When is a redundancy not a redundancy?
When it’s a ‘Some Other Substantial Reason’ dismissal. When restructuring their businesses employers often confuse redundancy with SOSR, and make unnecessary compensation payments.
Imagine a typical scenario. Employer A has a direct report B and B himself has 4 reports. To increase efficiency and save costs A decides to take on the management of B’s reports himself and to make B ‘redundant’.
To decide whether this is actually a redundancy scenario we need to establish whether:
The work in B’s area has reduced or is no longer needed at all
The place of B’s work has changed substantially
If either of these statements are true, then it is probably a redundancy scenario, but given that in our example there is no mention of the amount or location of work changing, it is not – if B is dismissed (and assuming there are no other reasons for the dismissal) he would have been dismissed on the basis of an organisation restructure, and this is known in employment law as ‘some other substantial reason’….or SOSR for short. An SOSR is a category of dismissal into which a fair dismissal that doesn’t fit into one of the other potentially fair dismissal categories (redundancy, conduct, capability and legal reasons (e.g. a driver who loses his driving license.))
Why do we care? Mainly because if B had more than 2 years’ service he would qualify for a statutory redundancy payment. Given that (at the time of writing) this could amount to £14,670 that could be a sizable unnecessary expenditure for the employer. (NB, the employer may still choose to make a payment for compensation for loss of office to the employee (subject to HMRC rules) but the point is that this is a choice for A as the employer – it’s not mandatory.)
The other reason we care is that in the albeit unlikely event that HMRC should look into the redundancy payment, both A and B could face a tax bill, and A could face penalties for paying redundancy pay (which can be tax free to £30K) for a ‘redundancy’ that was in fact an SOSR dismissal.
Now that we understand the technical difference between the SOSR and the redundancy dismissal, what about the process that should be followed? Well actually the process is much the same, and the following steps should be taken whether following an SOSR or a redundancy route:
Inform employee that they are at risk of having their employment terminated and why
Explore alternatives to the dismissal & consult with employee
Look for ways to mitigate the impact of the dismissal if it can’t be avoided altogether
Allow sufficient time for the above steps to be properly taken
Serve notice of a minimum of 1 week per year of service or the contractual notice if this is higher
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