Some HR issues in the downturn

United Kingdom

Employers generally look to reduce staff costs in a downturn, and that often means redundancies. But making redundancies is legally more complex than ever. Also, there will be contractor insolvencies, and replacing a bust contractor will often bring TUPE into play. Here are some points to bear in mind.


1. Lay-Off

Putting employees on lay-off or short-time working is not an automatic right which employers have. It depends on the terms of the contract with them. Employees who are laid off or put on short-time working anyway have the option to treat themselves as redundant provided certain conditions are met.

2. Age discrimination

Only employees with two or more years service are entitled to statutory redundancy pay. The statutory formula is still based on age and length of service - it is exempted from age discrimination. But employers’ own enhanced redundancy pay schemes are only exempt if they work by applying the same multiplier to all aspects of the statutory formula. For example an enhanced scheme which pays double the statutory entitlement for all ages and lengths of service is exempt, but one which gave treble to employees age 41 or over and double to everyone else would be vulnerable to claims of age discrimination by younger employees. The first two cases on enhanced redundancy pay schemes in the Employment Appeal Tribunal show that employers will have a hard time proving different treatment is legally justified.

Selecting employees for redundancy according to length of service is also similarly risky.

3. Collective redundancies

Prior information and consultation is required if you are proposing 20 or more redundancies at one establishment within 90 days (a “collective redundancy situation”). Be aware:

  • That seeking to achieve any desired reduction by voluntary (as opposed to compulsory) redundancies will not take you outside this requirement. Volunteers are still dismissed as redundant, so their numbers count.
  • You may be able to treat different sites as separate establishments, and perhaps avoid the requirement, or at least fall into a lower 30 day consultation period rather than the 90 day consultation period.
  • There is a 90 days pay penalty for non-compliance.

4. Criminal offences

It is easy to commit either of two criminal offences in connection with redundancies:

  • failing to give a written statement of how statutory redundancy pay has been calculated to a redundant employee (fine of up to £200 per offence - rising to £1,000 if you fail to respond to a request for one).
  • failing to send Form HR1 to DBERR on time in a collective redundancy situation (fine of up to £5,000).

5. 3-step dismissal process

If you are making redundancies, but you are not engaging in information and consultation in a collective redundancy situation, you must follow the legal 3-step dismissal process, or the redundancies will be automatically unfair dismissals and extra compensation can be claimed.

6. Special protection for pregnant women

If there are pools for selection, or alternative jobs are available, and women who are on maternity leave are affected, they must be given first priority over everyone else for retention or the alternative jobs. Otherwise they will be entitled to claim compensation for automatically unfair dismissal.

TUPE and contractor insolvency

If a contractor goes bust and has to be replaced, or even if you or someone else informally finishes off their work, there could be a transfer of the bust contractor’s employees under TUPE to the successor, or at least unfair dismissal claims against it.

1. Is there a TUPE transfer?

As ever, that will depend on the facts. There is European case law that says finishing off the fag end of a bust contractor’s work on a construction site was not caught by the equivalent of TUPE, and the new service provision change part of TUPE 2006 exempts tasks of short-term duration, but neither is a guaranteed safe harbour.

2. TUPE disapplied on bankruptcy and insolvent liquidation of contractor

TUPE 2006 disapplies TUPE where the employer has been made bankrupt (if an individual or partnership) or has been put in insolvent liquidation (if a limited company). However, this exception only applies once the formal order has been made by the relevant court.

Personal IVAs and corporate administrations do not benefit from this exemption.

3. Who transfers when a single contract is split up between several contractors?

This has always been a thorny issue. We now have some clarity on one aspect from Kimberley Group v. Hambley. Here the outgoing contractor’s work, performed from two centres, was split between two new contractors. Successor A ended up in practice with 97% of the work from one centre and 71% at the other. The judgment held that in the absence of evidence about other relevant matters, all the employees at both centres transferred to successor A without any share of responsibility falling on the other contractor. So, the successor who gets the lion’s share of the work in such a situation runs the risk of being saddled with all the employees. Other relevant matters include time spent, value given, employment contract terms, and cost allocation, and they could produce a different result.

4. What happens if the contractor goes into administration?

TUPE is not disapplied, but some of the liabilities that would otherwise transfer with the employees to the new contractor are left behind. Specifically:

  • unpaid wages up to £330 per week for 8 weeks
  • unpaid holiday pay up to £330 per week for 6 weeks, accrued in the last 12 months.

So, in that case, the burden for the successor is reduced, but he still has to take the old contractor’s employees on, or face unfair dismissal claims.