Redundancy

A redundancy situation exists where there is a reduction or disappearance in the requirement for a particular kind of work to be performed. This can either be at a particular workplace, or in the business generally. This could mean that a workplace is closing entirely, or just that the business intends to reduce headcount in a certain role as their business requirements for the work performed by that role have declined.

Frequently, redundancies are made as part of a cost-cutting exercise in response to a downturn in work. However, it is not necessary for a business to be losing money in order for a redundancy situation to exist. A redundancy situation can exist in a business which is making profit if there is a reduction in the need for a particular role.

Employers should also be aware that non-renewal of a fixed-term contract counts as a dismissal for employment law purposes and that it will normally be by reason of redundancy. Fixed-term employees with more than two years’ service may therefore be entitled to a statutory redundant payment if their fixed-term contract is not renewed, and employers should still consider how to follow a fair process in relation to the end of this contract (for example exploring with the employee whether there are any alternative vacancies which may be of interest to them).

Statutory redundancy payments are calculated based on a formula which uses length of service (capped at 20 years), age and weekly pay (currently capped at £643). Employees need a minimum of two years’ continuous employment to be entitled. There is a useful Government calculator for working out redundancy payments, which can be accessed here:

https://www.gov.uk/calculate-your-redundancy-pay.

Some employers also operate ‘enhanced’ redundancy schemes, where employees’ redundancy payments are calculated using a more generous formula.

Employees who are being made redundant are also entitled to be given notice in accordance with their contract of employment (or statutory minimum notice, whichever is higher). An employee can be required to work during this notice period as usual, although they have the right to a reasonable amount of paid time off to look for alternative employment (for example to attend job interviews). In practice, some employers prefer to make a payment in lieu of notice in these circumstances in line with the employee’s contract of employment.

A ‘selection pool’ is the group of employees who may be selected for any particular redundancy. For example, if a business has two cleaners and proposes to reduce that number to one, the selection pool would normally be the two cleaners.

If an employee is in a stand-alone role, they will generally be in a ‘pool of one’ on the basis that they are the only person who does the role which is at risk of redundancy.

Employers will often be asked to consider ‘bumping’ by employees who are at risk of redundancy. This means considering whether it would be reasonable to move the ‘at risk’ employee into another role in the business and make that post-holder redundant instead. This is a particularly tricky area which needs to be considered carefully if it arises. Whether it is potentially appropriate will generally depend on factors such as the level of similarity between the roles, the respective levels of seniority, whether there has been any cross-over or interchange between the roles previously and the respective length of service of the employees in question.

Identifying the correct selection pool is vital, as it is one of the aspects of a redundancy process which an Employment Tribunal will scrutinise closest. Each potential redundancy situation should be considered on its own merits when it comes to devising the selection pool. If the employee raises any dispute around the selection pool which has been used at a redundancy consultation meeting, you must take time to consider this carefully. If you disagree with the employee’s view, you should give them a reasoned explanation as to why you disagree as part of the consultation process.

Once you have identified the appropriate selection pool (see above), you need to consider whether selection from within the pool is required. If there is a pool of one or if you are proposing to remove a role entirely you won’t need to do a scoring exercise as all employees in the pool will be made redundant. Employers may also wish to ask whether any employees within the pool wish to volunteer for redundancy, in which case there may not be a need to make compulsory redundancies.

If you do need to carry out a selection exercise to determine which of the employees in the pool are made redundant, you will need to use a form of scoring matrix. A scoring matrix should focus on objective scoring criteria which can be measured against statistics, records and documents.

For an example selection matrix please see: R13: Example selection matrix

This depends on whether the employee is reasonably capable of performing any vacancy which exists. If they do not have the necessary skills or experience, it will not be suitable and therefore you do not need to offer it. However, if they are capable of performing this vacancy, they are entitled to be offered it, in preference to any external candidate, or any internal candidate whose role is not at risk. If there is more than one redundant employees who wishes to take the vacancy, they should all be considered. You can either use a scoring matrix or a competitive interview process to select the successful candidate.

Where an employee is offered (and accepts) a vacancy, there is a statutory four-week trial period where both parties can assess whether the role is suitable. The employee can choose to resign within this trial period and claim a statutory redundancy payment if they wish.

