Redundancy: The Complete Guide Part 1

Sometimes, an employer may need to reduce the size of their workforce. One method they might consider to do this by making them redundant.

Redundancies should only be used in a correct manner. Meaning, that employees must receive all their legal rights from start to end.

If an employer neglects any of these steps, they could end up facing unfair dismissal claims.

In this guide, we'll look at what redundancy is, what the law covers, and how to let employees go in the proper way.

What is redundancy?

Redundancy is a type of dismissal used when a business needs to resize its workforce.

It's usually used to manage overstaffing or financial issues in a business.

Reasons for a genuine redundancy include:

• The employer has stopped (or will stop) running their business.
• The requirements of a specific job aren't needed or no longer exist.
• The location used for a specific job isn't needed or no longer exists.

Every employer should take reasonable measures to avoid redundancy. Meaning, it should only be used as a last resort.

What types of redundancy are there?

There are a few different types of redundancy that you should be aware of, we've gone over them in a little more detail below.

What is voluntary redundancy?

A voluntary redundancy is when an employer asks employees to consider volunteering for redundancy. Employers shouldn’t approach individuals within the business and ask them.

An employee may choose to take voluntary redundancy for a number of reasons. For example, they believe the redundancy payment amount is compensatory. Or they wish to pursue alternative employment and are willing to leave their current role.

When an employee volunteers, they're still given redundancy pay or other benefits in compensation, if they qualify for it.

What is a collective redundancy?

Collective redundancies are when an employer makes 20 or more employees redundant (within a 90-day period).

Collective redundancies are often used for a number of reasons. The employer's business may need to shut down the location of one establishment. Or they might need to consider downsizing their workforce to avoid financial issues.

There is a proper legal process for collective redundancies that the employer must follow. For example, staff who are being made redundant must take place with an elected rep prior to any dismissals taking place.

What is compulsory redundancy?

It’s where a business can end an employment contract because of a change in business circumstances. This can be a variety of things, including a change in demand for services.

You can also call the process mandatory

So, if you’re closing down a department, for example, then you don’t need to agree on selection criteria to identify individuals who’ll face redundancy, this is because its not necessary to pick between them.

That’s because everyone will face it.

But if you’re in a position where you have to reduce numbers and select who to make redundant, you have to clarify the criteria you’ll use for staff selection.

Keep in mind your reasons have to remain fair. But common examples can include:

• Disciplinary records.
• Performance records.

What is redundancy bumping?

Redundancy bumping in the UK is where an employee who is to be made redundant is put into another role held by someone else.

For example, if Employee A was being considered for redundancy and Employee B was in a lower or horizontal position, it would be considered redundancy bumping if Employee A was offered Employee B's role and Employee B was made redundant instead.

This obviously isn’t a smooth process. Employee B will likely feel irked and challenge the decision, even if you follow a fair process.

Redundancy through reconstruction

You may need to restructure the business in order to stimulate growth. Or, if your organisation is struggling financially. Whatever the reason, a restructure usually entails redundancy. In this scenario, you need to remember the following:

Employees who have at least two years’ length of service have the right to not be unfairly dismissed and the right to statutory redundancy pay.

If your company is undergoing a merger or transfer, your employees may be protected by the Transfer of Undertakings (Protection of Employment) regulations.

If this is the case, get TUPE advice here.

What is the difference between voluntary redundancy and compulsory redundancy?

Despite the voluntary nature, you still need to follow a fair procedure when making these employees redundant.

It gives employees more control over the outcome of not only their own career with you but also their coworkers, as they will allow one less person to be made redundant from their role.

What is the law on redundancy in the workplace?

If any part of your redundancy process is discriminative (like the selection part), it could breach laws like the Equality Act 2010. An employer cannot discriminate against staff based on nine protected characteristics:

• Age.
• Disability.
• Gender reassignment.
• Marriage
• Pregnancy and maternity.
• Race.
• Religion and belief.
• Sex.
• Sexual orientation.

If an employment tribunal finds you liable, they could force you to pay expensive compensation to any affected employees. During the tribunal process, the employer may also suffer from low staff morale, productivity, and engagement.

All this leads to the importance of handling redundancies with care. If you do, you'll be able to manage any potential disruptions for your remaining staff and business.

What are employee rights during redundancy?

