Redundancy
What is the definition of redundancy?
An employee will be dismissed by reason of redundancy if the dismissal was due to one of the following reasons:
Job redundancy
This is where the employer has ceased or intends to cease to carry on the relevant business or because the need for employees to carry out work of a particular kind has ceased or diminished or is expected to do so. This will be the case whether the cessation of business is permanent or temporary.
Place of work redundancy
This may occur where the employer’s business relocates or closes so that the need for employees to carry out work of a particular kind in that location ceases.
Employee redundancy
This will occur where the requirement for the number of employees to do work of a particular kind has ceased or diminished or is likely to do so. Although this will clearly extend to the situation where the employee is dismissed because his own job has disappeared through lack of work, this will also cover situations such as, initial over-manning, new technology, re-organisation of work methods or independent contractors being taken on to do the same work.
The employer must be able to show that he was reasonable in treating redundancy as a sufficient reason for dismissal of the employee in question. This may include considering methods of avoiding redundancies such as providing employees with as much warning as possible, consultation taking place individually and on a collective scale and identifying proper pools from which selection is made.
The fair selection criteria should be as objective as possible. Factors that should be taken into account include:
- length of service;
- attendance record;
- disciplinary history;
- flexibility;
- teamwork and co-operation.
It is therefore important to keep detailed personnel records about relevant matters.
Why is it important to identify that there is a ‘redundancy’ situation?
Employees with more than two year’s service are protected from unfair dismissal. Therefore if you need to terminate the employment of such employees, you must have a fair reason to dismiss and you must follow a fair procedure. If you don’t have a fair reason then your employee could sue you for unfair dismissal. Redundancy is a ‘fair’ reason for dismissal.
Who is eligible for a redundancy payment?
To be eligible for a redundancy payment, the individual must fulfill the following:
- Must have been an employee
- Must have been continuously employed for a minimum of two years
- Must have been dismissed; and
- The dismissal must be by reason of redundancy.
The following are not entitled to receive a redundancy payment:
- temporary workers engaged under a contract for services are classed as self employed and generally cannot bring a claim for a redundancy payment unless the Court or Employment Tribunal finds that an employment relationship exists between the worker and employment business;
- employees normally working abroad;
- employees who unreasonably refuse the offer of suitable alternative employment in a redundancy situation.
What is a fair redundancy procedure?
The employer must be able to show that he was reasonable in treating redundancy as a sufficient reason for dismissal of the employee in question. This may include considering methods of avoiding compulsory redundancies such as offering alternative employment or voluntary redundancy. Employees should be given as much warning as possible; consultation taking place individually and collectively, identifying proper pools from which selection is made and applying a fair selection procedure when selecting which employees will be made redundant. Voluntary redundancy is still a dismissal and must still be fair in all of the circumstances.
Employers also need to check whether there is any applicable contractual redundancy procedure, or a redundancy policy. Where this is not the case, consider whether any particular policy has been previously applied.
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Is it still necessary to go through consultation with employees if making less than 20 people redundant? What else should be considered?
Yes some form of consultation will constitute part of a fair procedure. This may include holding a general meeting with all employees who are likely to be affected by the redundancies followed by further individual meetings with employees. Employees should be given an opportunity to make suggestions as to ways that compulsory redundancies may be avoided. For this purpose the employees will need to have sufficient information about the reasons for the proposed redundancy. For instance, if the business needs to reduce its outgoings by a specific amount – how much?
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Redundancy process and related documents for employers (1 to 19 employees)
What do I need to think about as part of a fair procedure?
Pool for selection
This is the group of employees from which any redundancies will be made. This may include employees who do similar work, or whose jobs are interchangeable.
Selection criteria
The selection criteria is applied to the pool for selection to choose which employees will be made redundant. An employer is entitled to consider the needs of the business and which staff should be retained in order to best serve the business. Selection criteria should be objective and measurable. It is important that the criteria can be objectively justified rather than being based on subjective views. For instance an ability for a consultant to meet targets, supported by sales records is objective whereas a manger’s view of who gets on best with client’s may not be.
This is a selection of what might be considered:
- Sales/ability to meet targets – these factors may be particularly relevant to the recruitment sector which is very much sales based. Also there should be good records to back this up, especially if commissions and bonuses are calculated on this basis.
- Skills/relevant qualifications - you may need to carry out a skills audit. You should refer to employees CVs or application forms but also use the individual consultation meetings to make sure that information is accurate and up to date. For instance, an employee may have obtained further qualifications since starting employment
- Disciplinary records, time keeping, attendance – but you need to take care not to discriminate.