Where an employee unreasonably refuses an offer of suitable alternative employment, they are not entitled to a statutory redundancy payment. However, case law is very strict on when an employer can withhold a redundancy payment on this basis, and specific advice should be sought before doing so.

The statutory right to be accompanied by a colleague or a trade union representative does not apply to redundancy consultation meetings. However, employers generally allow this as a Tribunal might consider that the consultation process is unfair if the employee is not allowed to bring a companion.

The redundancy process which employers should generally follow is:

• Identify whether a redundancy situation exists (see above).
• Identify the appropriate selection pool.
• If required, use a fair and reasonable selection matrix to decide which employees in the selection pool are ‘at risk’ of redundancy.

R13: Example selection matrix

• Inform those employees that they are at risk of redundancy and invite them to an initial consultation meeting

R3: At risk letter (no selection)

R4: At risk letter (with selection)

• Hold as many consultation meetings as are necessary to fairly consider the redundancy proposal and the points raised by the employee during consultation.

R5: Invitation to further consultation meeting(s)

R15: Guidance on conducting first redundancy consultation meeting

R16: Guidance on conducting subsequent redundancy consultation meeting(s)

• Explore whether there are any potentially suitable alternative vacancies within the organisation which the employee could perform.

R8: Confirmation of alternative employment

• If you decide to proceed with the redundancy proposal, provide the employee with notice of termination.

R7: Confirmation of redundancy.

• If the employee appeals against the decision to dismiss them due to redundancy, hold an appeal hearing and provide them with an appeal outcome.

R6: Invitation to appeal meeting

R9: Appeal outcome letter

R17: Guidance on conducting redundancy appeal meeting

For further guidance on the formal process employers need to follow see:

R2: Flowchart – Redundancy.

• Reaching a final decision before consultation has taken place

At the point that an employee is placed ‘at risk’ of redundancy, it is vital to remember that it is still a proposal. No matter how unlikely the employer may consider it is that the redundancy can be avoided, they need to approach the consultation with an open mind as to whether the redundancy could be avoided. If the decision to make the employee redundant has been conclusively determined before consultation, this is very likely to make the dismissal unfair.

• Not carrying out proper consultation with ‘at risk’ employees

It may sometimes be tempting for an employer to rush through the consultation process, thinking that the outcome is obvious. However, this runs the risk of the dismissal being found to be unfair if the employee isn’t given a proper opportunity to ask questions and put forward counter-proposals. Where employees have alternative suggestions, employers should give careful though to these and respond properly, even if they seem obviously unworkable to the employer.

• Not dealing with employees on maternity leave appropriately

The legal position and practicalities around redundancies and employees on maternity leave are tricky to manage and cause problems for many employers. Key points to be aware of are:

• Employees on maternity leave can still be put at risk of redundancy if a redundancy situation exists. They should still be placed in a redundancy selection pool along with other employees if appropriate;
• Where a group of employees which includes an employee on maternity leave are made redundant and there is a suitable alternative vacancy, an employer must offer this vacancy to the employee on maternity leave. This is a rare example of where positive discrimination is not just allowed but required by employment law.
• Careful thought needs to be given to the practicalities of an employee on maternity leave meaningfully participating in a redundancy consultation process. It may be that they require more information about the current business situation, more time to prepare any counter-proposals and more notice of consultation meetings.
• Employees are still entitled to the remainder of their statutory maternity pay if made redundant, unless they start another job in the meantime. Consideration should be given as to whether it would be reasonable to delay the redundancy to see whether the situation improves or a new suitable vacancy arises during that time.

The collective consultation obligations apply where an employer is proposing to make 20 or more redundancy dismissals at an establishment in any 90-day period. The consultation requirements are strict and there are severe penalties where an employer doesn’t fully comply.

If you recognise a trade union in respect of the potentially redundant employee(s), you will need to follow any consultation process which you have agreed with them even if there are fewer than 20 redundancies in total.

For more information on collective consultation, please refer to our FAQs on Collective Consultation.

For further guidance and useful documents on redundancies please see: