Employee retention must be a key focus for any business as the UK continues to struggle with a labour and skills shortage. Unfortunately, there will always be some attrition occurring, whether this be forced or voluntary.
In our recent SME Survey, we asked SME Business owners, what the top three most important aspect of people management was for 2023, and employee retention was the top answer, with a 50% of the vote. Interestingly, recruitment was the third top business challenge, scoring 33%. How employers treat employees including at the end of the employment relationship, can influence both theses areas of people management, as we discuss in this article.
How employers manage ending the employment relationship is another vital aspect of the employment lifecycle. When managed effectively, it can limit tribunal claims, leave a positive mark for a potential return, assist the business in understanding root causes of attrition as well as feed into a retention strategy to prevent unwanted attrition.
How employment can end
To understand the considerations for managing the ending of employment, it is helpful to distinguish the various ways in which employment can end.
First, turnover can be classed as either voluntary or involuntary. The former including when someone resigns or retires, the latter is when someone leaves because the employer terminated the contract, for which there are several potentially legally fair reasons.
- Voluntary
- Resignation
- Retirement
- Involuntary
- Conduct dismissal
- Capability dismissal
- Redundancy dismissal
- Dismissal for some other substantial reason
- Dismissal for a statutory illegality or breach of a statutory restriction
Planning
With the ending of employment, there is often the need to consider the status quo and consider what resource is needed moving forward. Planning next steps is vital, regardless of the reason for the employee leaving.
Resignations
In a resignation situation, it is a good opportunity to assess the role, its purpose, whether the responsibilities remain fit for purpose or even, if it is still required. There is also generally a period of time in which the business can plan for the departure and put next steps into place as most employees will serve their notice period. Although, there can be situations where the employee fails to work their notice and leaves with immediate effect.
Retirement
There is no longer a fixed retirement age, so for employers, there is no longer the ability to know which employees are due to retire in the year ahead. An employee simply serves their contractual notice to end their employment on retirement grounds and given that more employees are remaining in employment for longer it becomes less predictable.
Those employees who have good open lines of communication and relationship with their managers may naturally raise retirement in workplace discussions, which is ideal because the business can gain an idea as to when the individual is wanting to leave work. However, this doesn’t always happen.
When a retirement date is known, then planning can begin for supporting the employee transition out of employment and to consider what the business wants to do with the role after the employee has left. Is a replacement required? If so, does the job description need reviewing and updating? Is there an opportunity to outsource the work to keep costs down? These are important discussions when you know a role is to become vacant.
Ending employment through formal processes
Planning in the context of involuntary leavers as a result of a formal process, such as disciplinary or capability is more difficult, simply because it is not known whether a dismissal will occur until the time of the formal hearing.
However, in the general management of a department, it would be best practice for a manager to have a high level awareness of what employee relations activity is ongoing at any given time. So, it would be reasonably necessary to know of anyone who may be on a formal warning, or at the end stages of a formal process. Again, whilst it is never a definitive guide as to what happens next, managers can at least identify level of risk for potential turnover.
Redundancy
Prior to any proposed redundancy is communicated, there will be a lengthy period in which the employer will be examining the business circumstances, looking at what the business needs moving forward, identifying a way of working for the future and how the business needs to be structured to achieve success moving forward. As part of this assessment process, considerations will be given to current headcounts, where the headcount is currently in place, to therefore establish headcount for the future, and how roles are to be structured.
As part of this planning, the organisation will forecast when a new structure, roles, reporting lines will be in place, and therefore identify how to get to this point through proposing redundancies, upskilling, or even outsourcing.
Exit Interviews
Exit interviews are an ideal opportunity for you to learn where improvements can be made within your organisation. They are a discussion with an employee who has resigned from your employment. A record is normally made of the interview and the results used to identify and address any areas for improvement.
Exit interviews can be undertaken by the direct line manager or, more frequently, by a member of the HR department or some other nominated person who can be more impartial and with whom the employee may be more inclined to be honest.
With the current recruitment challenges, it is more important than ever to focus on how to retain your employees, by using exit interviews, this will give you a valuable insight into the views and opinions of employees who make the decision to leave.
Off boarding
Off boarding is essentially, the practical side of how you deal with an employee leaving the business – think of it as the opposite of onboarding. It involves the resignation response, how you handle notice periods, holiday, garden leave and the handover of work. There is much to think about, for instance:
Resignation Response
Consider that even when an employee resigns, it is important to provide an excellent employee experience – you never know, it could make the difference in them wanting to return in the future!
How you treat your employees including at the end of their employment, is a good advert for future employees who may be directed to your business by the employee who has left. Word of mouth is an important tool to rely on especially at a time when there is a labour shortage and recruitment is challenging.
Little touches such as a formal letter of response, acknowledging their resignation, recognising their contribution to the business and wishing them well in their future career, costs little and makes the employee feel valued. Or, issuing a leaving card from the team/department is another way to maintain good employee relations at the end of employment.
Perhaps have a senior manager, or the CEO meet with the employee during their notice period. Wishing them well, and enquiring about where they are going, and seeking feedback on the business can provide useful insight for management on not just how the business could improve, but seek information on what other organisations’ offer.