What is an offer to renew or re-engage?
An offer to renew employment is the offer to re-employ an individual in the same or in some other suitable employment, for example, where the employer secures new customers and finds that his work is beginning to increase again and offers the employee his job back.
An offer of re-engagement involves an offer of a different job with the same or an associated employer. Employers are associated if one is a company of which the other has control of, or if both are companies of which a third person has control.
The offer must:
- be made by the employer or an associated employer; and
- made before the contract of employment comes to an end;
- be an offer to re-employ the employee in the same or in a different job; and
- take effect within four weeks of the end of the original contract.
If the employee accepts an offer in accordance with the above requirements, then continuity of employment will not be broken because he is treated as though he has not been dismissed. As a result he will not be entitled to a redundancy payment.
What if my employee rejects my offer to re-new or re-engage?
If the employee rejects the offer then the question of whether or not he is entitled to redundancy payment turns on whether the alternative employment offered was suitable.
If the alternative employment offered was unsuitable, he will be entitled to a redundancy payment. If he has unreasonably refused suitable alternative employment, the right to a redundancy payment is lost. The key factors taken into consideration by the Employment Tribunal are pay, nature of duties, status, hours, location and whether the new job is substantially equivalent to the old job.
How long is the trial period for suitable alternative employment?
The employer and employee have a trial period of 4 weeks beginning with the date on which the employee starts work under the new contract to decide whether or not the new employment offered is suitable. If the new employment involves re-training, the employer and employee may agree to extend the trial period but they must agree the date on which the extended trial period ends.
If either the employee or employer terminates the contract during the trial period for a reason connected with the change, the original dismissal by reason of redundancy will revive. Whether or not the employee is then entitled to a redundancy payment still turns on whether the alternative employment offered was suitable.
What is the difference if I need to make more than 20 employees redundant?
Where an employer proposes to make 20 or more redundancies from one establishment, there are additional requirements for an employer to comply with. Note that the reference to ‘one establishment’ can extend to more than just one site. The additional obligations include:
- Giving notice of the proposed redundancies to the Secretary of State for the Department of Business, Innovations and Skills using Form HR1 - advance notification of redundancies.
- Allowing a minimum consultation period of 30 days before making any redundancies, or 90 days where more than 100 redundancies are proposed within a 90 day period. From 6 April 2013 the consultation period for large scale redundancies of more than 100 will be reduced from 90 days to 45 days. The new 45 day consultation period applies to proposals to dismiss made on or after the 6 April 2013.
- Consulting with trade union representatives where a trade union is recognised in respect of the affected employee; or
- Where no union is recognised, the employer may arrange for the election of representatives or consult with existing employee representatives.
- Information to be provided to the representatives includes:
- the reason for the proposed redundancies
- the number of employees to be made redundant and the descriptions of employees involved - - the total number of employees of those descriptions by the employer at the establishment
- the method of selection for redundancy
- the method of carrying out the redundancy programme including reference to agreed procedure and time scale; and
- the method of calculating any non-statutory redundancy payments.
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What happens if I do not consult with my employees?
If the employer fails to consult with individual employees regarding proposed redundancies, the Employment Tribunal may find that the dismissal was unfair. Equally employee representatives are protected from unfair dismissal and detrimental treatment because of their participation in the election. They have a right to reasonable time off during normal working hours to perform their functions, and also to undergo appropriate training to enable them to do so. The Regulations does not specify the amount of time off that is reasonable to allow since this will vary according to each circumstances. However, payment should be at the appropriate hourly rate for the period of absence from work.
Furthermore, failure to consult employee’s representatives may result in the employees making a claim for a ‘protective award’ against the employer unless the employer can show that there are special circumstances that render it not reasonably practicable for the employer to comply with his duty to consult. For example, an unforeseen financial crisis may make it necessary to close down a business at short notice without adequate consultation.
A protective award is an order by the Employment Tribunal that an employer should make payment for the protected period in failing to comply with the consultation process. If a protective award is made each employee is entitled to a maximum of 90 days actual pay.
What should I do after the section criteria has been finalised?
It is good practice to circulate to employees. This gives employees the chance to raise any queries or objections about the criteria at an early stage.
- After applying the scoring, write to the employee/employees provisionally selected to advise them of their selection
- The letter should provide details of their own scores against the selection criteria
- The letter should invite them to attend a further individual meeting
- Confirm the right to be accompanied to the meeting by colleague or trade union representative.
What do I need to do once I have decided that I have no choice but to make the redundancies?
