Posted on February 5, 2021
There are times during any business’s lifetime where the organisation may require restructure or may need to reduce staffing levels. Any restructuring and redundancy process is tough for both employers and employees alike. After all, both restructuring and redundancy involve change and change makes people feel unsettled.
As per employment law, employers are legally required to consult extensively when it comes to both restructuring and redundancy. Not just on the need to reduce workforce roles or create new ones to better align with the needs of the business, but also pools for selection, selection criteria, and application of that criterion and suitable alternative employment. Get the process wrong, and not only will the organisation have a legal battle on their hands, but their reputation will also be severely damaged. In this post, we look at advice and guidance for TUPE, restructuring and redundancy.
One of the most common reasons for an organisational restructure is a major change in the way a business will operate. But what do the terms surrounding business reorganisation mean?
TUPE refers to the Transfer of Undertaking (Protection of Employment) Regulations 2006. TUPE applies when an organisation or a service transfers to a new employer. The purpose of TUPE is to protect employees if the business in which they are employed changes hands. For example, when a maintained school converts to an academy, or if one business merges with another to become a new business. Furthermore, TUPE applies where an organisation outsources or makes a “service provision change” involving either initial outsourcing of a service, a subsequent transfer and bringing the service back in-house.
Restructuring is a process. The aim is to get the right roles set up in the best way so that a business can deliver its products or services more efficiently and effectively. It can involve creating new roles, merging existing roles, disestablishing roles that aren’t needed, or a combination of these things.
Every restructure needs to be driven by a genuine commercial reason – e.g. a change in market demands, financial constraints, brand realignment, merging with another company – and this reason must be clearly communicated during the restructuring process.
Redundancy is an outcome, usually of the restructuring process. In the course of a restructure, roles that are identified as surplus to the company’s commercial needs become redundant (or are disestablished). So, a restructure can lead to redundancy, but redundancy cannot lead to a restructure.
There is a five-set redundancy process in place to ensure that companies have made every effort to treat employees fairly.
Businesses have a legal duty of care to try to avoid redundancies and they must prove that they have made every effort to keep their employees in employment.
If redundancies cannot be avoided, a business must identify which of its employees will be made redundant. Unfair selection criteria, such as pregnancy or age must not come into play. Fair selection criteria, including skills and natural abilities, standard of work, attendance, and length of service must be applied.
Once you have selected which employees face redundancy, employment law states that you must hold redundancy consultations, which give employees the opportunity to contest the redundancy within an employment tribunal.
Once the redundancy consultation process is complete, you must give the employee notice and agree on a leaving date. The notice period will depend upon the employee’s length of services with the company. If an employee has been with the company for one week – two years, you must give them a minimum of one week’s notice; for two – 12 years employment, it is a week’s notice for every year served, and for over 12 years of service it is a minimum of 12 weeks notice.
All employees are entitled to redundancy pay, often referred to as ‘Statutory Redundancy Payment’. Redundancy pay is calculated based upon an employee’s age and the length of the employee’s employment, counting back from the dismissal date. Length of service is capped at 20 years. Employees will get 1.5 weeks’ pay for each full year of employment after their 41st birthday; one weeks’ pay for each full year of employment after their 22nd birthday and half a week’s income for each full year of work up to their 22nd birthday.
Read more about the legal requirements of the redundancy and restructuring process >>
If you are an employer involved in a TUPE situation you will fall into one of two categories:
Employment law dictates that in any TUPE situation, that the affected employees transfer from transferor to transferee with their length of service, status, and contractual terms and conditions along with any liabilities associated to the employees. This means that there are obligations placed upon the employer, whether they be the transferor or the transferee.
Legally, they must both consultant the employees that will be affected by the transfer, or their representatives on the employee’s behalf. Both parties also have a duty to share information with one another. The transferor must supply the transferee with any relevant information about the employees, and the transferee must provide the transferor with the information they require to inform and consult their transferor.
In terms of employee representation, if there is no trade union in place, the employer is legally required to offer the employees the right to elect representatives and facilitate such an election. Details of employee representation should be detailed in a staff handbook and employment contracts.
In TUPE, ‘transferring’ means that an employee will automatically transfer from their current employer to a new employer. In a TUPE situation, employees have the right to refuse the transfer, but this could leave them vulnerable depending upon the situation and put them at risk of losing their legal rights. Such refusal will mean they have no rights to claim unfair dismissal or a redundancy payment unless they object for particular reasons.
Under TUPE, employees are protected from any change to their contract of employment that occurs directly because of the transfer. If the transferee breaches this, the contract changes will be void. Changes to the contract of employment will only be valid if they are required for the running of the business. For example, in a TUPE situation, it is not uncommon for an employee’s place of work to change. If this location change is significant, an employee has the right to protest. This may bring a claim for constructive dismissal.
A dismissal because of a TUPE transfer is automatically unfair unless it can be justified as an economic, technical, or organisational reason that requires changes in the workforce. Employees dismissed before, during, or after the transfer can claim unfair dismissal against the new employer, providing that they have a minimum of two years’ continuous service.
Read more about employment disputes >>
As they are complicated in nature, company restructures are lengthy processes. Depending on how prepared a business in advance of its restructure, the process can take up to five years to complete. But what is it about a company restructure that actually takes so long?
The most complicated part of the process lies ahead of the restructure itself, the preliminary research stage. This is the point at which a business must look at why they need to restructure and what they can do to resolve this problem. All company processes must be reviewed, and all potential outcomes must also be considered in detail. This is a process that takes a long amount of time.
Once a business has begun to identify its strengths, weaknesses, opportunities and threats of difference restructure scenarios, it can begin to enter the decision making phase. This is where a business develops its restructure plan for implementation.
The implementation phase is where the restructure plan is implemented and a business has to deal with any problems that may arise as a result of this. The stage of the process is likely to be subject to a timetable, and includes having to move staff to their new roles and functions within the organisation, which can often be problematic.
The last part of the process is the review phase. This is where the business must review the impact of the implementation phase. It’s highly likely there will be issues will every business restructure – but this is the point to resolve these issues or employee attitudes and enthusiasm towards the restructure are likely to decline.
Notice of redundancy is legally binding and cannot be withdrawn once it has been served. However, as part of the Employee Rights Act, an employee who is dismissed by reason of redundancy loses the right to a statutory redundancy payment if they unreasonably refuse an offer of suitable alternative employment. Furthermore, if once notice of redundancy has been issued, the employer offers the employee their job back on the same terms and conditions as per their contract of employment, but the employee turns it down, the employer has the right to argue that no statutory redundancy payment is due because the employee has ‘unreasonably refused an offer of suitable alternative employment.’
As we discussed earlier in this article, all employees are entitled to Statutory Redundancy Pay, which is the legal limit an employer must pay to all employees who are made redundant. Statutory redundancy pay is calculated on the basis of your age, length of service and weekly pay. A week’s pay is currently capped at £538 but this amount is reviewed annually and usually increases each April. Length of service is capped at 20 years. Employees will get 1.5 weeks’ pay for each full year of employment after their 41st birthday; one weeks’ pay for each full year of employment after their 22nd birthday and half a week’s income for each full year of work up to their 22nd birthday.
We hope that you have found this article on TUPE, Restructuring, and Redundancy useful. If you have any further questions, or would like to discuss any additional employment law-related issues please contact a member of our team.
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