Legal

How to handle redundancies at the end of a construction project

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How should an effective redundancy process be managed when a construction project comes to an end? Alice Ruffell explains.

A redundancy situation arises when there is a business closure, a workplace closure or a reduced need for employees to carry out a particular type of work. As such, when a construction project ends, this can mean a redundancy process will be needed, but it may not be as straightforward as making those on the particular project redundant.

To run a legally compliant process a redundancy selection process which is ‘fair’ must be followed. Failure to do so can result in tribunal claims, wasted time, costs, reputational damage and even criminal sanctions. However, with competing commercial objectives, should legal compliance be the only concern?

What are the initial considerations?

One of your first actions should be to check if you are proposing to make more than 20 employees redundant, at one establishment, over a 90-day period or less. If so, there is a duty to undertake collective consultation and you must notify the secretary of state. There can be criminal sanctions, and costly tribunal awards, for failures to follow collective consultation.

What’s next?

Once you have identified the number of roles that you need to lose, you will need to identify the right ‘pool’ of employees. If a project is ending, it can be tempting to think you only need to include employees at that specific site, but this is not always the case. There are no set rules for who to include in a pool, but you should consider the type of work which is reducing, who is doing similar work and the extent to which some jobs are interchangeable, which may include other locations nearby.

For example, you have one project manager at a site where a project has ended, there are no new projects lined up in that area and you are proposing that the project manager role should be made redundant. There are two more ongoing projects within 10 miles of this site, each with their own project manager. The day-to-day roles, skills and qualifications are all similar. As such, it is likely to be reasonable to pool all three project managers as their roles are largely interchangeable and they are all sufficiently close in location that they could manage either site.

“If a project is ending, it can be tempting to think you only need to include employees at that specific site, but this is not always the case.”

Once you have selected your pool, the pooled employees should be notified that they are at risk of redundancy and meet with them to discuss the proposals and any alternatives. Continuing with our project managers example, for a fair process, you should meet with all three to let them know they are at risk of redundancy and that selection criteria will be applied.

Obviously, this process is stressful for employees and can be disruptive to business continuity. As such, your commercial preference may be to limit the pool to the site which is closing. Employers have some discretion over who is pooled, but smaller pools are more frequently challenged. It therefore becomes a balancing act between avoiding disruption and an unfair dismissal claim.

If you decide to select between employees, what do you do?

If you decide to run the process, you will need to ‘score’ the employees to determine which one should be selected for redundancy. While the scoring process should be based on objective, fair criteria, this creates another opportunity to keep continuity. Scoring criteria could include knowledge of the remaining projects or experience with specific clients. As with the pooling process, ‘unfair’ criteria may be challenged, so you should ensure that they do not indirectly discriminate against candidates (e.g. taking into account sickness absence linked to a disability).

Throughout the process alternatives to redundancy must be considered, including: suspending or restricting recruitment; limiting overtime; reducing the use of agency staff and contractors; lay off or short-time working; voluntary redundancies; or alternative vacancies.

If no alternatives can be agreed, at the final meeting, the project manager will be informed that they are redundant and should be given the right of appeal. They will be entitled to contractual notice pay, accrued holiday, a statutory redundancy payment (if they have more than two years’ service) and depending on what you offer, they may also be entitled to an enhanced redundancy payment, bonus or commission payment.

What alternatives are there?

A further option is offering an exit under a settlement agreement. The ability for an employee to waive any potential claims, usually for an extra payment, may be attractive where the commercial needs are more important than strictly following the ‘fair’ legal process. For our project managers, having one exit under a settlement agreement with an enhanced redundancy package may be preferable to taking all three through a stressful redundancy process.

Alice Ruffell is an associate in the employment team at Walker Morris.   

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