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Redundancy

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Redundancy Overview

The Legal Position

When an employer dismisses an employee they must do so fairly and reasonably or they are at risk of an unfair dismissal claim by the employee. Under English law there are 5 potentially fair reasons for dismissal, one of which is redundancy.

The General Scheme

For a dismissal on grounds of redundancy to be potentially fair a genuine redundancy situation must exist. Furthermore, the employer, in terminating the employment contract for that reason, must treat the employee fairly in the procedure they use prior to the final decision to dismiss. The redundancy must be provable on its facts and the employee must be fairly selected and then meaningfully consulted with a view to avoiding a redundancy if at all possible. 

Definition

The redundancy situation must exist on its facts.  The definition of a redundancy can be found in section 139 of the Employment Rights Act 1996.  The situations that can give rise to a dismissal on the grounds of redundancy are as follows:

  • The closure of a business.
  • The closure of a place of work where an employee is employed.
  • A ceased or diminishing requirement for an employee to carry out work of a particular kind or to do so at the place where the employee was employed to work (reduced requirement for employees) – this would cover both economic downturns and business restructurings or re-organisations.

Typically there are three situations which give rise to a redundancy situation:

  1. The employer closes their business or the part of their business in which the employee works.
  2. Due to an economic downturn in demand the employee is no longer gainfully employed in their present position.
  3. Due to a business re-organisation for economic and/or reasons of efficiency the employee’s job has gone or been significantly reduced.

Provided a dismissal meets the definition of redundancy it will be potentially fair. However, if the employer fails to implement the decision procedurally correctly a Tribunal may still reach the decision that a dismissal is unfair. Employers should remember that the burden of proving that a redundancy situation actually exists on its facts rests with the employer if the employee challenges it.

Considering Alternatives to Redundancy

A redundancy programme is most commonly considered by employers as a method of removing costs from the business. However, before any decision is made to implement redundancies an employer would be well advised to consider whether there are any viable alternatives. This may have advantages for both the employer and the workforce as a whole.

Importantly an ability to demonstrate genuine consideration of alternatives to redundancy is very useful when defending any unfair dismissal claims. An employer will be expected to listen to suggestions from employees on alternatives to redundancy and doing this will assist to demonstrate an adequate consultation with the employees affected also.

See Fact Sheet on Considering Alternatives to Redundancy [FS1.04] for more information.

Selection Process

A redundancy dismissal is likely to be unfair unless an employer considers whether or not it is necessary to identify a pool from which to select employees for redundancy. In situations where a selection pool is required it is important that the selection pool identified is appropriate and that fair and objective selection criteria are applied to those within the pool when selecting for redundancy. Please see the Fact Sheets titled Redundancy Selection Pooling [FS1.07] and Redundancy Selection Criteria [FS1.06] for full details.

Consultation

A necessary ingredient of a fair redundancy dismissal is an adequate and reasonable consultation process with affected employees. The method of consultation depends upon the numbers of employees that the employer proposes to dismiss for redundancy.

Where an employer is proposing to dismiss less than 20 employees in a period of 90 days or less this will trigger what is known as Individual Consultation. This Individual Consultation method with apply regardless of whether or not there is a need to carry out a selection process but some modifications will be required depending on whether a selection process needs to take place. Full details of the individual consultation process are contained in Redundancy Consultation – Basic [FS1.09] in relation to basic redundancies that do not involve selection pooling and in Redundancy Consultation – Selection Process [FS1.10] for redundancies where a selection process is required.

Where an employer is proposing to dismiss 20 or more employees in a period of 90 days or less this will trigger a Statutory Collective Consultation, full details of which are contained in the Fact Sheet titled Redundancy Consultation – Collective [FS1.11].

The Redundancy Payment Scheme

Where a redundancy situation exists on its facts, the dismissed employee will be entitled to a statutory redundancy payment and may be entitled to a contractual enhanced redundancy payment depending on the terms of their contract and in some instances custom and practice of their employer.

See Entitlement to Redundancy Pay [FS1.05] and Redundancy Payment Calculator [FS1.03] for full details on redundancy pay.

Alternative Employment

A dismissal is likely to be unfair if, at the time of dismissal the employer gave insufficient consideration to whether suitable alternative employment existed within the organisation. An employer has a positive duty to make reasonable efforts to seek alternative employment to prevent the redundancy but does not have any obligation to create new roles.

Furthermore, if suitable alternative employment is available and is refused by the employee in question then in some circumstances they may lose the right to a statutory redundancy payment.

See Alternative Employment [FS1.02] for full details on alternative employment in a redundancy situation.

Time Off for Job Hunting

An employee given notice of termination on the ground of redundancy may be entitled to reasonable time off during the notice period to look for other work or make arrangements for training for future employment. What is ‘reasonable’ is largely a matter of common sense.

The time off should be paid by the employer at the appropriate hourly rate based on their weekly pay.

The right is dependent upon the employee having two years’ continuous service at the date upon which the dismissal notice is due to expire.

Most time off taken by employees is to attend interviews with prospective employers or with recruitment agents. These appointments, even if they amounted to a couple per week, are likely to be regarded as reasonable. However, the requirement to pay for the time off only extends to a maximum of 40% of an employees’ weekly pay therefore any time off after this had been exhausted would be unpaid.

Redundancy and Unfair Dismissal

An employee may claim unfair dismissal by reason of redundancy provided they have continuous service of at least two full years.

The law imposes on an employer a number of obligations when considering dismissal by reason of redundancy. Employees have the right to be consulted prior to the decision to dismiss and not to be unfairly selected for redundancy. The employee must lodge his claim within three months of the date of termination.

Change of Employer

Should the employer change further to a transfer of the business constituting a relevant transfer within the meaning of TUPE, this will not entitle any transferred employee to a statutory redundancy payment. This is because the transfer preserves continuity of employment and there will be no dismissal in law. Should the new employer make the employee redundant after transfer of the business, they will be liable to pay the redundancy entitlement for the whole of the period of employment with both employers as the period of continuous employment will not be deemed to be broken by the transfer.

This document has been created by, or on behalf of ESP Ltd, as a general document and as a guide in relation to its subject matter and has not been bespoke drafted for you or the specific circumstances in which you are looking to use it. Prior to using this document and undertaking any HR process you must consult your organisation’s own policies and procedures to ensure that you do not do anything in conflict with your own policies and procedures.  If in any doubt as to how to use this document or, if you require any legal advice, please feel free to contact ESP Ltd on 0333 006 2929 and our legal team will be more than happy to assist.  ESP Ltd will not be liable in any way for any actions undertaken by you or your use of this document unless we have been consulted regarding your use of this document as legal advisor to your business or have bespoke drafted any documentation in response to a specific support request.