Articles | Quick guide to redundancy

Ian Machray, a partner in the FSP employment team, summarises the law on redundancy.

 

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Ian Machray

Ian Machray

Meaning of redundancy

In order to fall within the statutory definition of "redundancy" and to be a fair dismissal on grounds of redundancy an employee's dismissal must be "wholly or mainly attributable to" a business closure, a workplace closure or a reduced requirement for employees to perform particular roles. Examples might be where new technology has rendered an employee’s job unnecessary, the job that an employee was hired for no longer exists or the need to cut costs means staff numbers must be reduced.

Voluntary redundancy

This occurs where an employer informs its employees that redundancies need to be made, invites employees to indicate if they wish to be considered for redundancy and then selects from the list of employees who have so volunteered, depending on the employer's need for a balanced workforce. Employees who volunteer for redundancy would still be entitled to receive statutory redundancy payments (and possibly enhanced redundancy payments depending on the scope of the scheme operated by the employer).

Compulsory redundancy

In order for a redundancy to be a fair dismissal a fair procedure must be followed which should include:

  • a fair selection process;
  • individual consultation; and
  • attempts to find alternative employment for the employees concerned.

Fair selection

An employer should begin by identifying a group of employees from which the redundant employees will be selected. If an employer simply dismisses an employee without first considering the question of a pool, the dismissal is likely to be unfair. In order not to select employees unfairly for redundancy, the employer must adopt objective criteria which are precisely defined.  Once the criteria have been adopted they must be consistently applied.   Any redundancy selection criteria that discriminate, either directly on grounds of sex (including pregnancy), race, sexual orientation, religion or belief, disability, fixed-term or part-time status, or which indirectly have that effect, will generally result in a finding of unfairness (in addition to a finding of unlawful discrimination). Selection on the basis of age alone will be unlawful discrimination and it is unlikely that it would be possible to objectively justify selection on that basis.

Individual consultation

Every employee with at least two year's continuous service has the right not to be unfairly dismissed. In relation to redundancy this involves warning and consulting with the individual about the proposal to terminate their contract by reason of redundancy before notice of such termination is given.

The consultation should involve an explanation of and an opportunity to challenge the decision as to why an employee has been provisionally selected for redundancy.

Alternative employment

As part of the consultation process, there should also be a consideration of alternative employment that may be available for the employee within the employer's organisation or group. It is the employer’s responsibility to show that an offer of alternative employment has been made and therefore any offer should be put in writing, providing enough detail to give a clear idea of what is being offered.  The offer should show how the new employment terms differ from the old terms.

There is also a statutory trial period of 4 weeks for the employee to "test" the new employment.  If the employee terminates their employment (or gives notice to terminate) during the trial period, he will be treated as having been dismissed for redundancy from the date their original contract terminated.  If the new job was suitable employment, and the employee has unreasonably refused it, he will lose his right to a statutory redundancy payment.

Collective consultation
There are separate collective consultation obligations on the employer where it is considering making 20 or more employees redundant within a 90 day period.  These require the employer to consult the employees' trade union(s) or other elected representatives in addition to the individual consultation mentioned above.  Where 20 or more employees are at risk of redundancy, consultation must begin at least 30 days before the first notice of dismissal is served.  If 100 or more employees are affected, then consultation must begin at least 45 days before notice of dismissal is served.

If 20 or more employees are to be made redundant within a 90 day period, the employer must also give the Department of Business, Innovation and Skills written notification of the redundancies.

Redundancy payments

Employees qualify for statutory redundancy payments if they have worked for the employer for at least two continuous years at the date of dismissal.

Statutory redundancy payments are based on:

  • the employee's age;
  • the employee's period of continuous service up to a maximum of 20 years;
  • the employee's weekly pay.  However, the maximum amount of a week's pay that may be taken into account is currently capped at £464 with effect from 6 April 2014.

Employers may have more generous contractual or discretionary redundancy schemes in place, however, they should ensure that such schemes do not unlawfully discriminate on the grounds of age, sex, sexual orientation, race, religion or belief, disability or fixed term or part-time status.