LEGAL EXPLAINER: Four things to consider when dismissing 50% of your workforce on the spot...
But Elon just went ahead and did it, didn't he?
Yep, it seems he did.
Although, looking beyond the headlines, Twitter's exact approach may vary from country to country.
And whilst, as a shock and awe tactic, it certainly caught the world's attention, it will, no doubt, come at a price...
There are, of course, many more than just four things to consider when pondering any restructure, let alone one as overtly brutal as Twitter's recent sudden downsizing.
On a purely human level, anyone who places their livelihood in the hands of any business deserves to be treated with dignity and respect, if being asked to leave.
Dispassion may garner a degree of respect in some quarters, but most will find it pretty appalling. To outsiders it’s not a good look. To insiders, it’s an even worse one.
Whatever Twitter’s staff retention rates were like before, they may be about to get a lot worse…
But, staying firmly in our lane, our four considerations stick to purely legal matters, so here goes:
1. Contractual rights
Any dismissal of any employee should be carried out in accordance with their contractual rights. Basically, you should give employees all of the things that their employment contracts says they're entitled to.
The main items are usually: salary (up to and including the date of dismissal); the benefit of their contractual notice period (which may be paid in lieu if the contract allows - but is always taxable), payment in lieu of any accrued but untaken annual leave, and the benefit of any contractually enhanced severance terms.
Those are the main ones, but each employment contract is different. Whatever the contract provides for, it should be honoured.
2. Unfair dismissal rights
One of the main planks of statutory protection in Employment law.
In addition to the rights in the employment contract, the law of the land (in the form of s.94 of the Employment Rights Act 1996) provides that all employees with more than 1 year and 51 weeks’ continuous service have the right not to be unfairly dismissed.
That means in order to dismiss an employee fairly (and lawfully), an employer needs: to have a fair reason (of which there are only a handful), follow a fair process, and act reasonably in all of the circumstances.
Twitter may point to “redundancy” as the potentially fair reason for these dismissals, and it will most likely have a good argument in that regard. But, if the employees being dismissed have already been selected, it is difficult to see how Twitter could have followed a fair process; that would have taken weeks.
Due process would typically involve: looking at the correct “pool” (i.e. the teams that are going to be reduced), placing those in the pool “at risk”, selecting those to be made redundant from the pool by applying objective and justifiable selection criteria, engaging in a meaningful one-to-one consultation process with those selected, and conducting a search for suitable alternative roles elsewhere in the business.
It simply can’t be done in a few days.
Sure, but what’s the cost of getting it wrong?
The remedy for a successful unfair dismissal claim has two main limbs:
a basic award
calculated by reference to age, length of service, and the statutory cap on a week’s salary. Basically, the same formula as that which applies to a statutory redundancy payment.a compensatory award
effectively loss of earnings until the employee finds a new job at the same level, but capped at either one year’s salary or £93,878.00 (whichever is less). There is a slight nuance in that, thanks to Polkey v AE Dayton Services Ltd [1987], if Twitter can demonstrate that these employees would have been dismissed anyway - even if the correct process had been followed - then this element will be limited. It's limited to what they would have earned in the time it would have taken to follow the correct process. However, the little blue bird in the ointment is: how can Twitter sensibly argue that, for example, employee X would have been selected above other employees in the “pool” had a proper selection process been followed, if it did not actually run the selection process? Pretty difficult.
It may be that Twitter simply targeted all employees with less than the magic 1 year and 51 weeks’ service. That would have been a cynical, strategic move, but as consideration 3 (below) goes to show, by no means a silver bullet to avoiding liability.
3. Collective consultation rights
When a business proposes to dismiss as redundant 20 or more employees within a 90 day period at a single establishment, a whole host of additional collective consultation obligations apply. And, for these purposes, length of service of the employees affected doesn't matter.
The process effectively involves: appointing employee representatives from those employees affected by the proposals, providing those representatives with certain statutory information, and then consulting with them for a minimum period of 30 days.
If the proposed dismissals number 100 or more, then the minimum consultation period is 45 days. If a trade union is recognised or a representative body is already in place, then the consultation should take place with them.
There is a potential defence where there are “special circumstances, which render it not reasonably practicable” for the employer to comply with this requirement, but the bar is a high one.
Also, the sanction for non-compliance is heavy. At up to 90 days’ actual salary per affected employee, it is one of the rare remedies in Employment law that’s punitive in nature (rather than compensatory). Put another way, it's 25% of the annual payroll costs in respect of all of those people being asked to leave. Not an obligation without teeth.
4. The obligation to file a HR1 Form
Whenever collective consultation obligations arise, an employer must notify the Secretary of State (for Business, Energy and Industrial Strategy) of it's proposals in the prescribed HR1 Form. And it needs to be done well in advance before the first dismissal take effect.
If the number of dismissals are between 20 and 99, it needs to be sent 30 days before. If 100 or more, 45 days before.
But it’s just another form, right?
Not quite. Failure to comply is criminal offence. Yes, a criminal offence – punishable by an unlimited fine.
So the stakes are always really high when considering any restructuring exercise, and early advice, good planning, and a sensible timeframe are absolutely key.
Mr Musk has tweeted that each Twitter departing employee will receive a minimum of 3 months' severance pay. In some jurisdictions that may be generous, but for London-based employees, it may not quite cover the extent of the above potential liabilities.
Depending on Twitter's exact approach, not all of the above liabilities may actually arise. However, if the employees to be dismissed have already been selected and notified, that does cast a huge question mark over the validity of any subsequent attempts at consultation.
The cheque to be written to London-based employees may, therefore, need to be slightly larger...
For more information or help with any related queries, do contact: john.skelly@bakerskelly.com
The above is intended as general commentary only and is not a substitute for specific legal advice. It relates to the law of England and Wales only and to no other jurisdictions.
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