Author: Stephanie Clarke at SA Law.

In November it was announced that Made.com was going into administration. Although the online furniture brand has been bought by retail giant Next, it was confirmed that 320 employees would still be made redundant. Some employees are pursuing legal action after they were informed they’d be losing their jobs with immediate effect on a video call.

Made.com

With the number of employees that were being made redundant, Made.com was obligated to go through a process of collective consultation with the employees if they wished to make redundancies lawfully.  This involves notifying the Secretary of State in advance of the proposed redundancies, electing staff representatives with whom to consult on the affected employees’ behalf, and consulting for a minimum period of 45 days (given 100 or more staff were made redundant).

It seems this process was not followed and some Made.com employees, especially bitter after being informed they were being made redundant over Zoom, are seeking legal action and comparisons are being drawn to the P&O Ferries scandal earlier this year.

It is likely that these employees will be looking to claim any sums due under their respective employment contracts, a protective award of 13 weeks’ uncapped pay for failure to inform and consult properly (as per the collective consultation rules) and unfair dismissal in respect of the lack of process that Made.com appears to have gone through.

Made.com may try to rely on the ‘special circumstances’ defence to argue it was not reasonably practicable for them to follow due process, as the priority was trying to sell the business. However, this defence is limited in scope, and there is case law that insolvency in itself is not a special circumstance.

The impact of a failure to follow the correct procedure

The impact of a failure to follow due process when making staff redundant can be far-reaching. There are the obvious financial implications due to the costs involved in dealing with appeals, defending claims in the Employment Tribunal, and potentially making pay outs where claims go in favour of the employee. It is also important to mention that a failure to comply with collective consultation rules is a criminal offence, that could lead to companies being fined and prosecuted in a similar manner to that threatened against P&O when they proposed similar action a few months ago.

Some companies may decide that it is worth taking the risk of not following the correct procedures, in the hope that employees do not pursue a claim, and that if they do, the costs will be less than those of following the correct procedure in the first place. However, there are the less obvious and harder to quantify impacts of proceeding in this way. Increasingly, job seekers care how potential employers treat their staff and negative publicity around redundancies being made in unlawful ways damage a company’s image and can impact their ability to both attract and retain staff.

How to ensure the correct procedure is followed

The key to avoiding falling foul of the redundancy process requirements is effective planning and financial forecasting. It requires foresight to identify that a company may be facing financial issues if it carries on its current path, to explore the available options and to recognise that cutting staff costs may be necessary to protect the company. Unfortunately, it appears that some companies wait until the point of no return, once their financial position is so dire that they must make immediate and significant costs savings to have any hope of surviving, or as appears to be the case with Made.com, the point at which the company has already gone into administration.

Companies should be able to follow the consultation requirements and ensure a fair redundancy process if they allow sufficient time. This should also allow companies to explore alternatives to making redundancies, for example, alternative roles or voluntary redundancies. It is also important to obtain legal advice before embarking on the redundancy process to avoid any potential pitfalls. The process is complicated, especially when large-scale redundancies are involved, and it is easy to make mistakes.

Conclusion

With a recession looming, we are likely to see more companies making significant redundancies. Whilst this may be an inevitable consequence of an economic downturn, companies are strongly advised to try and avoid ending up in the position that Made.com finds itself. This will require identifying the potential need to make redundancies ahead of time so that the correct procedure can be followed. This is important both for preserving  brand and reputation, and to avoid further costs in defending, and potentially losing, legal battles with former staff.

Whilst employees will, in most cases, always be disappointed to be made redundant, following a fair process should at least go some way to avoiding leaving on such bad terms that they bring legal action against their former employer.