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Redundancy 

Whether you are an employer planning a redundancy process or an employee affected by a transfer of undertakings, we are here to provide you with the legal support you need.

Meeting

What is redundancy?

Redundancy occurs where dismissal is:

  • wholly or mainly attributable to the fact that the employer has ceased or intends to cease to carry on the business for the purposes of which you were employed, or in the place where you were employed; or

  • the fact that the requirements of the employer for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where you were employed have ceased or diminished or are expected to cease or diminish.

The important feature of the definition is not whether the need for the job (“work of a particular kind”) done by the employee has ceased or diminished (or is expected to do so). Instead, the question is whether the requirements for employees to do that type of work has ceased or diminished. In other words, the amount of work needed to be done might remain the same (or may even increase) but if it can be done with less people, then there is a redundancy situation.

Employers often claim that there has been a reduction in the work needing to be done, but this is not always the real reason for dismissal. It can be cheaper and less time consuming to label someone “redundant” rather than follow, say a performance process that could take many months. It may be that an employee is simply disliked, with redundancy being used as an excuse to fast track that person’s exit from the company.   It is important to look at all the circumstances surrounding the redundancy.

Redundancy process

  • a redundant post needs to be identified;

  • relevant employees who are likely to be affected by the redundancy need to be identified;

  • your employer should identify which individuals in management will be selecting those who are potentially to be made redundant. That person, or persons should be familiar with the work, skills and qualifications of the employees who could be made redundant;

  • a transparent and objective selection criteria for who may be made redundant should be drawn up;

  • a selection pool of affected employees carrying out similar work should be documented;

  • once the selection criteria and pool are identified, your employer should undertake the selection process;

  • each employee will be invited to an individual meeting to discuss whether or not they have been provisionally selected for redundancy. If you have been provisionally selected for redundancy, you face a real possibility of being made redundant by your employer. This is often the first time that you will have been notified that redundancy could be an option, and that you are “at risk”. You will usually be given confirmation of this in the form of a letter, and employers should make clear that no decision has yet been taken (and that you are therefore not dismissed at that stage).

  • An employer is entitled to remove an employee from the workplace at the same time as notifying of a "risk” of redundancy. This usually arises where the employee has access to sensitive and confidential data, and a significant level of client contact.  This is known as "garden leave".

  • you should be allowed an appropriate time to reflect and remark on your provisional selection, and you will enter a period of consultation (more detail below).

  • your employer should consider whether there is any suitable alternative role for you, and should also consider if “bumping” a  more junior member of staff is appropriate so that you can fill his or her role (and that person who is bumped then is made redundant instead). 

  • ultimately, your redundancy will either be confirmed or you will be told that your job is safe. If redundancy is confirmed, you will be informed of your redundancy pay together with other termination payments and arrangements. Normally you are considered a “good leaver” for the purposes of shares, stocks or deferred compensation if you are made redundant. You may be asked to sign a settlement agreement.

There is no statutory right to be able to appeal your redundancy. It is, however, good practice to be offered such a right. If you have a contractual dismissal policy which provides for an appeal, then this should be followed.

Selection process

Examples of selection criteria which are usually adopted by employers include:

  • attendance record (you should ensure this is fully accurate and that reasons for and extent of absence are known);

  • disciplinary record (you should ensure this is fully accurate);

  • skills or experience;

  • standard of work performance;

  • aptitude for work;

  • Formal qualifications and advance skills should be considered, but not in isolation.

 

It is unlawful to have redundancy selection criteria and/or a redundancy procedure which involves discrimination on the basis of disability, sex, race, religion or sexuality.   It is also unlawful to have criteria based on whether employees chosen to be made redundant are part-time or pregnant, as this would be sex discrimination. This is the case even if the criteria and/or procedure has been agreed with you beforehand.

If you have been unfairly selected for redundancy, you may be able to claim compensation for unfair dismissal and or discrimination. You do not need any minimum qualifying period to be able to claim compensation for discrimination.

If you are in a unique role, there is no requirement for a selection pool. Similarly, there is no requirement for a selection pool if your employer closes its whole business (although there may be a requirement for a pool where an employer closes just one of its sites).

An employer must  “genuinely apply its mind to the issue of who should be in the redundancy selection pool”. It is difficult, but not impossible, for an employee to challenge an employer’s decision. For example, a pool of one employee has been held to be unfair where other employees are doing the same role.

If a redundancy situation exists, your employer must consult all employees who are at risk of redundancy as soon as possible, informing them of the situation and discussing with them any alternatives and the implementation of the redundancy situation. Failure to properly consult may lead to a finding of unfair dismissal by an employment tribunal.

