Guide: Redundancy – The Complete Employer’s Guide

When can a redundancy situation arise?

• Recession or other economic pressures;
• Changes in the nature of the products or services provided by a business;
• Internal re-organisations;
• Relocation of a business; and
• Technical developments or other changes which impact roles carried out by the employees.
• Which employees are covered by redundancy provisions?

All employees are potentially covered by the provisions, however, employees need at least two years’ continuous employment to claim a redundancy payment and/or to bring an unfair dismissal claim. This is with a few exceptions including those situations where the employee claims whistle-blowing or discrimination played a part in their dismissal.

Due to the potential for claims from a large number of individuals, it is prudent that businesses undertake a risk analysis as one of the initial stages of any redundancy exercise. This analysis can help with identifying a redundancy process which meets both the employer’s objectives and falls within its risk tolerance.

Collective Consultation

If a business is making 20 or more employees redundant over a period of 90 days or less, the business must:

• Inform and consult appropriate employee representatives.
• Notify the Department for Business, Innovation and Skills (BIS).
• An employment tribunal can award up to 90 days’ pay for each employee if the business has not consulted adequately. The business can also be fined for failing to notify BIS.
• The business should also ensure that it follows a fair procedure during the redundancy process (including consulting with employees properly) to minimise the possibility of claims for unfair dismissal.

Redundancy and unfair dismissal

Redundancy is a potentially fair reason for dismissal. However, a redundancy dismissal is likely to be unfair unless the business:

• Identifies an appropriate pool of employees for selection for redundancy.
• Consults with the individuals in the redundancy selection pool.
• Applies objective selection criteria to the employees in the redundancy selection pool.
• Considers suitable alternative employment where appropriate (subject to a trial period).

In certain circumstances, selecting an employee for redundancy will be automatically unfair. For example, selecting an employee:

• For a reason connected to pregnancy; (with regards to pregnancy, employers should be aware of the incoming ‘The Maternity Leave, Adoption Leave and Shared Parental Leave (Amendment) Regulations 2024’ which are coming in on 6 April 2024, for more info click HERE)
• Because they refused to sign a working tie opt-out agreement; or
• For reasons related to trade union membership or activities.

Alternatives to redundancy

At the start of a redundancy procedure, the business should consider whether it can avoid making compulsory redundancies or reduce the number of compulsory redundancies. For example:

• Suspending or restricting recruitment
• Reducing or removing overtime opportunities;
• Not renewing contractors’ contracts; or
• Ceasing or reducing the use of agency workers.

If these steps are unavailable or insufficient, the business could also consider:

• Inviting potentially redundant employees to apply for suitable alternative vacancies;
• Inviting employees to volunteer for redundancy;
• Inviting employees to consider early retirement; or
• Temporarily laying off employees or reducing their hours.

Redundancy payments

Employees with at least two years of continuous employment with the business at the point they are made redundant will be entitled to a statutory redundancy payment.

Some employees may also be entitled to an enhanced contractual redundancy payment, if their contract of employment or other documents provide for it.

Businesses that make redundancies have a duty to look for alternative employment for any potentially redundant employees.

A dismissal is likely to be unfair if, at the time of the dismissal, the business did not consider whether any suitable alternative employment existed within its business.

Extent and duration of the search

A business is not obliged to create alternative employment for redundant employees where none already exists. However, the business should make a thorough search for alternative employment and document that search. This will enable the business to show the steps it has taken if it has to produce evidence in defence of an unfair dismissal claim.

Make sure the business continues to search for possible alternative employment until the date an employee’s dismissal takes effect.

Providing employees with sufficient information

Provide sufficient information about any vacancies to all potentially redundant employees, so they can make an informed decision on whether the position is suitable for them. A business should also highlight the financial prospects of any vacant alternative positions. Do not automatically assume an employee would not want to take a more junior role for less money.

Matching vacant roles with potentially redundant employees

If the business is dealing with more than one potentially redundant employee, ensure that all of them are made aware of any vacancies.

When it comes to deciding which candidate to award a vacancy to, the business does not need to take the same rigorous approach that is required in a redundancy exercise, where the selection of employees must be based on objective criteria.

Any potentially redundant employees on maternity or adoption leave should be offered any suitable alternative vacancies first. If there are other vacancies, the business is then entitled to undertake a competitive interview process and appoint the candidate it considers to be the best for the job, even if this is based on a subjective view. The business simply needs to act fairly and reasonably.

Be aware of the risk of discrimination when considering whether there are any suitable vacancies and (if relevant) the process for deciding which potentially redundant employee should be offered each vacancy.

When the business has identified one or more possible alternative jobs, it will need to agree on the method for deciding which potentially redundant employees would be best suited for those roles.

The amount of administration and time required is likely to increase as the number of potentially redundant employees increases. This, and the fact that an offer must be made before the termination of an employee’s existing employment, should be taken into account when the business is preparing any timetable for a redundancy exercise.

Bringing vacancies to the attention of potentially redundant employees

A business will need to decide how to alert potentially redundant employees to the existence of possible alternative jobs. For example:

• for a small group of employees, the business may want to speak to them as a group or individually to advise them of the existence of any opportunities and what each involves; or
• for a larger number of potentially redundant employees, it may be more practical to draw their attention to established methods of communicating vacancies (for example, the business’s intranet or notice boards).

If the business uses internal methods of communication, ensure the information is provided separately to any affected employees without access to those methods of communication (for example, because they are on sick leave or maternity leave).

It may also be useful to write to each potentially redundant employee confirming the information the business has provided in any meetings and providing details of the vacant roles.

The business should offer (and provide sufficient information about) jobs of lower status compared to the job an employee has been dismissed from.

