The “Protective Award” Penalty – ignorance can be costly
At a time when some large retailers are announcing collective redundancies employers need to consider their obligations or face paying compensation in the form of a “Protective Award.” Are you aware of the potential implications?
Despite the Office for National Statistics confirming that unemployment rates continue to fall, some sectors, in particular the retail sector, are still suffering. In the last month alone, John Lewis, Fenwick and Avon have all announced that they will be making mass redundancies. The law imposes certain obligations on employers in situations of collective redundancies.
Duty to Inform and Consult
If more than 20 employees are at risk of redundancy at a single establishment within a 90 day period, an employer is under a statutory duty to inform and consult those affected employees. A trade union representative or employee elected representative should be appointed for this purpose. Certain details should be provided by an employer including the number of employees at risk, reasons for the redundancies, the selection criteria to be used and how redundancy payments will be calculated.
Time Limits
There are strict time limits which can result in an employer facing a fine if unobserved. Where there are proposed redundancies of the roles of 20 to 99 employees, the minimum consultation period (before any redundancies take place) is 30 days. For 100 or more employees facing redundancy, the minimum period is 45 days. An employer must also notify the Redundancy Payments Service within these timeframes by submitting a prescribed form.
Employment Tribunal Claims
If an employer does not comply with these requirements, they may expose themselves to an Employment Tribunal claim. Indeed, Poundworld recently found themselves facing a claim when over 180 former employees lodged a claim at an Employment Tribunal. They allege, the retailer who entered administration earlier this year, failed to consult with them before making collective redundancies. They are seeking an award of compensation of up to 90 days’ gross pay, known as a “Protective Award”.
Punishment of non-compliant employers
Employers should be aware that the purpose of a “Protective Award” is to punish non-compliant employers. As such, its award is made in addition to notice pay and redundancy pay. There is no required period of service for an employee to bring such a claim. There is also no cap on an employee’s weekly earnings for the purposes of calculating a “Protective Award” (although there is a cap on the amount the Redundancy Payments Service will pay out which usually happens when the Company becomes insolvent). This can increase costs for an employer already facing tough times in having to make mass redundancies. Last year, Phones 4U were ordered to pay £1.4 million by a Tribunal having “dismissed staff overnight without warning”.
Named and Shamed
There have been plenty of examples in recent years of employers who have simply got it wrong. Where there has been a “complete failure to consult” as the Tribunal held there had in the City Link case in 2016 and in the BHS case last year, a Tribunal is likely to order an employer to pay the maximum award of 90 days gross pay.
The recent cases have shown that it can prove extremely costly, in both financial and reputational terms, for employers who fail to comply with the legal requirements. If an employer is therefore in any doubt as to their duties and obligations during the redundancy process, they should always seek legal advice before taking any action.