Before the consultation process begins, employers can consider offering voluntary redundancies, although there is no obligation to do so.  When employers request applications for voluntary redundancy, it is standard practice to reserve the right not to accept all applications, particularly if applications for voluntary redundancy outweigh the number of proposed redundancies. This is the case even if there is no rationale for accepting one person and not the other.

 

Consultation

A meaningful consultation would usually incorporate at least one meeting with you. There is no statutory right for you to be accompanied at a meeting under a redundancy procedure, although it is good practice for employers to allow employees to be accompanied as it demonstrates an intention to act fairly.

There is no maximum period of consultation, but there are minimum periods employers are required to follow depending on the number of proposed redundancies, namely:-

  • 20-99 proposed redundancies – 30 days minimum consultation.

  • 100 or more proposed redundancies -45 days minimum consultation.

Where an employer is making 20 or more employees at a workplace establishment redundant within 90 days or less, this is called a ‘collective redundancy’. An employer making a collective redundancy must consult with a recognised trade union where there is one. If there is no recognised trade union, an employer must consult with employee representatives before issuing redundancy notices. There must also be standard individual consultation.  

If your employer intends to make you redundant, there is a legal duty for them to consider whether there are other roles available which would be suitable for you.   If such roles are available, then they should be offered to you. If they are not offered, this can amount to failure to follow due process, and therefore an unfair dismissal.   Whether an alternative job offered is suitable will depend on the terms of the job offered and your skills, abilities and circumstances. Factors such as pay, status, hours and location are relevant when deciding if the new role is a suitable alternative.

The role does not need to exactly mirror your old position, or even be based in the same location. The offer of alternative employment must be made before your current job ends. It can be made in writing or can be verbal. It must give you enough details about the new job so you know what the difference is between your existing job and the new job.

You must also be offered a trial period in the new role of 4 weeks during which you can still reject the position and claim the original redundancy if it is reasonable for you to do so.  Your employer may offer you a number of alternative jobs. Each offer must give sufficient detail and you are entitled to a trial period in each, if you wish.

If you unreasonably refuse a new role, or you unreasonably terminate your employment contract during the trial period, then you may not be entitled to claim a statutory redundancy payment.   If there is something specific that means you have no choice than to reject the role and that it is justified for example, extra travelling time impacts upon looking after an elderly relative, or where the working environment was particularly distressing to you in some way.

If there is a dispute with your employer who terminates your employment because you refuse the new role, then you may be able to claim unfair dismissal. You are only at risk of not being successful in winning a claim if you are actually offered a new role and unreasonably refuse it.

You are not obliged to apply for your own job, but if you do not, this may put your redundancy payment at risk if your employer succeeds in arguing that you may not have been redundant had you applied for the role.   If this happens, they may try to justify a dismissal on the basis of what is known as ‘some other substantial reason’ (SOSR) which is one the fair reasons for dismissal.   The “SOSR” ground covers a wide variety of reasons for dismissal including a need for restructuring, a refusal to accept new terms and conditions, or failing to apply for your job in a redundancy process.

Before you decide not to apply for your own job role, you should ask your employer whether they are prepared to still make a redundancy payment, or are prepared to offer you voluntary redundancy (still entitling you to a redundancy payment).

If you do not feel that there is a genuine redundancy situation or your employer has not treated you fairly for whatever reason within this process, you could consider raising a grievance to your line manager or HR against the behaviour, and you may have a claim for unfair dismissal.  Such steps would usually be taken without your applying for your job role, however you may also decide to apply “under protest” at the same time as lodging a grievance.   If you do apply for your own job but are unsuccessful, you should be entitled to redundancy pay in the usual way.

Your employer’s obligation when considering what suitable alternative roles are available, may extend to considering roles that are not actually vacant (because someone else is working in this role). This is known as  “bumping”.   A bumping redundancy occurs when an employee whose role is not at risk of redundancy is nevertheless dismissed and the vacancy left is filled by an employee whose role was redundant. The dismissal in this scenario is still considered to be by reason of redundancy.

An employer may wish to consider a bumping redundancy as a way to retain more skilled and experienced employees, and in certain cases may be obliged to consider bumping to ensure a fair dismissal.   Although there are no fixed rules about whether employers do, or do not have to consider bumping, if you think bumping might be an option, it is a good idea to bring this up with your employer during your consultation meetings.

