Settlement offers and redundancies: the cost of getting it wrong

Responsible employers are mindful of the impact redundancy has on individuals. They are also rightly concerned about the negative effects of redundancy consultation programmes on the morale of all employees involved, including those who remain with the business at the end.

Some of these negatives can be mitigated by making settlement offers which are more generous than statutory redundancy terms. Many businesses view settlement offers as a way to cut short usual redundancy timeframes in order to preserve resources for those jobs which remain viable.

However, it is crucial that, before making any such offers, employers understand the potential legal risks of not carrying out fair and lawful consultation.

This applies particularly where:

• there are 20 or more redundancies in prospect at one establishment;
• there is a reduction in headcount but not a complete workplace closure; or
• headcount in a particular role is being reduced but not to zero.

Miscalculations by employers in any of these situations can lead to the need to substantially increase settlement offers in order to avoid employment tribunal claims.

Most employees will be well aware of the economic strain on businesses but in such a tough job market it is natural for them to fight for the best possible exit package and businesses should plan accordingly.

Understanding the legal risks and correctly judging the level of settlement offer is matched in importance by getting the communications right. The happier the employees are with the way the business conducts itself in difficult times, the less likely they are to make claims.