Cutting jobs at financial firms is often more complex than in other organisations. We explain how HR can navigate these tricky waters
Post-financial crisis, ‘redundancy season’ has become an inherent part of life in the City. The shifting market and regulatory backdrop have led to swathes of job cuts as companies restructure to fit the new landscape. Some commentators suggest that the uncertainty of Brexit seems certain to perpetuate redundancy season as a fixture in the City calendar. This uncertainty will likely hang a cloud of over tens of thousands of jobs. Questions over whether ‘passporting’ rights will be preserved is raising questions in the big US banks, and UK banks are said to be re-evaluating those parts of their businesses trading EU securities.
Against this backdrop, it is important for HR teams to review and consider the particular considerations affecting redundancies in the context of the high-reward, high-octane culture of the City.
Is it even a redundancy process, or should it be?
Traditionally, City employers have sought to avoid using the word ‘redundancy’. In some cases, formal redundancy processes have been routinely ignored and employees dismissed with immediate effect. In such situations, employees might be presented with settlement agreements with an offer that exceeds their contractual and statutory entitlements. Employers like the immediacy and simplicity of this option as it usually avoids time-consuming negotiations with (or claims from) employees and their legal representatives.
Although this ‘traditional’ practice remains common, one further consequence of the financial crisis may have been a shifting view that this ‘race to settlement’ has become an unnecessary example of City largesse. Why pay termination sums in excess of legal requirements, when a fair redundancy process can achieve the same result perfectly equitably without such great expense? Many more City employers are now following more ‘normal’ processes of collective consultation, using fair and transparent redundancy selection criteria, and carrying out individual consultation. Provided an employer follows a fair procedure and the redundancy is genuine, there is no particular reason they wouldn’t be able to successfully defend any claims for unfair dismissal.
There are still exceptions, though. In cases involving senior or high-value trading roles it may sometimes be regarded as inappropriate or potentially ‘high risk’ to subject an employee to a redundancy process. For example, a senior trader, fund manager or similar may not be subject to a redundancy process. This is partly because unfair dismissal compensation would be a relative ‘drop in the ocean’ in terms of the overall contractual severance package, but also because it may be seen as contrary to client or investor interests for a trader, fund manager or other senior employee to be trading and operating at a time when they are subject to a potential risk of redundancy.
Is the money right?
When an employee is faced with redundancy, the first issue they will be advised on is whether they have any legal claims. Being aware of the likely legal arguments an employee might deploy can help a business choose how to pitch an initial offer, and subsequently lessen the likelihood of protracted negotiations. Employees with more than two years’ service are entitled to a relatively nominal statutory redundancy payment. Compensation for unfair dismissal is higher but limited to the lower of an employee’s gross annual salary or the statutory ceiling, which is currently £78,962.
For senior staff, the bigger consideration can be their contractual entitlement to any earned or prospective bonus, stock options or other forms of deferred pay. Employees may lose out if redundancy results in the forfeiture of unvested options. Often, employers have made bonuses conditional on the employee remaining in employment and not being under notice of dismissal at the time payment becomes due. An issue potentially for employers dealing with this type of employee would be to time the redundancy process for an appropriate point in the year to avoid unconditional entitlements accruing to such entitlements.
Special risk factors
Perhaps the biggest risks, particularly given the high level of remuneration in the City, are instances where an employee may feel that their selection for redundancy has been influenced by, for example, discrimination or as a result of a previously protected disclosure (whistleblowing). If these circumstances can be successfully argued by employees, neither the normal statutory ceiling on the award for unfair dismissal nor the two-year qualifying period of continuous employment apply.
Smoothing the process
A shift away from what may have been seen as unnecessarily generous settlement agreements may, on another hand, make it more important – both for redundant staff and their ‘surviving’ colleagues – to make sure the human side of things is well handled. Once commercial terms of settlement are agreed in principle, there are other issues that can matter greatly to employees. These might include references, questions of garden leave or immediate termination, prompt access to good-quality outplacement counselling, a sensible approach to post-termination restrictions, and even continuing provision of private medical insurance or other benefits. Addressing these issues appropriately, alongside running a fair and well-handled redundancy process, can often go far in mitigating the protraction of negotiations and can help to maintain a degree of goodwill with the departing employee.
This article first appeared in People Management.
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