The pressure of competition in the motor manufacturing industry has been particularly acute during the past few months, with factory closures in the UK's automotive heartlands. Most recently, General Motors announced 1,000 redundancies at its Vauxhall car plant in Ellesmere Port as part of a 90-point plan by the company to reduce costs.

Less than a month before General Motors, Peugeot announced its intention to close the Ryton car plant near Coventry with the loss of 2,300 jobs. Added to the Birmingham MG Rover plant closure, the West Midlands has lost nearly 10,000 jobs in just over 12 months.

Despite claims to the contrary, these are difficult decisions for employers to make – especially when factories such as those in Ryton and Ellesmere Port are often integral to the local economy and major employers for the area. At the same time, however, the overriding driver in a decision like this is a determination by the employer to ensure its manufacturing capability is competitive in a global context. The closure of one workplace may be the salvation of others through greater economies of scale and increased production for the factories that remain.

Taking a closer look at the legal issues surrounding plant closures or a reduction in output highlights the important consideration given to decisions such as those at Ryton and Ellesmere Port. The issues are numerous and often contentious. All require careful planning and attention both before a decision to close a factory is made and throughout the sub-sequent months as production is scaled down or moved to another location.

Business performance and competitiveness – often the drivers in such decisions, can quickly be eroded if detailed planning around a closure is not considered. It is certainly not just a case of turning off the lights and shutting the door.

Making people redundant is the headline issue in any plant closure. In any mass redundancy situation where more than 100 people are losing their jobs, employers must undertake a minimum period of 90 days' consultation with trade unions or elected employee representatives before any redundancies can take effect. For those making less than 100 but more than 20 employees redundant over a 90-day period, the minimum period is 30 days of consultation.

Employers are obliged to inform and consult with employee representatives to avoid the significant penalty of 90 days' pay for each affected employee. Remember that an employment tribunal can award in respect of the whole workforce even if only one affected employee brings a claim.

Employers also need to ensure that employee representatives, and the workforce as a whole, accept that the employer is acting in good faith – notwithstanding the circumstances of mass redundancies. Employers also have a statutory obligation to notify the Department of Trade and Industry where more than 20 employees are made redundant over a 90-day period. It is a criminal offence if an employer fails to do so.

During the consultation period, the employer needs to ensure that as good a redundancy package as circumstances allow is offered to employees. Not only might any redundancy payments be the final opportunity for employees to prepare for unemployment or for lower paid employment in future, it also may provide the last opportunity for the employer to recognise the contribution that workers may have made to the business.

Working out a suitable redundancy payment is a sensitive and critical matter. Statutory notice pay is a maximum of 12 weeks' pay for 12 years' or more service. Statutory redundancy payments are calculated by reference to an employee's age, length of service and a "week's pay" – capped at £290. These give rise to a maximum payment to an employee with 20 years' service of £8,700. However, this is usually just a starting point in any negotiation by an employer with a trade union during a factory closure.

Sometimes workers can relocate, particularly where a factory or manufacturing process is being moved to another site and where that employee's expertise and company knowledge is invaluable. However, that is not an option for many employees and, indeed, raises a number of other employment law considerations. In addition, the growing trend of taking operations offshore to 'low-cost countries' makes relocation unlikely.

Although redundancy issues are paramount in any factory closure, the human resources (HR) and commercial law aspects go much deeper. In many plant closures – and Peugeot looks to be no exception – the manufacturing process needs to continue for a period of a year or more while production is transferred or scaled down.

Ensuring that outstanding orders and customer requirements during that run-down period are met becomes a business-critical issue. In these circumstances, incentivising the workforce is essential in ensuring production targets are met and 'wildcat' strikes are avoided.

The incentive can be an additional payment, paid out either when an individual employee is made redundant during a run-down period or following the final closure of the factory. Incentive payments should be linked to the achievement of production targets, customer contracts being met and the plant and equipment being successfully disposed of, mothballed or relocated to another manufacturing plant. If these targets are not met or if industrial action is taken during the run-down period, then the whole workforce may lose out. If an individual employee is guilty of misconduct then the incentive bonus may not apply to them.

A manufacturer may hope or expect that by closing one plant and relocating production to another, they may be able to offer a more competitive price to their customers. However, achieving this is complex and often dependent to a certain degree on maintaining reputation with your suppliers and customers throughout the plant closure process.

From a customer perspective, a detailed plan must be in place to ensure that production continues and customer orders are met. For customers, as well as for dealers and component suppliers, prompt and clear communication is essential to help retain confidence in the marque.

Customers need to be reassured that factors such as the quality of the product or the ability of the business to deliver will not be affected by the factory closure.

With respect to the manufacturer's suppliers, in most cases factories will have longstanding supplier arrangements that will come to an end when the plant closes. This may well have redundancy consequences for suppliers and could jeopardise supplies to the manufacturer's other plants as well as continued supply to the factory during the run-down period. It will be necessary to ensure that the damage to sup-pliers as a result of any plant closure is kept to a minimum and that key suppliers are offered the prospect of improved supply to the manufacturer's remaining plants as an incentive to cooperate with plant closures.

Sadly, chronic vehicle oversupply, the jostle for market share, increasing raw material prices and the availability of cheaper non-UK labour may continue to persuade certain manufacturers to relocate UK production.

However, it is important not to over-state the apparent demise of the UK automotive industry. The UK produced 1.6 million cars last year – a figure that has remained fairly static for the past 10 years.

Moreover, the UK is fast becoming a global centre for engine manufacture and has attracted successful investment from a number of leading Japanese manufacturers such as Nissan, Toyota and Honda.

This is no consolation for those workers affected by closures and for the employers that have to make these difficult decisions. However, it is worth remembering that the difficulties around factory closure in the UK aside, it is still easier to open factories in the UK than in other parts of the European Union. Our employment laws are more attractive to manufacturers from the Far East looking to establish a presence in western Europe than those of, say, France or Italy. The days of automotive manufacturing in the UK are far from over.

Julian Hemming is an employment law partner, Lara Burch is a commercial law partner and Miles Trower an associate in the automotive practice at Osborne Clarke.