Mass redundancies – the legal requirements that must be met

On 22 March 2022 two parliamentary select committees questioned the CEO of P&O Ferries over its dismissal of 800 employees without either prior consultation with UK workforce representatives or prior notification to Government.

In the evidence which followed, the company’s CEO conceded that neither a consultation nor the notification process had formally taken place. He stated the company had not consulted with workforce representatives and compensated affected staff instead.

On 1 April 2022, the Inspector General and Chief Executive of the Insolvency Service wrote to the Secretary of State for Business, Energy and Industrial Strategy (BEIS), stating formal criminal and civil investigations had begun into the circumstances surrounding the redundancies at P&O Ferries; and, in turn, put mass redundancies under the spotlight.

So, what is the legal context? 

There are legal requirements that employers planning mass redundancies should meet, including:

• If an employer proposes to make redundancies of 20 or more employees within a period of 90 days or less (often called collective redundancies), it must:
  • consult on its proposal with representatives of the affected employees (termed collective consultation); and
  • notify the Department for Business Energy and Industrial Strategy (BEIS).
• These requirements are intended to operate as a brake on proposed dismissals because for compliance, the dismissals should not take effect for a minimum period of time once the consultation has started / notification has been given.
• The maximum sanction for breaching the obligation to consult (which is usually applied as a default, unless the employer can successfully argue otherwise) is a ‘protective award’ of up to 90 days' gross actual pay for each affected employee.
• There are criminal offence sanctions for a failure to notify BEIS.

The specifics of these twin, cumulative obligations are important and detailed below:

Duty to consult the workforce (collective consultation)

• The duty to consult arises where the employer is proposing to dismiss 20 or more employees at one establishment as redundant, within a period of 90 days or less.
• For these purposes, dismissals are terminations of an employment contract, and ‘by reason of redundancy’ means that the reason for the dismissal does not relate to the individual employee concerned.
• The duty is to inform and consult appropriate representatives of the affected employees.
• ‘Affected’ employees are those affected by the proposed dismissals or by measures proposed to be taken in connection with the dismissals, and so, can be wider than those proposed to be dismissed.
• Where any of the affected employees are in a recognised trade union, the trade union must be consulted. In other cases, the employer may consult with representatives directly elected by the affected employees or with an appropriate standing body of representatives elected or appointed for some other purpose.
• Consultation must begin in good time. Certain minimum time periods apply depending on the scale of the redundancies proposed. Where 100 or more redundancies are proposed, consultation must begin at least 45 days before the first dismissal takes effect. For fewer than 100 redundancies, the minimum period which must elapse is 30 days before the first dismissal.
• Consultation must be ‘with a view to reaching agreement’ on ways and means of avoiding the dismissals, reducing the number of dismissals and mitigating their consequences. It is not sufficient for the employer to simply explain its proposals and listen to any counterproposals.
• Failure to comply with any of the rules on information or consultation, or on the election of representatives, can lead to a protective award being made by an employment tribunal.
• The maximum protective award is up to 90 days' gross pay for each dismissed employee (the statutory cap on a week's pay does not apply for this calculation - it is actual pay). This is intended as a ‘fine’ for non-compliance.
• Claims for breaches of the obligation to consult are generally required to be brought by elected representatives or the recognised trade union. Individually affected employees can therefore bring a complaint of a failure to inform and consult where they are not covered by a recognised trade union or other standing body of representatives, and where no other employee representatives have been elected.
• A further restriction is that an employer cannot use a settlement agreement to settle a complaint for this failure to consult. Such complaint can only be settled through conciliation by ACAS.

Duty to notify BEIS

• The employer must notify BEIS of redundancies proposed within a 90-day period: 
  • For 20-99 redundancies: Notification must be provided i.e., received by the Secretary of State of BEIS at least 30 days before the first dismissal takes effect (the date on which notice is to expire or employment is to end).
  • For 100 or more redundancies (as in the case of P&O Ferries): Notification must be received by the Secretary of State at least 45 days before the first dismissal. 
• Failure to notify is a criminal offence and the employer will be liable on summary conviction to a Level 5 criminal fine which is unlimited. There is a very limited special circumstances defence which rarely succeeds.

Individual consultation

In addition, employers must also consult individually with potentially redundant employees if they are to secure a fair dismissal. For example, consultation with the trade union over selection criteria does not release the employer from consulting with each employee individually their potential selection for redundancy.

The impact

There are already proposals to tighten regulation following the P&O case as the Transport Secretary announced measures to protect seafarers' employment rights, including:

• HMRC devoting significant resource to checking national minimum wage (NMW) compliance for all UK ferry operators; and
• A new statutory code on fire and rehire tactics, with compensation uplifts for failure to comply has been announced which will detail how businesses must hold fair, transparent and meaningful consultations on proposed changes to employment terms, including practical steps that employers should follow.
• Tribunals and courts will then be required to take the code into account when considering relevant cases, including unfair dismissal. They will have the power to apply an uplift of up to 25 per cent of an employee's compensation where the code applies, and the employer unreasonably fails to follow it. We have yet to see whether the specifics of criminal liability for failure to notify BEIS will actually apply in the P&O Ferries case and, if so, the likely level of fine and whether the directors may also be fined. To find out how our legal team can help you with workforce changes including redundancies and consultations, please contact Carolyn Brown.