Redundancy in administration
What is redundancy?
Redundancy is used to describe a situation in which an employer decides to reduce the number of its employees, either within the business as a whole, or within a particular site, business unit, function, or job role.
The statutory definition of “redundancy” encompasses three types of situations: business closure, workplace closure, and reduction of workforce.
The dismissal of an employee will be by reason of redundancy if it is “wholly or mainly attributable‘’ to the employer:
- Ceasing or intending to cease to continue the business for the purposes of which the employee was employed (business closure)
- Ceasing or intending to cease to continue that business in the place where the employee was so employed (workplace closure)
- Having a reduced requirement for employees to conduct work of a particular kind or to do so at the place where the employee was employed to work (reduced requirement for employees).
What process must employers follow when making staff redundant?
Employers must first consider whether there is a genuine redundancy situation either within the business as a whole or within a certain site, function or role.
Employers will need to identify an appropriate pool for selection of redundancy. They must then consult with the individual employees in the pool and apply an objective selection criterion to the employees in the pool to determine which employees will be made redundant.
If an employer is going to make more than twenty employees redundant within a ninety-day period, the employer is required to follow the ‘collective consultation’ rules.
Collective consultation rules
The employer must notify the Redundancy Payments Service (RPS) before a consultation starts; consult with trade union representatives or elected employee representatives – or with staff directly if there are no representatives; provide information to representatives or staff about the planned redundancies (the reasons for redundancies, the numbers and categories of employees involved, the numbers of employees in each category, how the company plans to select employees for redundancy, how the company will carry out redundancies and how the company will work out redundancy payments). The company must then give the representatives or staff enough time to consider the information provided and respond to any requests for further information. There must be a genuine attempt at reaching an agreement with the union through discussions around how the redundancies can be avoided, how the number of affected employees can be reduced and how the consequences can be mitigated.
Once the consultation is complete the employer must give any affected staff termination notices showing the agreed leaving date and issue redundancy notices.
There is no time limit on how long consultations last, but there is a minimum period before an employer can dismiss any employees. If a company is proposing to make twenty to ninety-nine employees redundant this period is thirty days. For company’s proposing to make one hundred or more employees redundant this period is forty-five days.
Failure to comply with these rules can lead not only to unfair dismissal claims but also protective awards of up to ninety days’ per employee for failure to inform and consult under the rules.
If fewer than twenty employees are to be made redundant there are no set rules about how the consultation should be conducted, however as a matter of good practice employers should consult with each individual employee.
What does it mean when a business is in administration?
When a company is in administration it means that it has a serious financial issue. Once a company has been placed into administration it has effectively been placed under the management of the administrator.
Control of the company is handed over from the directors to the administrator, who takes stock of the entire operation to assess the financial situation. They will devise a strategy to turn the company around and repay all creditors.
When placed into administration, a company is afforded some time to begin the process of producing a plan going forward. This is because all legal proceedings the company is faced with are put on hold as an official moratorium is placed on the business.
Redundancy when a company is in administration
The first fourteen days of the administration are crucial for employees. During this time the Administrator will make a decision as to whether they will make staff redundant. An employee that is subject to redundancy when a company goes into administration is likely to be placed into two core categories of creditor; ordinary creditor, and preferential creditor, with different rights for both.
An employee will become an ‘ordinary creditor’ if they are made redundant within the first fourteen days of administration. Ordinary creditors represent the lowest bracket of priority. This means that they will not see any money owed to them until every creditor above them has been paid. However, an employee under this bracket does retain the same entitlement to redundancy payments.
Any employees retained for longer than two-weeks after the business enters administration will become a ‘preferential creditor.’ This type of creditor has far superior rights when it comes to repayments should they find themselves made redundant at a later stage of the administration process.
In the event of redundancy, an employee kept on as a preferential creditor will receive any money owed during the four months preceding the insolvency on a preferential basis. Anything owed more than four months before insolvency will be handed out on an ordinary creditor basis.
A preferential creditor can claim:
- Any outstanding salary/commission (up to £800)
- Outstanding holiday pay up to six weeks
- Occupational pension payments (where applicable)
How can Ali Legal Ltd help?
If you are a business considering making staff redundant, or you are an employee who has recently been made redundant please contact our specialist Employment team on 0203 011 4314 or firstname.lastname@example.org.