What does redundancy mean?

Redundancy is a type of dismissal from employment. It is different to dismissal due to misconduct or capability.

Broadly speaking, redundancy occurs during one of three circumstances: business closure, workplace closure, and diminishing work of a particular kind in a particular place which leads to a business need to reduce the workforce. The decision does not need to be borne from business hardship – these changes may arise out of a restructuring project.

The dismissal of an employee where the decision is “wholly or mainly attributable to” to one of the above circumstances will meet the statutory requirement for redundancy under the Employment Right Act 1996.

Redundancy can be voluntary, meaning the employee puts themselves forward for redundancy and the employer agrees, or compulsory meaning an employer determines who is made redundant.

Read our article about fair dismissal

What is a settlement agreement?

A settlement agreement is normally used where the employee is expected to waive their right to claim against their employer for a variety of complaints. While not all redundancies are settled by way of settlement agreement, employers are using them more frequently as this will offer protection from claims post-termination.

Read our FAQs on settlement agreements

What is collective consultation?

Where 20 or more employees are being made redundant over a period of 90 days or less, an employer has a legal duty to inform and consult appropriate representatives and the Secretary of State. These notifications must be at least 45 days prior to first dismissal where 100 redundancies are planned or 30 days for less. This requirement is known as collective consultation.

What is the relationship between redundancy and unfair dismissal

Employees who have 2 years qualifying service are entitled to protection from unfair dismissal. Redundancy is potentially a fair reason for dismissal, however whether it is fair or unfair will depend on whether the employer acted reasonably in all the circumstances.

Potentially unfair circumstances may arise where a particular person is targeted or no alternative options to redundancy have been considered.

There are circumstances where the dismissal will automatically be unfair and in most (not all) of these cases there is no qualifying period of service meaning that the employee is protected from day one of employment. Including (but not limited to):

  • being pregnant or on maternity leave
  • wanting to take family leave, for example parental, paternity or adoption leave
  • being a trade union member or representative
  • asking for a legal right, for example to be paid the National Minimum Wage
  • doing jury service
  • being involved in whistleblowing
  • taking action, or proposing to take action, over a health and safety issue
What are alternatives to redundancy?

An employer should consider whether compulsory redundancies are avoidable. If the employer is undertaking collective consultation, this is one of the matters over which it has a statutory duty to consult the employee representatives. It should also consider this during individual consultation as part of a fair redundancy procedure. Alternatives could include:

  • Suspending or restricting recruitment.
  • Reduction or removal of overtime opportunities.
  • Ceasing or reducing the use of contractors, consultants and agency workers.
  • Offering suitable alternative employment.
  • Inviting redundancy or early retirement from the wider pool of candidates.
  • Temporary lay-off, reduction of hours or, more recently, use of statutory ‘preservation’ schemes such as the upcoming Job Support Scheme.

Where an employee is offered an alternative job within the business, an employer must ensure that it is a suitable alternative. This can be a complex assessment and so we strongly recommend seeking advice in this regard. The employer must also give them a 4-week trial period, during which the employee remains eligible for redundancy pay should they feel, for good reason, it is not suitable.

Contractual clauses such as mobility clauses may support an employer’s wish to moving around a workforce, however this will still be based on reasonableness.

What is a fair redundancy procedure?

As explained above, an employer has to follow a fair redundancy process or else risk unfair dismissal claims from those eligible. It is advisable to have a policy outlining the internal redundancy process and for this policy to be circulated to all staff.

An employer must have at least 1 individual meeting with the employee to discuss redundancy. Besides this requirement, there is no prescribed process in law and what is fair will depend entirely on the circumstances.

We recommend that your policy includes (but is not limited to):

  • Consultation including requirements under collective consultation
  • Selection using an objective scoring system based on the needs of the business going forward.
  • How you intend to avoid compulsory redundancies
  • Timescales (keeping in mind statutory notice periods and duty to consult)
  • The appeals process for employees chosen for redundancy
What is an employee entitled to financially?

The law offers all qualifying employees statutory redundancy protection. Again, this protection requires two years continuous service. The amount you will receive depends on your years of service, your age and your salary and a simple calculator can be found here. Additionally, there may be an express or implied contractual right to an enhanced payment.

If the employee has been on ‘furlough’ (temporary leave) during the coronavirus (COVID-19) pandemic, an employer must use their full normal pay when working out redundancy pay rather than any reduction agreed under the Coronavirus Job Retention Scheme.

In addition to redundancy, an employer must also pay payments in lieu of notice and/or holiday if either of these cannot be fulfilled prior to termination of the contract. If you get payment in lieu you should get full pay and any extras that are in your contract, for example pension contributions.

What happens if the employer cannot pay redundancy due to insolvency or refusal?

An employee may apply to the Redundancy Payments Service for payment of redundancy entitlement and other entitlements where an employer is insolvent. Due to coronavirus, their helpline is currently out of service but they are contactable by email redundancypaymentsonline@insolvency.gov.uk.

If the employer is not insolvent, the employee will need to seek enforcement through the employment tribunal within six months of the dismissal.

We can advise employers on restructuring and redundancy, as well as other employment matters. Contact us to speak to a lawyer from our business team about your circumstances and requirements.