Notice Period
When an employee resigns, they are terminating the contract of employment and must serve the required notice. For some, it will be the statutory notice period, for others, it would be a contractual notice period. Remember, that whichever is the greatest out of the statutory and contractual notice, that is what must be served. The statutory notice periods are:
- Within the first month of employment
- Between one month and two years of employment
- One week’s notice for each year if employed between 2 and 12 years
- Twelve weeks’ notice if employed for 12 years or more
If an employee fails to serve their notice, they are in breach of contract for which an employer can take to the small courts. However, for the time, money and effort, this is rarely carried out.
If an employee asks to not serve their full notice period, it is an operational decision by the business on whether to allow this or not, and based on business needs.
In the situation where the employee ends the employment (involuntary leaver), then it will depend on the contract of employment if the employer has a legal right to not require the employee to work their notice, but instead receive payment in lieu of notice (PILON). Where there is not a clause allowing this, but the employer still enforced it, it would amount to a breach of the contract because the employee would have a legal right to be at work.
Quite often, it is common for employees to not work their notice following a formal disciplinary or capability hearing that resulted in their dismissal. In redundancy situations it can be either, and depends how the employee wants to leave. For some, they want the time to say goodbye to their colleagues, or the business may require some form of handover. For others though, if they feel anger or resentment, then they may prefer to leave with immediate effect.
Garden Leave
Some contracts of employment include a clause that allows the employer to place the employee on a period of ‘garden leave’ when they resign. This is essentially to allow them to work their notice but at home, but they must still be readily available for work, if the business requires. Garden leave is usually implemented either in more senior roles, or roles that are specialised or technical and by allowing the employee to serve their notice at work, to protect the business, the employee would be placed on garden leave. The employee remains employed and continues to receive all contractual terms and conditions.
Annual leave
Another issue to consider is how to manage annual leave when someone leaves. It can be common for policies to require any untaken annual leave to be taken during the notice period. Any outstanding holiday at the point the contract ends, must be paid in the employee’s final pay, or if they have taken too much than they were entitled, this amount can be deducted from their final pay, assuming the contract of employment allows.
Handover
Handovers are crucial and occur on most occasions. Clearly there will be some scenario’s where it is not possible, such as following a conduct or capability dismissal hearing, or when employees resign and leave immediately, but in most other situations they are an important tool. They help the new employee to transition into the role, gaining valuable information from the current post holder. It allows the business to have a thorough understanding on outstanding work and it can help provide a smooth handover between all parties.
Fair process
When the employer ends the contract of employment there are several steps that are fundamental to ensuring a legally fair process – here are some examples, although this is not an exhaustive list, as each case will bring its own set of circumstances.
- Was the reason for one of the five statutory reasons?
- These are conduct, capability, redundancy, some other substantial reason or for a statutory illegality or breach of a statutory restriction.
- Was a fair process followed?
- Was the decision to dismiss, within the “band or range of reasonable responses”
- As part of a fair process in a sickness capability dismissal (or even performance capability where the underperformance was as a result of poor health), was medical evidence sought, and if so, was it up to date?
- Where there are health issues involved in a formal case that leads to dismissal, an employer must seek expert medical advice. Line Managers are not medical experts and in the instance of a long term sickness case, one fundamental question is whether a return to work in the near future is likely? Only a medical professional can give medical advice on this.
- As each case will have its own set of circumstances, as a general guide, it is considered that if you are relying on medical reports that are older than 3 months, then requesting an updated report would be necessary.
- Where allegations have been made against another member of staff, have all concerns been fully investigated and responded to. Remember, employees can resign because of the actions of other employees or the company and claim constructive dismissal.
- Did you follow your company’s policies and procedures when handling the formal process, and was it in line with Acas Code of Conduct on disciplinary and grievance?
These are just some examples of making a formal process fair. We would recommend seeking HR Advice for specific guidance on any case you are handling.
Settlement Agreement
Settlement agreements can be offered at any stage in the employment relationship, so before an employee is dismissed as well as after dismissal, but care needs to be taken to ensure that when suggesting such an agreement this does not lead to a claim for constructive dismissal.
Also note that settlement agreements that cover situations where the employment is ongoing (eg underpayment claims) do not attract the tax exemptions that apply on termination of employment.
The situation and circumstances will determine whether you need to have a ‘without prejudice conversation’ or a ‘protected conversation’, both can result in a settlement agreement however, there are certain legal differences between the two and using the wrong one could lead in your conversations not being protected meaning they could be admitted as evidence at an employment tribunal.
A ‘without prejudice’ conversation requires there to be a dispute already in place between both parties and the conversation must be held with the genuine purpose of attempting to seek a compromise (to settle). There are no limitations associated to these conversations and so they can cover claims of discrimination, automatic unfair dismissal, unlawful detriment, breach of contract or health and safety matters.
Whereas, under section 111a of the Employment Rights Act, an employer is allowed to have an ‘off the record’ conversation with an employee to discuss exiting the business. This is known as a ‘protected conversation’ or ‘pre termination negotiation’ and allows the employer to have a full and frank conversation without fear of their comments being disclosed at an employment tribunal. In this instance, there does not need to be an existing dispute, only agreement from the employee to enter the protected conversation and the conversation cannot be improper.
There are limitations to this form of conversation and so it is restricted to straight forward dismissal and/or unfair dismissal cases. If conversations do not fall within this narrow definition, then any such conversations are not protected and could be admitted as evidence in an employment tribunal claim.
Supporting webinar
We recently hosted our webinar on this topic, which is available to watch on demand, here.
The webinar took a closer look at the final stage of the employment lifecycle and our HR Knowledge Manager shared key tips on how to navigate this difficult area.
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