This employment law briefing summarises the key issues that a business should be aware of when dealing with a redundancy situation.
When can a redundancy situation arise?
Redundancy encompasses three different types of situation:
- Business closure.
- Workplace closure.
- Reduction of workforce.
- 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;
- 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, by:
- 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.
- Employees with at least two years 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.