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How do I change my business structure and what happens to employees I no longer need?

From time to time every business owner will look at the team and want to make changes that lead to employees having to leave. Unless this is generated by a reduction in the amount of work that needs to be done or a substantial change in the location of work, this is not the same as a redundancy situation.

At myHRdept we support more than a 100 mostly small (sometimes larger) businesses and are often called upon to advise on business structure changes.  Almost always business owners (and many HR people) wrongly assume that where employees fall out of the business as a result it must be a redundancy situation.  Most often however it is not, and the actual legal reason for the dismissal that should be used is a category called ‘some other substantial reason.’  Redundancy is another category (and also a potentially fair form of dismissal) but unless the dismissal arises from a reduction of work or change in location of work ‘redundancy’ is not the correct term for dismissal.

Thus could be important because if an employee is dismissed for reasons of redundancy then they will be entitled to the higher of statutory or contractual redundancy pay in addition to their notice pay. This could amount to up to 30 weeks’ pay for longer servers. Conversely an employee dismissed for ‘some other substantial reason’ will only be entitled to contractual or statutory notice.

Consider an example.  Business owner A employs two staff, B & C to perform particular roles for the business.  A decides that he will be able to do C’s role himself as well as run the business.  There is no reduction in overall work, it’s just that A believes the business is over-staffed and C’s salary can be saved.

How should A approach this change?  Here are our golden rules for achieving structural change safely:

  1. Construct a written business case (your myHRdept advisor can assist with this)
  2. Identify who is in the pool for potential displacement – in this case is A sure it cannot be either B or C?  Why?
  3. Meet with the employee who is at risk of displacement and inform him of this and of the reason (myHRdept will provide an ‘at risk’ letter and consultation form)
  4. Look at ways to avoid displacing C – alternative roles (even more junior), reduction in hours etc. This phase is generally known as the ‘consultation period’, and should be at least a couple of weeks, and larger businesses will have to make proper efforts to find alternative work
  5. Meet at least once more with C (allowing C to be accompanied by a colleague or Trade Union representative) to discuss any proposed alternatives to dismissal (either proposed by A or C.)
  6. In the absence of alternatives and having exhausted the consultation, dismiss C with notice for ‘some other substantial reason.’ (myHRdept will prepare the letter.)

The process above is very similar to a redundancy process but redundancy is not the reason for the dismissal and therefore no redundancy pay is due.  It may be wise to consider offering some compensation in exchange for a settlement agreement if the business owner wants a guarantee that legal action won’t be taken e.g. for unfair dismissal.  In this case the settlement agreement would normally be proposed between steps 3 – 5.  However, providing the consultation period is properly conducted and the business case is sound, there should be little risk of an employee pursuing a successful case at an employment tribunal.       

If you're thinking of outsourcing your HR why not contact myhrdept.co.uk. With start up packages from £65 per month, full service Premium Plus packages from only £110 per month and fixed price HR support options available for one-off issues, we believe we offer the best combination of quality and price available in the UK. Call us on 01628 820515 to discuss your requirements email us here and we’ll call you back.