Redundancy considerations

Before any decisions are finalised, every employer has a duty to inform and consult their employees about possible redundancies.

Employers should first decide on the number of employees to be made redundant and then consult those employees. If the employer proposes a collective redundancy (where 20 or more redundancies are made at one establishment within a period of 90 days or less (he has a duty to consult “Appropriate Representatives” first.

“Appropriate Representatives” are either employee representatives elected by the employees or (if the employees are of a description in respect of which an independent trade union is recognised by the employer) representatives of that trade union.

If an employer does not recognise a trade union, then he must invite the employees to elect representatives to allow consultation to take place.

The consultation must begin in “good time” but the legislation does lay down certain minimum periods for which the consultation must last. These are:

• If the proposal is to dismiss 100 or more employees at one establishment within a period of 90 days or less, the consultation must begin at least 90 days before the first dismissals take effect;
•  Otherwise, at least 30 days before the first dismissals take effect where 20-99 employees are to be dismissed. Information to provide to the representatives

Employers are required to disclose the following information in writing to the representatives:

• The reasons for the redundancy proposals;
• The number and description of the employees whom it is proposed to dismiss as redundant;
• The total number of employees of any such description employed by the employer at the establishment in question;
  The proposed method of selecting the employees who may be dismissed;
• The proposed method of carrying out the dismissals, with due regard to any agreed; procedure, including the period over which the dismissals are to take effect; and
•  The proposed method of calculating redundancy payments for individual employees, if this is different to the statutory scheme.
• The information has to be either delivered to the representatives by hand or posted to an address nominated by the representatives.
• It is not sufficient for the information to be given verbally.

Selection for Redundancy

If there are no alternatives, select employees for redundancy using objective criteria. Consider last in first out (“LIFO”), skills and performance, attendance and disciplinary record, experience and aptitude. Consider whether each criterion should have equal weight.

Also consider the type of work carried out by the employees including whether jobs are interchangeable, whether other groups of employees are doing similar work to those in the group from which selection is proposed to be made and whether an employee’s inclusion in a pool is consistent with his or her previous position.

The employer must also ensure that those chosen to make the selections for redundancy are capable of assessing the individuals in the pools for selection. The people making the selections should have been given guidance on how to apply the criteria. Announcement

Make a general announcement about the proposed redundancies and iterate that no decisions will be taken without full consultation with employees in the areas affected. There should then follow individual letters to employees in the areas affected inviting voluntary redundancies

Individual meetings

In addition to collective consultation employees should be consulted on an individual basis.

Employees should be advised fully as to how their position may be affected, the way in which they may be selected for redundancy, how the redundancies are to be carried out including the period of time over which it is proposed the redundancies are to be implemented. The employer should also indicate what consideration has been given to the possibility of alternative employment and if none is available this should be explained to the employee.

Arrange a second meeting ideally at least two weeks after the first meeting. At this meeting the employee should be given the opportunity to submit any further representations which have occurred to him or her since the initial meeting. Further individual consultative meetings may be necessary depending upon what the employee says and time constraints.

Alternative employment

Employers should try to offer suitable alternative employment if available. This should be discussed in the individual consultative meetings with the employees as well as in the collective consultative meetings with the Appropriate Representatives.

If an alternative position is offered to and accepted by an employee the employee has a statutory right to a trial period of 4 weeks in the alternative job. The effect of the trial period is to give the employee a chance to decide whether the new job is suitable.

The trial period may be extended to retrain the employee for the new work, by agreement between the employer and the employee. Such agreements must be made before the employee starts the new work; must be in writing; and must specify the date that the trial period ends and terms and conditions of employment that will apply after that date.

If the employee leaves or gives notice within the trial period the employee will get a redundancy payment only if the job was unsuitable and he or she did not act unreasonably in leaving it (subject of course to the employee having 2 years’ continuous service). If an employee is dismissed within the trial period the employee will get a redundancy payment unless the dismissal is for any reason unconnected with the fact that he or she is on trial in the new job.

Confirming redundancies

Individuals should be advised of the decision to make them redundant in a brief meeting. This should then confirm in writing. Employers should ensure employees are given their full contractual notice or they receive an appropriate payment in lieu. Employers may also wish to consider providing assistance in looking for a new job by liaising with employment agencies/job centres.

Individual notices of dismissal may not normally be issued to employees in a collective redundancy situation until the consultation process has been completed in accordance with these statutory requirements (unless the “Special circumstances” defence exists). The required notice period will depend on what an individual’s contract of employment provides for, subject to the minimum periods set out in section 86 of the Employment Rights Act 1996.

