Voluntary redundancy (sometimes known as non-compulsory redundancy) might be worth considering if your business needs to reduce headcount. This guide explains what voluntary redundancy is, what steps you need to take to get it right, and the pitfalls to be aware of when considering voluntary redundancies as an alternative to compulsory redundancies. If you are facing the decision or in the middle of the process, our expert employment law solicitors can help you manage the needs of the business and offer employees the right solution.
Contents:
- What is voluntary redundancy?
- Why might you choose to offer voluntary redundancy?
- What is the process to follow when offering voluntary redundancy?
- What should I include in the voluntary redundancy offer?
- Do I have to accept an application for voluntary redundancy from an employee I want to keep?
- What are the pitfalls of voluntary redundancy to be aware of?
- Summary
What is voluntary redundancy?
Offering voluntary redundancy simply means providing employees with the option to volunteer to take redundancy when you are looking to reduce headcount. This is often in exchange for an enhanced redundancy payment. Having volunteers can reduce or eliminate the need for you to select employees for compulsory redundancy. If employees apply for voluntary redundancy and you accept, you will consult with those employees and agree to terminate their employment, and then review whether you need to continue with a compulsory redundancy process.
Why might you choose to offer voluntary redundancy?
Firstly, it is advisable to check your employee’s contract of employment and any other policies you may have around redundancy. If any of these mandate that a voluntary redundancy process must take place before a compulsory redundancy exercise, you will need to ensure that you invite employees to apply for voluntary redundancy first. Our employment law solicitors can assist you with drafting, reviewing or updating a redundancy policy.
Even if there’s no requirement for a voluntary redundancy exercise to take place first, offering voluntary redundancy may still be a good idea for the following reasons:
- It will make the redundancy process easier as employees have already self-selected and so are on board with the idea of leaving the business and are working with you to achieve the same end goal. This may not be the case where compulsory redundancies are being carried out.
- The redundancy process is likely to be quicker as pooling, selection criteria and scoring won’t be necessary, and consultation is likely to be shorter. The savings in time and resources could be a real benefit if your business is already struggling to keep overheads down and productivity at a high level.
- As the employee is choosing to be made redundant, this can help to reduce any allegations of unfairness meaning voluntary redundancies represent less ongoing liability or risk after and during the process as opposed to a compulsory redundancy process.
- By only making redundant those who wish to volunteer, or at least attempting this strategy is likely to help with staff morale. By using your best efforts to avoid compulsory redundancies and concluding the process quickly you are likely to reduce pressure and uncertainty in the workplace sooner, for those employees that do not volunteer for redundancy.
What is the process to follow when offering voluntary redundancy?
- As with any process, clear communication throughout is key. Explaining what the situation is, why redundancies are required and what the alternative is, demonstrates honesty and this transparency will build trust with your staff. If staff do not feel like they are being kept in the dark, they are likely to feel less anxious and work more productively.
- Before you start, make sure that no alternatives to redundancy exist such as reducing benefits, working hours or other overhead costs.
- Consider what would incentivise employees to leave before presenting an offer to employees. Of course, this could include higher payments or bonuses when compared to statutory redundancy entitlement to make the offer more appealing. . However, this may not be purely financial, it might involve extension of benefits or retention of company property or telephone numbers, and perhaps release from some restrictive covenants or an agreed announcement or reference. These are likely to be at little financial cost to your business and are worth considering before offers are made, in case employees make these types of request.
- Once you have a coherent strategy and have made relevant managers and any HR personnel in your business aware of this, notify staff that redundancies are needed and invite any volunteers to come forward. Typically, voluntary redundancy should be offered to those who would be at risk of compulsory redundancy, but it can be offered to the entire company. Employees who express an interest in volunteering for redundancy should be given a letter explaining the process and outlining the enhanced redundancy package.
- Whilst the consultation process is less likely to be as involved in a voluntary redundancy process than in a compulsory redundancy process, there is still a requirement for employees to be consulted and made aware of what they are agreeing to. You will want to be cautious not to push an employee into voluntary redundancy to avoid a claim for constructive unfair dismissal. If you would like guidance on this, it is advisable to seek specialist legal advice before making an offer to an employee.
- Keep a written record of all informal and formal discussions and document anything agreed or still to be agreed regarding voluntary redundancy. This will ensure that there is a clear paper trail if anything is questioned about the process later and will remind you of what has been discussed, as you go through the process if this takes some time or involves various personnel within your business. This can help with consistency if more than one voluntary redundancy is being considered, too.
