Tech redundancies: Managing the process and reputational risks in the UK
Last month, Meta and Twitter, two of the tech sector’s largest players, announced they were making large-scale redundancies. While significant, this is unfortunately not surprising – the UK economy is expected to be in recession until the middle of 2023 and the tech sector in particular appears to be struggling to sustain the growth it has enjoyed over recent years.
High energy prices, elevated inflation, rising interest rates and global economic weakness have all led to businesses having to look elsewhere to make cost savings – and headcount is often the first port of call.
The tech sector has been hit particularly hard and the headlines speak for themselves: Snapchat cut 1,300 jobs back in August 2022 after failing to meet its growth plans, Meta cut 11,000 jobs this month following serious revenue losses, Twitter made 7,500 redundancies reportedly by simply revoking employees’ access to their systems, and Amazon plans to cut around 10,000 jobs from its corporate workforce due to underperforming units of business such as Alexa.
While employers clearly cannot be expected to turn around the economy, they can and should take care to carry out pragmatic and legally compliant redundancy exercises when making these business cuts. This will not only reduce their exposure to unfair dismissal claims but will also ensure the business’ reputation remains intact at the end of the exercise.
But what makes for an effective redundancy process?
Planning
By their nature, it may not always be possible to plan redundancies several months in advance and businesses often do not have the luxury of time in a challenging economic climate. However, quick knee-jerk reactions to a financial downturn will not only shock and upset employees whose roles are made redundant but it will also unsettle employees who remain in the business.
In the long run, a considered redundancy process will put the business in a much stronger position to counter any arguments from disgruntled former employees while also retaining the goodwill of its remaining workforce.
Knowing when and how to collectively consult
In the UK, employers are under a duty to “collectively consult” (i.e. to consult with elected employee representatives) if they are proposing to dismiss 20 or more employees at one establishment over a 90-day period. The purpose of consultation is to inform employee representatives of the business’ proposals, to explore ways to avoid or reduce redundancies, and to mitigate the impact of the dismissals on the workforce. Individual consultations must also take place with each affected employee. Employers are also required to notify the Department for Business, Energy and Industrial Strategy of the proposed redundancies and failure to do so risks criminal liability.
Collective consultation is not just a tick-box exercise to complete before making the redundancies. Decisions should not be pre-determined and employers should enter into consultation with an open mind and a view to reaching agreement over ways of avoiding the redundancies. Collective consultation should, therefore, start when the redundancy proposals are at a formative stage, including where alternative courses of action are still being considered. Employees must not be dismissed before a minimum of 30 days has elapsed since the start of the collective consultation process for businesses with 20-99 affected employees, rising to a minimum of 45 days where 100 or more redundancies are proposed.
There is a legal defence where, due to “special circumstances”, employers have not been able to comply with collective consultation obligations, but this applies only in exceptional circumstances.
Using elected representatives
The collective consultation process begins by providing elected representatives with specified written information. If there is no trade union or sufficiently mandated representative body in place, employers should ensure employee representatives are elected to represent those affected. Legislation sets out specific rules about how to hold an election, including how to nominate candidates.
If the employer already has an existing body of employee representatives elected for the purpose of collective redundancy consultation, this means they will be able to commence the consultation process without delay – which will help the business react faster to external commercial pressures.
Contemplating offering voluntary redundancy
Sometimes businesses want to offer voluntary redundancy to the workforce to stabilise the workforce. Voluntary redundancy ensures that the process first captures employees who are already disengaged or want to leave the business. This, in theory, should reduce the risk of upset as employees are leaving voluntarily and are unlikely to bring unfair dismissal claims.
However, commercially, this is not always the best solution as the business risks losing its star players who have either already received or have confidence in receiving other job offers. The business will also lose the opportunity to take advantage of the situation and reduce the number of poor performers in a redundancy exercise focused on performance.
It is worth remembering that voluntary redundancies still count towards the threshold of 20 employees which triggers collective consultation obligations.
Managing the business’ reputation
It’s clear from recent news that the reputational impact of getting redundancies wrong can be significant. Redundancy is an inherently unpopular course of action and needs to be handled with the utmost caution and sensitivity. Twitter, for example, has been heavily criticised in the media for its alleged failures and handling of its workforce. Social media also provides employees with a platform to air their feelings and this can easily be picked up by the mainstream media and shared across multiple platforms within hours. As a result, proper management of a redundancy process, using pragmatism and consideration, is essential to minimise the risk of disgruntled employees publicising their opinions, especially in a consumer-facing sector featuring many household names.
Carrying out a redundancy exercise is often a complicated and emotive task, and it is sensible to seek legal advice at an early stage. There’s no pleasing everyone, but businesses in tech or other sectors will be in a much stronger position if they can show that they acted reasonably, consulted with an open mind, complied with their legal obligations, and considered ways to mitigate the impact of any redundancies on all those affected.
How bad can it get?
In addition to the potential reputational damage, employers who act impulsively and do not properly consider the legal risks are likely to find themselves on the receiving end of unfair dismissal claims. Compensation awarded to each successful claimant is up to one year’s pay or the statutory cap (currently £93,878).
In addition, where employers fail to meet their collective consultation obligations, they could be liable for up to 90 days’ pay per affected employee (i.e. a quarter of the wage bill). On top of this, there is a risk of criminal liability if employers fail to notify the Secretary of State about the redundancies.
Emily Hocken is an associate at law firm Stevens & Bolton.