Time off for interviews

If employees are required to work during their notice period they are entitled to reasonable time off with pay. This should be agreed by the individual under notice with his or her direct manager.

APOD has been created to raise awareness of the supply of online legal documents, as an affordable and reliable alternative to costly high street professional legal services. The association will also serve as an education tool for businesses as to which legal documentation is required to protect their interests, in various matters from employment to trading agreements. Acting as an internet forum between online publishers and businesses, the website will serve as a portal to information, offering an invaluable instant contract-supply service to visitors to the site.

Founding members include major online legal document publishers such as ContractStore, Lawpack, Net Lawman and Simply-Docs. Giles Dixon, a founder member of APOD and MD of ContractStore, says: “In tough economic trading conditions it is vital to ‘batten down the hatches’ and leave no stone unturned when protecting your business. Properly written terms of business are always important, but especially so when market conditions are more difficult.

The rationale for the Act was to create a simple and modern regulatory framework that promotes growth, enterprise, investment and employment. The modernisations to Company Law were targeted to provide significant benefits to small businesses by the removal of substantive unnecessary regulation and making the law more accessible and comprehensive. Now that the dust has settled, what are the real implications on small businesses?

The Department for Business, Innovation & Skills has commenced post-implementation evaluation of the Act, and is currently surveying a random sample of companies to determine the impact that the Act has had on business. For the moment, an analysis of some of the major reforms will help to provide an indication.

Codification of directors’ duties

Prior to the 2006 Act directors’ duties such as acting in good faith with care and skill, and avoiding conflict of interests were based on common law rules and equitable principles. To create certainty, consistency and accessibility, and also promote a long-term investment culture, the Act has sought to clarify these duties into seven general duties.

It was anticipated that the codification could produce cost benefits of between £30m and £105m per annum by reducing the need for directors to take advice in such areas. However, in the short term these benefits are likely to have been diluted by uncertainty in some areas, especially as the duties are to be applied and interpreted in the same way as existing common law rules and equitable principles.

This uncertainty is unlikely to be resolved until more cases on the issues are decided by the courts.

Electronic Communications

Greater use of electronic communications should have a large impact on the speed and cost with which decisions can be made. The greater the number of members, particularly if there are many or bulky documents to be sent out, the greater the benefits. This, therefore, will tend to benefit larger rather than smaller businesses.

Constitutional Documents

The Act provides for new and simpler Model Articles of Association (replacing Table A) and has limited the importance of the Memorandum of Association by removing the requirement for companies to state their objects.

These changes have and will certainly simplify new company formations, and provide those companies with the long-term benefits of a reduced administrative burden. However, the changes have also created uncertainty for companies formed before 1st October 2009. Companies are not obliged by the Act to make changes to their constitutional documents but many have had to seek (costly) advice concerning adopting the new documents, and until they do adopt the new documents will not be able to take advantage of the benefits.

Company Secretaries

The Act states that private companies are no longer required to have a company secretary. This should make it easier and less costly for small businesses to conduct their day to day business.

Simplified Decision Making

Under the Act, private companies are no longer required to hold AGMs. The Act also makes it easier to take decisions using written resolutions.

Under the old law, it was possible for private companies to dispense with some of the formalities such as holding AGMs, or laying accounts if all the shareholders agreed but this has now become the default position for private companies.

Written resolutions used to require the unanimous consent of the shareholders. The Act now mirrors the rule for special and ordinary resolutions passed at general meetings of shareholders for written resolutions. Thus a 75% or 50% majority will suffice to pass special and ordinary resolutions respectively by written resolution. Coupled with the increased ability to utilise electronic communications, this should enable small businesses to make decisions more quickly, simply and cheaply than under the old law.

Simplified Capital Maintenance Provisions

Private companies are now able to give financial assistance for the purchase of their own shares and are not required to go to court to reduce their share capital. The impact of these changes, however, is mainly for the benefit of medium to large companies. It will always be difficult to assess the implications of the Act in respect of the original rationale for the promotion of growth, enterprise, investment and employment. The economy is in an entirely different condition to the economy when the Act was first implemented. The government had forecast that the changes in the Act would produce annual savings of up to £250m, with £100m savings for small business. How successful this has been we cannot yet quantify. The costs to small businesses of understanding the Act and implementing those changes that might bring them future benefits have probably reduced the short-term gains. In the long-term, with greater director awareness and knowledge of the Act, a widespread adoption of the new constitutional documents and greater experience of the courts in interpreting its application, the benefits to small business will become more evident. Setting up a company is now easier, running a company is getting easier, whilst the aim to promote a long-term investment culture has been de-railed in the short-term by economic conditions.