- If an employee is successful in their application for voluntary redundancy, make this clear in writing. Also note that you will need to allow an employee being made voluntarily redundant, the same rights that they would have had if being made compulsorily redundant in respect of paid and unpaid time off to find new work. Further details of these rights can be found here.
- When offering an enhanced redundancy payment, you might wish to consider making this subject to the employee signing a Settlement Agreement. This is a legally binding document in which the employee will waive their rights to bring any claims arising from their employment in return for the enhanced payment. There are various statutory requirements that must be satisfied for an agreement to be binding, including the employee receiving independent legal advice, which you, as the employer will typically fund, but can give you peace of mind and protect your business from any future claims..
What should I include in the voluntary redundancy offer?
There will be several items you will be required to include as well as extras you may choose to negotiate individually with staff or offer to all volunteers as an incentive to accept voluntary redundancy at an early stage. You will have to ensure that you pay:
- Statutory entitlements including minimum notice pay, accrued and untaken holiday pay to the employee’s termination date and statutory redundancy pay if the employee qualifies for this.
- Contractual entitlements including salary and benefits to the employees termination date, any enhanced entitlements to redundancy pay in an employee’s contract of employment and any other contractual payments such as bonuses due.
- An enhanced payment for volunteering for redundancy will need to be offered to incentivise employees to volunteer and allow for a reduced redundancy process. The extent of the financial incentive will be a matter for your business, our experts can assist with negotiating on your behalf.
In addition, it’s likely you will want to include additional discretionary contractual benefits such as a bonus or commission to encourage employees to accept voluntary redundancy and leave sooner. If employees are likely to lose out on these payments by leaving earlier, they are probably more inclined to wait for a formal redundancy process to be concluded if there’s a chance they won’t be selected for redundancy and will retain these payments if still employed..
Having an open mind, being creative and considering suggestions of volunteers but being aware of what the business is not able or prepared to agree, is advisable.
Do I have to accept an application for voluntary redundancy from an employee I want to keep?
The short answer to this is no, you do not have to accept offers from employees to take up voluntary redundancy if they are business critical. If the employee volunteering is someone with specialist skills that would be very difficult to replace, and you have no similar resource within the business, then it may be possible to refuse them. You would need to be able to support your refusal with sound business reasoning as to why that particular volunteer is business-critical and therefore unsuitable for redundancy.
To avoid future conflict on this issue it is advisable to make clear to employees when you first invite them to apply for voluntary redundancy that you can reject their applications, and what process will be followed to decide which applications will and will not be accepted, if there are too many applicants.
As with a compulsory redundancy process, if you are selecting which applications will and will not be accepted you must make a fair and objective assessment based on objective criteria such as role, skills, attendance and disciplinary record and ensure that you are not being discriminatory in the criteria you use and the application of those criteria. Keep clear, written records, especially if you are not accepting all applicants for voluntary redundancy, which then leads to compulsory redundancies being needed.
In the same way as you not being required to accept all applicants for voluntary redundancy, the employee may decline to accept the package offered for voluntary redundancy, even if they initially applied and their application was accepted. The employee’s circumstances may have changed, or they may feel that the offer is not sufficient to allow them to continue with the process. This should be accepted, and the process continued with other volunteers (if there are any) or you could increase the offer made to the employee to see if they will reconsider on that basis.
What are the pitfalls of voluntary redundancy to be aware of?
Whilst on the surface voluntary redundancy may appear to be a straight-forward and low risk option, this does not mean that there is no risk associated with the process. Just because people are prepared to apply for voluntary redundancy does not mean that redundancies should be made if they can be avoided and so even before a voluntary redundancy process, attempts to avoid redundancies should be made first.
One drawback of voluntary redundancy is that it may lull you and other staff into a false sense of security that once this faster process is completed, there will be no further redundancies required. This may not always be the case, particularly if you did not receive as many volunteers for redundancy as you needed, and you may still be required to make compulsory redundancies too which could lead to lower morale amongst the remaining workforce.
Similarly, you may end up with a long process akin to one of a compulsory redundancy process if there are too many applicants. This can lead to upset and demotivation for those that want to be selected for voluntary redundancy and you will both be acutely aware that they want to leave the business, which may have an ongoing, damaging impact on the future working relationship.
Summary
Whilst voluntary redundancy is an option to reduce headcount and it may reduce or eliminate the need for compulsory redundancies, you should ensure that you give due consideration to what you are trying to achieve as a business and the financial package that you will offer before inviting employees to apply for voluntary redundancy. If you would like assistance with voluntary redundancies, our expert employment lawyers can advise you, whichever stage of the process you are at.