After the meeting if you have decided to dismiss, you must:
- Write to the employee to notify him/her of the decision to dismiss
- Set out that the reason for dismissal is redundancy
- Detail any statutory redundancy payment due and the way it has been calculated
- Advise the employee of his/her right to appeal.
If the employee appeals, an appeal meeting must be held without unreasonable delay. This should be conducted by someone senior to whoever made the decision to dismiss and again the employee has the right to be accompanied by a colleague or trade union representative.
Could my selection for redundancy be an automatically unfair dismissal in some circumstances?
Selection for dismissal due to redundancy in the following situations will be automatically unfair:
- For reasons of trade union membership or non-membership
- Because the employee has asserted a statutory right e.g. the right to be paid the National Minimum Wage or holiday pay
- On grounds of pregnancy or any other reason connected with pregnancy; or
- If the employee is a health and safety representative
- Failure to follow statutory dismissal and disciplinary procedures
- If selection is made on discriminatory grounds.
Employers should also note that some selection criteria could also constitute indirect discrimination, for example, on the grounds of sex, disability or race.
How do I calculate a redundancy payment?
A redundancy payment is intended to compensate the employee for the loss of his job with you. This is calculated by a formula based on age, length of service and a weeks pay. You must provide the employee with a written statement detailing the calculation of the redundancy payment. The statutory minimum redundancy payment is set out below but you may wish to provide for more generous redundancy payments in your contracts of employment.
Working back from the date of termination of employment an employee’s statutory redundancy payment is calculated using the compensation limits table.
Age
One and a half weeks’ pay for each complete year of continuous employment during the whole of which the employee was between the ages of 41 or over One week’s pay for each complete year of continuous employment in which the employee was between the ages of 22 and 40 Half a week’s pay for each complete year of continuous employment in which the employee was aged between 18 and 21.
Weeks pay
The statutory maximum week’s pay is subject to a maximum threshold, which is set by the Government.
Length of service
Each full year the employee has worked with you, subject to a maximum of 20 years service.
What happens if an employee has a dispute over their redundancy?
Where an employee raises a dispute over the right to receive a redundancy payment or in any of the above-mentioned circumstances, an application may be made to the Employment Tribunal for them to determine these matters. Applications to the Employment Tribunal must be made within 3 months of the end of the employee’s employment unless it was not reasonably practicable to do so.
If the employer does not accept a claim for redundancy, then there is a presumption that the dismissal was by reason of redundancy if the matter is referred to an Employment Tribunal. The presumption of redundancy is only applicable in relation to the claim for a redundancy payment and it is open to the employer to demonstrate that the reason for the dismissal was not redundancy but was attributable to another reason.
What happens if my employee wants to leave before the notice period expires?
If the employer has no objection an employee who has been made redundant and who wants to leave before the end of his notice period, may do so and not lose his claim for a redundancy payment. He should inform his employer of this fact in writing.
Do I have to give my employee time off to look for another job or to arrange training while they are under notice of redundancy?
An employee who is being made redundant and is under notice and who has been continuously employed with you for at least two years is entitled to reasonable time off with pay within working hours to look for another job or make arrangements for training for future employment.
How can I avoid discriminating against employees when carrying out a redundancy procedure?
Employers must take care not to unlawfully discriminate against employees in the manner in which the redundancy procedure applied.
Redundancy and pregnancy/maternity
Selecting an employee for redundancy for redundancy on the grounds of pregnancy or because the employee is on maternity leave will amount to an automatic unfair dismissal. It will also amount to sex discrimination.
An employee who is on maternity leave will have priority over other employees for any remaining alternative roles. In a situation where ‘it is not practicable by reason of redundancy’ for an employee to continue in her existing role an employer is under a duty to offer her any suitable alternative vacancy, before the end of her current contract. Where such a vacancy does exist and is not offered, the dismissal will be automatically unfair.
Employers must take steps to include employees who are on maternity leave in the consultation procedure.
If using attendance as part of the selection criteria, absence related to maternity leave, or pregnancy related sickness should be discounted.
Redundancy and disability discrimination
Employers are under a duty to make reasonable adjustments for employees with disabilities. This includes ensuring that all employees are involved in the consultation procedure – including those on long sickness absence.
If using attendance as part of the selection criteria, absence related to the disability should be avoided.
Redundancy and age discrimination
Selecting an employee for redundancy on account of his or her age is likely to be discriminatory. Also, using the policy of last in, first out (LIFO) as a selection criteria may be discriminatory as it favours older employees. Where possible this should be avoided, further legal advice should be sought if this is being considered.
Employees over 65 have been entitled to receive a statutory redundancy payment since the introduction of the Employment Equality (Age) Regulations in October 2006.
Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.