Tuesday 19 May 2009 8:00 pm

Firms need to tread carefully as redundancy claims increase

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EARLIER this week, single mother Alison Weekes said that she is to sue Lloyds TSB for £70,000 for sex and race discrimination and victimisation, after she was sacked by the bank. She alleges that her boss said that she was “not committed” to the job, and was unable to “put in the hours” because she is a single mother.

With redundancies spreading across all sectors in the City as the recession continues to bite, it is certain that there will be a huge increase in claims brought by former employees against employers. Figures published recently by the Employment Tribunal Service show a massive increase of 40 per cent in March 2008 compared to March 2007.

The real numbers could be even higher. Provisional figures released for the year ending February 2009 show that unfair dismissal claims rose to approximately 47,000 in February 2009, up from 41,000 in the same month in 2008. Similarly, claims for redundancy pay and for breaches in the redundancy process have increased, the latter by a staggering 165 per cent.

Two things lie behind these figures. Firstly, the sheer numbers of redundancies. And secondly, the increased determination of employees to fight their corner. Employees are increasingly aware of their right not to be unfairly dismissed and are willing to enforce it. Eighteen months ago, City institutions were paying far more generous redundancy packages. Many have now gone through three or four (or even more) large-scale rounds of redundancies with the consequence that the terms being offered are often much lower.

With the prospects of finding a new job becoming more and more remote, employees are increasingly reluctant to accept pay-offs which represent little more than their contractual and statutory entitlement. And as the number of claims increases, the stigma attached to bringing a claim decreases – particularly for employees who often have the financial backing for their costs available under their household insurance policy.

The other notable increase is in age discrimination claims, which have increased by 116 per cent. Compensation for unfair dismissal is capped at £66,200. To break through that cap, employees are increasingly looking to their age as an argument for unfair dismissal. Compensation for discrimination claims is unlimited and defending them can be extremely costly and time-consuming for employers.

Employers should also be aware that whilst the increase in claims may, to some extent, be a consequence of frivolous or vexatious claims, in reality very few claims are struck out by the employment tribunals. While a claimant may not succeed, that does not mean their claim does not have some merit and in the majority of cases each party has to bear its own costs. It can therefore be a very expensive exercise in legal and administration costs to defend a claim to the bitter end.

Employers should bear in mind various factors to minimise the risk of a claim being brought against them, and the ensuing disruption to management.

Firstly, ensure that the redundancy is genuine. Employers can be tempted to use redundancy as a reason to dismiss an employee when, in reality, the true reason for dismissal is poor performance or internal politics. A well-advised employee will be alert to redundancy being targeted as an “easy way out” and employers should therefore ensure they have evidence to document the genuine redundancy situation, including the financial basis for it and how the decision process has been handled.

Secondly, take time to plan your redundancy process carefully – on the day of announcing it to employees, ensure that everything is in place to counter employees’ scrutiny. Consider providing specific training to your managers to handle the redundancy process – many problems can be avoided if initial communications are handled well. Ensure, in any event, that managers are fully and properly briefed.

Thirdly, keep a close eye on the numbers of redundancies – once you reach 20, then a 30-day collective consultation will be triggered and 100 triggers a 90-day process.

Fourth, ensure you apply objective criteria and be wary, in particular, of using “last in, first out” as a criterion (save as a tie-breaker). Although an employment tribunal is unlikely to analyse the chosen criteria in detail (if they are non-discriminatory), employers should ensure that the criteria are applied honestly and fairly and managers should ensure they are able to justify any scores given as part of the selection process. It may be worth considering using two managers to carry out the scoring or having a moderator check the scores.

Fifth, take care to include employees on maternity leave and remember that they have additional rights.

Sixth, take proper time to carry out and complete the consultation process – ensure all representations of employees during the process are considered before a final decision is made.

Seventh, be flexible about alternatives to redundancies including the application of mobility clauses, job shares, pay cuts or reduced hours. Where possible, consider these before starting a redundancy process. Once a redundancy process has commenced, consider volunteers and be flexible.

Although some good economic news is starting to emerge, things will continue to be bleak for a while. All employers are well-advised to be prepared for redundancies, and all that they entail.