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Basic steps in closing an office

Blog Post

Written by John Berry on 31st May 2020. Revised 4th November 2020.

4 min read

Empty Meeting Room drew-beamer-Se7vVKzYxTI-unsplashRegretfully there are many firms now considering closing an office, factory or other facility.

Nissan reported this week that they would close the Barcelona facility but keep and grow Sunderland. Many firms are doing the same, but it’s the UK facility that is to go. True, some are now looking to re-shore – bringing production or other function back from China to the UK. But possibly equal numbers are looking to set up facilities abroad, abandoning UK investment.

It’s a mess and we’ll only really see the scale of this churn in a year or so.

But what’s involved in closing a facility?

Let’s assume that you’ve a facility abroad and two in the UK. You’d like to close one of the UK offices.

There are two primary issues driven by the UK’s legislation. First, redundancy must be done for valid business reasons. Second, when employees are selected to be dismissed, this must be done fairly. The rest is process – important, but not fundamental.

A valid business reason is unique to the firm. Only the firm can say what’s valid for it. But when it comes to adjudication at a tribunal, the tribunal is qualified to make a post hoc judgement on its management’s reasons.

The firm must therefore start the process of redundancy with the development of a business plan. A business plan makes the argument for some future course of action that the firm believes will recover its business position. There will inevitably be many options in that business plan – and that’s important, because any tribunal will want to see that management considered all options and that redundancy is a last resort.

Simply, the need for redundancy should be easily shown using the business plan.

Firms often stumble at this first hurdle – they make the judgement that redundancy is so obvious that no business plan is needed. As a result, they risk the redundancy being judged unfair from the outset.

The business plan is the essential piece of evidence supporting the firm’s argument that redundancy was necessary.

The second issue is about fairness or process. Managers can’t just select at will the employees to be dismissed. Fairness comes from identifying the jobs that are redundant. All of some jobs will be redundant, while reduced effort will be needed in others meaning a reduction in headcount. When all jobs of a particular kind are to go, no criteria is needed. All employees doing those jobs will be dismissed. But more often than not, the firm still needs some effort somewhere.

So, if the business plan shows that it is not viable to keep a facility open, and if its jobs are unique, all jobs are redundant and all employees will need to be dismissed.

If the facility is one of two in a country, that uniqueness is tested. Often characteristics like physical distance between plants preclude employees being employed in either facility. In that case the jobs are not unique. Jobholders from both facilities will need be put together in a pool and the criteria used to select.

The test of uniqueness is tricky. Just because someone does a job in a particular way today does not mean that they could not change. An example is where two sales people cover different areas of the country. They are doing the same job and would need to be considered together.

And it’s in developing the criteria for selecting which employees must go that the test of fairness often becomes strained.

Criteria should focus only on characteristics needed to do the job, or that reflect the jobholder’s ability to do the job in the future. The scope is wide. In essence, management would want to select the person who will do the job best in the future. That would be judged reasonable when considering that the firm must, at this point, strengthen its position for the good of the employees who will be remaining.

So, when management elects to close a facility, it can only be standalone if its jobs are unique.

This idea of standalone facility applies too when a firm elects to close a facility in one country and open another abroad. Even if jobs are not unique and employees could travel to the new facility, it is in another jurisdiction. It is therefore a separate firm, operating totally independently. It might be morally reprehensible to close a plant in one country and ramp up production abroad, but it’s not illegal.

There are two key steps in closing an office.

First the closure must be necessary, and this can be proven using a business plan. Second, the whole process of redundancy must be done fairly. Critically, this involves determining redundant jobs and assessing all jobholders for dismissal using a fair criteria.