With the current economic downturn, many employers have been forced to consider rationalising staff numbers. Given the negative publicity and political constraints that may surround the official announcement of redundancies, particularly in the public sector, some employers offer voluntary severance to employees as a more palatable alternative to compulsory redundancies. However, employers must bear in mind that volunteers for redundancy are frequently regarded in law as dismissed by reason of redundancy, and employers will therefore be required to comply with their individual or collective consultation obligations.

Voluntary redundancy or consensual termination?

Case law in this area has drawn a distinction between voluntary redundancy on one hand, and consensual termination or resignation on the other. The essential question a tribunal will ask is whether the termination can be attributed to the unilateral will of the employer. In effect, a volunteer for redundancy is regarded in the eyes of the law as agreeing not to object to an employer's decision to dismiss him. The rationale is that if the employer had not offered a voluntary severance package, the issue of termination of employment would not have arisen. Therefore, whatever terminology an employer uses to describe voluntary redundancy, a tribunal will look at all of the circumstances of the case to determine whether there has in fact been a dismissal by reason of redundancy. Genuinely consensual terminations are rare and it is prudent to assume that a volunteer for redundancy will be treated as having been dismissed.

Collective redundancy consultation

Employers must comply with their individual or collective redundancy consultation obligations in relation to volunteers for redundancy. Volunteers for redundancy must be included in the total number of employees proposed to be dismissed for the purposes of establishing whether the requirement for collective consultation is triggered. Therefore, the employer must calculate the total number of proposed redundancies, both compulsory and voluntary, and, if the number of proposed redundancies is 20 or more at the same establishment within 90 days, the employer has a statutory duty to collectively consult in relation to the proposals. The penalty for a failure to do so is a protective award of up to 90 days' gross pay, which is a substantial cost to the employer. The tribunal will award the maximum amount unless there are mitigating circumstances.

The legislation only allows for the period of collective consultation to be restricted or contracted out of in very limited circumstances:-

  • there must be a collective agreement in force with a recognised trade union that establishes arrangements for providing alternative employment in the event of redundancies or arrangements for handling redundancies;
  • the employer and the union(s) must apply to DBERR for an order to allow them to modify or exclude the statutory obligations to consult; and
  • DBERR may only agree in very limited circumstances, including a requirement that the provisions of the collective agreement are at least as favourable to the employees as the requirements to collectively consult under TULCRA.

Because the conditions for excluding or modifying the collective consultation obligations are very restrictive, in practice, no contracting out order has ever been made by DBERR (or its predecessors).

Impact on employers

As the credit crunch worsens, employers will seek to reorganise their businesses to cut costs. It is essential that employers considering reducing their head-count bear in mind their legal obligations in relation to redundancy.

The key points for employers are:-

  • to assume that volunteers for redundancy will be treated in law as having been dismissed;
  • to count volunteers when determining whether the obligation to consult collectively has been triggered, whether in relation to the volunteers themselves or any other employees proposed to be made redundant;
  • that overlooking these issues creates a real risk that the bottom line costs of a voluntary severance programmes will be significantly higher than budgeted for because of the exposure to protective awards and the costs of litigation.