Discuss the possibility of all alternatives to redundancy with affected employees, including:

• possible alternative vacancies; and
• contractual changes (such as a move to part-time work).

In some cases, it will be appropriate to consider and discuss whether an affected employee should be given another employee’s job with that employee being made redundant (this process is known as “bumping”).

Allocating vacancies between potentially redundant employees

Any potentially redundant employees on maternity (or adoption) leave have an automatic right to be offered any suitable vacancies first.

A business will need to make arrangements for other potentially redundant employees to be considered for vacancies in which they are interested. For example, once the business has provided details of the available vacancies, it can set out a timetable for the applications to be made and for interviews to be held.

Applications for vacant roles should be limited to potentially redundant employees and, where possible, appointments should be made from that pool of candidates.

Do I have to interview for suitable alternative employment?

You don’t have to accept an alternative job interview if it isn’t suitable for you. However, you may lose your right to statutory redundancy pay if you turn down suitable alternative employment interviews without a valid reason.

Before selecting an employee for dismissal on the grounds of redundancy, the business must consider from which pool of employees redundancy selection should be made otherwise the dismissal is likely to be unfair.

Discretion over the size of the pool

There are no fixed rules about how a redundancy pool should be defined. As long as the business can show that its choice of pool was reasonable in the circumstances, it will be difficult for an employee (or an employment tribunal) to challenge the decision.

For example, it is not always unfair to choose a redundancy pool that is the same size as the number of redundancies being made. However, a business should only choose this option if there are strong reasons for doing so and the business should remain wary of overstating the commercial risks of a wider pool.

Considerations for identifying the pool

When considering the choice of pool, the business should start by asking two questions:

• which particular kind of work is disappearing?
• which employees do the particular kind of work that is disappearing?

If there is a clear link between the kind of work that is disappearing and the group of employees doing that work, then the pool is likely to be easy to identify. The business should also consider:

• the extent to which the employees are doing similar work;
• the extent to which employees’ jobs are interchangeable; and
• whether the selection pool was agreed with the union or employee representatives.

Look at the work the employees actually do

The business should look at the day-to-day activities of the employees and the terms of their contracts. Businesses should concentrate on the reality of the situation, rather than what the employees’ contracts say in theory that they may be required to do.

Consider interchangeable skills

Identifying the pool becomes complicated if the business’ employees are multi-skilled and do different types of work or can be required to do different types of work under their contract of employment. In these cases, the employees are more likely to object to being labelled as redundant, particularly if they can point to other employees with whom they share interchangeable skills.

It may be unreasonable for the business to identify one employee as being in the pool simply because they are doing a particular type of work that is disappearing, and ignore another employee doing different work where the first employee could just as easily do that other work.

If an employee has previously done other work (other than the kind of work disappearing), their skills are likely interchangeable with the other employees, and so a wider pool may be required.

Where the work is “low-skilled”, the skills are more likely to be regarded as interchangeable.

Where an employee can point to another employee with interchangeable skills who also has less service than them, this may strengthen the argument that the other employee should be included in the pool.

Consider other sites

Where a business carries out similar work at more than one site, it may be unfair for the business to only include employees at one site within the pool, even if that site is closing completely. The business should therefore consider whether it would be appropriate to include workers from other sites.

“Bumping”

A business is entitled to widen the selection criteria for redundancy beyond those employees who are directly affected by the redundancy situation. The business can consider “bumping” out of their jobs employees whose roles are not redundant, to be filled by employees whose roles are redundant. There is no obligation on a business to consider “bumping”, but the business may fall foul of unfair dismissal law if it would have been reasonable to consider it in the circumstances.

Commercial problems with a wide redundancy pool

Businesses may be reluctant to draw up a wide redundancy pool, even if it would be technically correct to do so, because of the impact that it could have on the morale of the business’s employees. By identifying a narrow pool, or only consulting with those individuals provisionally selected for redundancy, the business may be more vulnerable to claims of unfair dismissal. Businesses must decide whether the risks to morale and other costs of widening the pool outweigh the risk (and cost) of claims.

 

When does the duty to consult collectively arise?

• The duty to consult arises where a business is proposing to dismiss as redundant 20 or more employees within a period of 90 days or less, even if the employees are based at different locations within the business.
• The obligation to consult operates, in effect, as a moratorium on the proposed dismissals, whereby the dismissals cannot take effect for a minimum period of time once consultation has started.

Whom to inform and consult

• The business has a duty to inform and consult on its proposal with approporiate representatives of the affected employees. It must also notify the Department for Business, Innovation and Skills. Failure to do so is a criminal offence.
• Where any of the affected employees is a member of a recognised trade union, the trade union must be consulted. In other cases, the business may consult with representatives directly elected by the affected employees or with an appropriate standing body of representatives elected or appointed for some other purpose.
• Where elected representatives are required, specific statutory rules exist governing the election and adequacy of representation produced by that election.

The consultation process

• The consultation must begin in good time. Certain minimum time periods apply depending on the scale of the redundancies proposed. For fewer than 100 redundancies the consultation period is 30 days. For more than 100 it is 45 days.
• Consultation begins with the provision of information on the proposals to representatives.
• As a minimum, consultation must be undertaken with a view to reaching agreement on:
  • ways and means of avoiding the dismissals;
  • reducing the numbers of dismissals; and
  • mitigating the consequences of any dismissals.

Penalties for breaching the duty to consult

• A failure to comply with any of the rules on information or consultation, or on the election of representatives, can lead to a protective award being made by an employment tribunal.
• The maximum protective award is up to 90 days’ gross pay for each affected employee. The award is not based on loss of earnings, but on the seriousness of the employer’s default.