In considering whether or not bumping is appropriate, your employer should not automatically assume that you would not take a lower status role, even if it comes with a reduced salary.

Your employer can rely on an express contractual mobility clause to move you to a different location, rather than making you redundant. If you refuse to relocate, you could find that you are not only in breach of contract, but also forgo any redundancy pay.  Your employer may also come unstuck if the mobility clause is drafted to widely, such as a requirement that you move to any office in the UK or overseas. This may mean that your employer could not rely on the mobility clause to defeat a redundancy entitlement.

Redundancy payment

If you have been employed with your present employer for a minimum of 2 years, you are entitled at the very least to a minimum statutory redundancy payment from your employer. You may be entitled to a larger amount of compensation because your employer has a contractual redundancy scheme, or there is custom and practice of them providing enhanced payments.

 

The amount of a statutory redundancy payment is calculated using a formula based on:

  • how long you have worked for your employer (see below); and

  • your age (see below); and

  • your weekly pay (see below)

 

Statutory redundancy pay is worked out as follows:

  • 1½ week’s pay for each complete year of employment when you were aged between 41-64 inclusive

  • 1 week’s pay for each complete year of employment when you were aged between 22-40 inclusive

  • ½ week’s pay for each complete year of employment when you were aged between 18-21 inclusive. Employment before the age of 18 is ignored when working out statutory redundancy pay.

The weekly pay which will be used to work out the redundancy payment will usually be your normal weekly gross pay at the time you were made redundant up to the maximum limit which is £634 from 6 April 2023  (from 6 April 2024 £700) even if your wage is more per week.  A week’s pay does not usually include overtime pay.  

Where earnings vary each week, an average of the 12 week period leading up to the redundancy will be used. If commission is paid regularly, this should be included in a week’s pay. An average should be calculated, for example, an amount that could be expected in a year, divided by the number of weeks worked in a year. The maximum statutory redundancy payment is capped at 20 years.

Even if you are entitled to redundancy pay, there are reasons you may not be entitled to receive a payment, for example:

  • if your employer claims to have offered suitable alternative employment

  • if you want to leave before the date your employment is due to end, for example, you have found another job.

Because redundancy is a form of dismissal, you will still be entitled to your statutory or contractual period of notice of dismissal, if your employer plans to make you redundant.

How does Maternity leave affect redundancy?

Your redundancy pay (statutory or contractual) should be based on your normal weekly pay before you started your maternity leave. It should not be based on your statutory maternity pay or your contractual maternity pay. This is the case even if you have used all 39 weeks of your statutory maternity pay.   If you have contractual redundancy pay, then your employer should also base this on your normal pay before you went on maternity leave. Otherwise this could be pregnancy discrimination.

What happens when Employer is insolvent?

If your employer is insolvent and a receiver or liquidator has been appointed to deal with the company’s affairs, you should claim your redundancy payment from the National Insurance Fund. You can contact the fund on 0845 145 0004.  

If your employer has ceased trading but is not insolvent, you should write to your employer claiming the redundancy payment. If the employer does not pay the statutory redundancy pay, you must apply to an employment tribunal within six months of your dismissal. You will need to raise a written grievance with your employer first.

Entitlement to time off to look for work

If you have been given notice of redundancy, you are entitled to be paid for time off to look for a new job provided that you have a minimum of two years service (this time can count up to the date of expiry of your notice). The following employees are not entitled to paid time off to look for work:

  • employees who have worked for their employers for less than two years

  • overseas employees

  • merchant seamen

  • members of the armed forces

  • police service employees.

Your employer has to give you reasonable time off. There is no definition of what is reasonable, but common sense usually prevails, for example, you may require further travel time depending on where you are located and your personal circumstances.

Right to have the redundancy payment free of tax

Transfer of Undertakings 

Where a business is transferred from one employer to another, the transfer does not end the employment relationship. Usually, your contract of employment is carried over into the new business, with your existing terms intact (including your old redundancy terms).   If you are made redundant in connection with a transfer, either by your old employer before the transfer takes place, or by the new employer after the transfer has taken place, the employer would have to show that there was a real redundancy and that the transfer was not the only reason (or the main reason) for the dismissal. The rules governing such a situation are found under the commonly known “TUPE Regulations“.

 

The usual process on TUPE transfers is as follows:-

  • the old and new employers identify who is affected by the transfer

  • the old and new employers inform, and in some cases consult, employees who are affected by the transfer

  • the old employer provides the new employer with information about the employees who are transferring, for example their age and identity

  • the employees who are transferring transfer to the new employer along with their employment contracts and length of service

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