Redundancy Selection - Why me?

In today's economic climate, redundancy has become the R-word: a distressing worry for employees who may face a tough struggle to find another job; a nasty threat to an organisation's future competitiveness if financial pressures force organisations to get rid of good people they would rather keep; and a potential legal minefield if organisations handle the redundancy process unfairly.

So how do you select people for redundancy while causing minimal stress to your organisation and minimising the risk of you having to explain your decision to an employment tribunal?

Legislation obliges organisations to tread with great care if they are to avoid referrals to employment tribunals, especially if more than twenty employees need to be made redundant, in which case employers are legally required to consult collectively on redundancy selection with the relevant trade union and/or employee representatives. In the UK, most legislation on redundancy is contained in the Employment Rights Act 1996, though the rules on collective consultation are mainly found in two other acts, the Trade Union and Labour Relations (Consolidated) Act 1992 and the Trade Union Reform and Employment Rights Act 1993.

Under the Employment Rights Act, an organisation only has six legal reasons for letting an employee go: conduct (misconduct by the employee), capability (where the employee can't do the job, even after training), redundancy; illegality (where the employer is breaking the law by continuing to employ the person; such as if the employee does not have the right to work in the UK); retirement, where the employee reaches the normal retirement age; or some other substantial reason, the precise interpretation of which has been the grounds of considerable debate. What this all boils down to is that if an organisation wants to lose headcount because it has no choice but to save on salaries and associated costs of employing people, it has no legal alternative but to go down the redundancy route.

'The consequences if a redundancy selection process is adjudged unfair can be disastrous,' says Matt Jenkin, a partner at law firm Morgan Cole. 'Your criteria for selection must absolutely avoid discrimination of any kind, but while it is usually fairly easy to avoid any direction discrimination, it's easy to fall into the trap of indirect discrimination. For example, the widely-practised “Last In, First Out” (LIFO) policy can wind up discriminating against younger employees, as well as against women, who tend to have on average shorter employment periods than men. Similarly, a policy of making people redundant if their English is not very good can easily amount to indirect racial discrimination.'

Jenkin believes that the only realistic was of preventing these problems is for organisations to take every step to avoid presenting its plans for a redundancy as a fait accompli. 'Instead, talk to employees and employee groups and discuss with them what you want to do. Ultimately, if there's a financial imperative for the organisation to save money on salaries, some people are going to have go, but communicate this need to the workforce. If you're unlucky enough to have some cases winding up at an employment tribunal, the tribunal will take into account the efforts you made to create a dialogue with employees and discuss the whole redundancy process with them.'

Nigel Povah, a business psychologist and head of talent management consultancy Assessment and Development Consultants (A&DC), says that a redundancy selection process must be fair, equitable, transparent, respectful and business-critical. 'One way of objectifying the selection process is to use assessment centres, which take employees through a range of exercises relating to work. These centres are designed to assess and develop talent within an organisation, not specifically as a support for redundancy, but they can be very useful for making fair and dispassionate evaluations of employee capabilities.'

Whatever the reasons for the organisation's need to declare a redundancy process, the importance of transparency and objectivity has led to the increasing use of the redundancy selection matrix. As Michelle Keith, manager, employment law at HR and payroll provider, NorthgateArinso, explains:

'Redundancy selection matrices are especially useful in any group redundancy situation where there is a pool of employees that needs to be reduced in number: an example would be a factory floor environment where, say, ten machine operatives need to be reduced to five. In this situation, the use of a specific redundancy selection matrix is more likely to lead to an objective and therefore fair way of reducing the headcount.'

How does it work? 'Basically,' as Keith says, 'the employer in effect says to the employees in the pool: this is what we need the job to look like: these are the skills, behaviours and competencies of the remaining positions and so the selection matrix will assess those employees in the pool against these requirements. If everyone has an equal chance, the employee is more likely to agree that the process is open and objective and that employees in the pool will be fairly selected. The specific criteria that will be scored on the matrix will vary from case to case, but it can certainly be useful, as part of the evaluation process, to include interviews that feature situation-based or competency-based questions.'

Michelle Keith adds: 'Traditionally, it's assumed that an organisation would keep the people who've been with it the longest time, but this approach may not be in the organisation's best interests from the point of view of maximising the quality of its skills and competencies that are needed to help sustain the business going forward, and may also be discriminatory towards younger staff. Organisations increasingly need objectivity in the selection process to ensure they retain a high quality and competent workforce, and this is why redundancy selection matrices are nowadays really coming into their own.'

Bridget Green, operations director of HR payroll services at Capita, acknowledges it is key to have objectivity, transparency and clear communication in the redundancy selection process, and emphasises the sheer importance of enough management time being given to the redundancy process. Green also points out the need to remember that employees who survive redundancy will have found the whole process traumatic and will almost certainly have friends who have lost their jobs. 'Organisations need to remember that staff who remain in their jobs after the redundancy process are likely to be wondering just how secure they will be in the future. They need reassuring and looking after.'

Yet getting the selection process right isn't only about being fair to employees and taking every step to avoid employment tribunal referrals. The health of the organisation is also a key factor. As Nick Thomas of international law firm Jones Day says: 'In the current climate, many organisations are faced with the need to make good people redundant, people who - if economic times were better - the organisations would really want to employ. One way of trying to avoid losing good people when times are really tough financially is to look at realistic alternatives to redundancy.'

He adds: 'Getting a workforce to agree to a pay-cut or to a shorter working week with a corresponding pro rata reduction in pay is never going to be easy, but if employees knows that these options really are the only alternative right now to wholesales redundancies they're likely to accept the inevitable.'

When organisations initiate workforce reductions, they enter a period of hampered productivity, financial uncertainty and legal risks. As the redundancy selection matrix strives for objectivity, it may make sense to consider using computer-based assistance for implementing the matrix.

One US-based company, HumanConcepts, has developed a computerised solution, Transition Manager, to aid the decision-making process surrounding redundancies, with the aim to help companies retain key talent and minimise risk and to help employees pull through the process with a positive perception of the organisation. Transition Manager, which helps managers make fact-based decisions based on given criteria and helps organisations manage the administration of a redundancy process, also incorporates a redundancy selection matrix. The system is used by many Fortune 100 companies in the US. American Airlines has used Transition Manager to manage a major redundancy process that involved a five percent workforce reduction.

Meanwhile, redundancy remains a difficult area for most organisations As Nick Thomas points out, consultation can in some circumstances be very difficult, such as if an employee who needs to be included is, say, on long-term sickness absence (which, as Thomas says, may itself give rise to potential disability discrimination issues) or on maternity leave. Trevor Bettany, of law firm Speechly Bircham, emphasises that even the organisation's decision to declare a round of redundancies can be challenged by employees today, and that there is nowadays more of a culture for employees and their representatives to urge organisations to look at other options, such as job-sharing, which may make formal redundancies unnecessary or reduce their number.

Certainly, the current economic situation has inspired a climate at many organisations where employers and employees want to work together to help the organisation survive the crisis. Unfortunately, though, in many cases the only way for the organisation to survive will be by reducing its wages bill.

But when some employees do need to be made redundant, the least they deserve is to know on what criteria the redundancy selection process is being based and the opportunity to be tested by an objective scoring system that will give them the chance to show why they should be allowed to stay.