Restructuring and Redundancy - The Basics
Restructuring is the term used to describe the act of changing the structure of a business i.e. defining what roles are required, or not required. As a result of restructuring you may change an employee(s) job, or make employee(s) redundant. Even if you are only changing a job, not making a person redundant, you need to consult with them.
Redundancy is also commonly used to describe the act of restructuring, we’re going through a ‘Redundancy Process’. For this reason the terms Redundancy and Restructuring have been used interchangeably. Another common term is disestablishment. This is the act of DISestablishing an existing role, and is another word which is interchangeable with restructuring, making a role redundant etc.
As an employer, you must be able to justify redundancies substantively (show that they are genuine) and procedurally (that a fair procedure was followed). If you fail to carry out a proper restructure process, you may potentially be liable for remedies such as compensation, penalties, lost remuneration and reinstatement.
Restructuring and redundancies, like any business changes, are all about consultation. Before any decisions are made, you must first provide the affected employees with all relevant information, and an opportunity to provide feedback. This means that you must not predetermine the outcome, and should remain open to alternatives and suggestions that come up (if any) during the consultation process. As part of that process, the employee must also be provided with all the relevant information about the commercial reasons for proposing the change, despite how obvious those reasons may be.
So what is a good business reason?
Basically reasons that are to do with the business, NOT reasons purely related to an employee’s performance or behaviour. Some examples of genuine business reasons can be:
Down turn in the economy, meaning you can no longer afford to employ as many people as you currently do
Down turn in the economy meaning that you no longer have work to keep everyone busy and are not likely to for the foreseeable future.
Changes in technology (or the type of technology you are using) meaning that the number of employees you require has reduced, or the skills you require in your employees has changed
Identification that the business would be better served by employing a specialist rather than having several ‘amateurs’ doing part of a role.
Growth of the business meaning that the business needs to recruit more specialist people.
Some examples of what are NOT genuine business reasons are:
An employee isn’t really doing their job right so I want to fire them and replace them with someone better – the cause is the person not performing, they should be performance managed, not made redundant
An employee just swore at a customer, I want to get rid of them! – this is a disciplinary issue, not a redundancy issue
Consultation and good faith
This requires you to set out clearly what the restructuring proposal is, provide the potentially affected employees with access to information relevant to the restructuring and communicate to each employee exactly how they (personally) are affected by the proposal. It is important not to cut corners in the consultation process. Generally speaking, the more detailed and precise the information available to the employees is, the better the quality of the decision making.
A meeting should then ideally be held with each affected employee, so that any questions they may have about the restructure can be answered, and so that they can then give feedback about the proposal.
It is important that you genuinely considers feedback with an open mind. The potentially affected employees may well have insight into whether the proposed changes are likely to achieve the desired outcomes. Bear in mind, however, that consultation does not mean that you must accommodate differences in opinion with the employee.
Once the consultation process is complete, the employer must decide whether the proposed restructure will proceed as originally envisaged, proceed in a varied form, or not proceed at all. It must communicate its decision clearly to any affected employees and follow any relevant processes set out in the employment agreement.
Make sure the redundancy proposal is based on sound business reasons and are clearly articulated.
Ensure that the process and decision-making is compliant with the procedures and criteria set out in any employment agreement or employer policy.
Ensure all relevant is disclosed to affected employees.
Give every affected employee a proper opportunity to give feedback on the proposal before a decision is made.
Consider carefully employee feedback and give reasons why that feedback is not accepted.
Ensure redundancy selection criteria are rational and clearly explained, and are consulted on.
I have yet to meet an employer who has enjoyed facilitating a restructure. Technically, the legal requirements of what you have to do are not difficult to fulfil. However, the emotional process of sitting in front of a person who you may well have known for a long time and saying ‘you have done nothing wrong, but you don’t have a job anymore’ is horrendous and should not be underestimated.
Finally, remember that redundancy can not be used to get rid of “problem employees” - If challenged, your business reasons for undergoing the restructure will come under scrutiny, as will the consultation and decision-making process. You cannot make an employee redundant just because you do not like them, or to shortcut to a performance management process. These are not genuine commercial reasons justifying a restructure.
This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.