likely to lead to a change in some job roles and responsibilities, but this does not necessarily result in dismissals or positions becoming redundant. A restructuring can therefore result in a person being asked to carry out new tasks and accept a different rate of pay, or it could lead to a redundancy situation where an employee’s role will no longer exist under the new company structure.
What is the difference between redundancy and restructuring?
Redundancy can be a consequence of restructuring, but can also be presented to employees as an unavoidable result of the financial position of the company. Meanwhile, restructuring is a business process that considers the wellbeing of the organisation and restructures it accordingly. This could result in a change in an employee’s job role, or it could result in redundancy. Essentially, while redundancy and restructuring are very different processes, they can also be linked.
What is the redundancy process?
There are three main elements to a redundancy process which must be followed to ensure the employer reduces the risk of potential claims and tribunals.
- Consider alternative employment options – An employer must show they have considered suitable alternative options. This may include reducing hours, or overtime, reducing self-employed or freelance staff, and reducing temporary staff. The employer should then look at the restructuring option and offering an employee a suitable alternative role within the company, if there is one. The employer must offer this option if a viable one is available, however, the employee may opt not to accept it. In this case, if the alternative position offered was a fair and reasonable one, the employee may lose their entitlement to redundancy pay.
- Fair selection process – The employer should consider voluntary redundancy as a first option and explain why this is needed. This is a good opportunity for an employer to raise the challenges of the current trading situation, and to put employees at ease with a view to maintaining morale. Asking for volunteers in the first instance removes stress for many employees as there may be sufficient people who are happy to take a redundancy payout and move on to another job. If this isn’t the case and the employer needs to select employees for redundancy, the employer should ensure a fair criteria for selection is drawn up which is non-discriminatory and is based on quantifiable items such as skills/experience, standards of performance and attendance/discipline. Employers should be careful to avoid any discriminatory criteria or criteria that adversely impacts a particular group.
- Fair consultation process – Employees need to be given suitable warning of the potential of redundancy, and should also be given time to respond and object if they want to. Once a selection process is agreed upon, employees should be advised of a timeline and also advised on where they stand with regards to final pay and notice rights, plus other rights, such as time off to attend interviews for alternative employment. If more than 20 employees at one establishment need to be made redundant within 90 days of each other, this triggers a collective consultation process, which needs to include the unions or employee representatives. Consultation must begin at least 30 days before the first dismissal. This can be higher for larger numbers.
How should you approach the restructuring process?
As with redundancy, an employer needs to explore all the alternative employment opportunities for the current workforce, and for those affected by any structural changes. The first aim needs to be to minimise job losses as much as possible.
If there are no job losses necessary but there is a change in job roles, the employer needs to change the terms and conditions of employment to reflect the new job role. The employee has to agree to this and formally consent to it via a new contract of employment. If they don’t agree to this new role, they could be dismissed from their position, but an employer needs to be very careful and take considered legal advice at this stage. The employer has to demonstrate that there is a sound business reason for the restructuring and the new role, that all alternatives were considered and that consultation over the process was fair and reasonable.
Be careful about dismissal and re-engagement processes and always take advice if you are considering this option.
Naturally, if redundancy is an unfortunate consequence of the restructuring process, the same redundancy process as above should be followed.
Contact Consilia Legal for expert employment law advice
If you are facing a redundancy or restructuring process and need expert advice on how to navigate a complex and challenging situation with your employees, contact our specialist employment law team at Consilia Legal.