Depending on the individual, employees may be entitled to further legal rights during redundancy. For example:

• Notice period redundancy: Redundancy is considered as a form of dismissal. So, employees are legally entitled to a statutory or contractual notice period during this time.
• Paid time off to look for work: Employees with at least two years' service are legally entitled to paid time off to look for new jobs.
• Tax-free redundancy pay: If an employer offers statutory or contractual redundancy pay that's less than £30,000, it's considered tax-free. This includes paying National Insurance (NI) or other tax deductions.
• Holiday pay: An employee may have accumulated holiday entitlements during their employment not just the redundancy process. If their employer owes holiday pay, they need to pay it or let them use it before they're made redundant. Holiday pay is subject to tax deductions.
• Maternity leave pay: If an employee is made redundant during their maternity leave, they should receive redundancy pay based on their normal pay, they are also entitled to the full amount of statutory maternity pay.

What is a fair business reason for redundancy?

For a redundancy to be genuine, you must show that the need to conduct work of a particular kind has been reduced or removed entirely. This is not the same as dismissing someone.

You should only make employees redundant if there is no need for their job to continue to exist. Any other would not be genuine reasons for redundancy.

The typical reasons for being made redundant include:

• When a business, or part of it, shuts down completely.
• When a business shuts down at a specific location (even if moving to a new location.)
• Relocation of the business.
• The requirement for employees to do work of a particular kind has been reduced or ended.
• The work of an employee is being completed by others.
• Redundancy through restructuring.

These are examples of genuine and legal reasons for redundancy.

It is crucial that your statutory redundancy reasons fall into this definition and not be seen as a situation to get rid of a problem employee. This would be an unfair dismissal.

Unfair reasons for redundancy

In addition to following a fair procedure, you mustn’t have an unfair reason for selecting employees for redundancy.

This includes anything relating to protected characteristics, as this would be discrimination.

Some things are 'automatically unfair' if they’re the primary reason for dismissing an employee.

These include:

• Being pregnant or on maternity leave.
• Wanting to take parental leave.
• Being a trade union member or representative.
• Asking for a legal right.
• Doing jury service.
• Being involved in whistleblowing.
• Taking action, or proposing to take action, over a health and safety issue.

Having these reasons would be an unfair selection for redundancy, which employees again can claim in a redundancy tribunal.

They will not need length of service to bring a claim for automatic unfair dismissal – such a claim can be brought from day one

What is a fair redundancy process?

To ensure you are not using unfair redundancy selection criteria, below is what you should focus on:

• Standards of work.
• Attendance and disciplinary records, but must exclude any absences related to pregnancy, maternity, or disability.
• Any redundancy criteria agreed with your union if you have one.
• Skills and experience (this can sometimes lead to people having to re-apply for their job).

If you use reasons outside of those, you may have an unfair redundancy selection process.

To avoid an unfair redundancy process, it is advisable to:

• Give adequate warning of what’s happening.
• Consult about why they’re being selected if more than 19 members of staff are made redundant, however, it is advisable to have them even if this is not the case
• Consider alternatives to redundancy, including alternative employment where available.

Consequences for unfair reasons

As mentioned before, you should only make employees redundant if there is no need for their job to continue to exist. Any other would not be genuine reasons for redundancy.

A redundancy that is not deemed genuine would be an unfair dismissal if they have been employed 23 months and 3 weeks. If they have worked for you less than that time period, they have no legal right to claim.

The maximum amount that they can award employees as compensation for unfair dismissal is presently the statutory cap of £105,707 or 52 week's gross salary. Whichever is the lower amount. This is besides the basic award the tribunal can award up to a maximum of £19,290.

Automatically unfair reasons for redundancy

Automatically unfair reasons for redundancy in Acas’s guidance are as follows. They do not allow employers to make an employee redundant because of the following reasons, if they do it is unfair dismissal:

• Age, gender, sexual orientation, gender reassignment, disability, religion or belief or marriage or civil partnership.
• Where an employee has taken health and safety action or requested a statutory right, for example, minimum wage, maternity leave or annual leave.
• Working on a part-time basis or on a fixed-term contract.
• The employee is a trade union member, a trade union representative, or an employee representative.

What is suitable alternative employment in redundancy?

Whether a job is suitable usually depends on a number of factors. For example:

• How much the employee will be paid and what benefits they’ll get.
• The job and its location—is it further to travel?
• How similar is the role to their current one?
• What terms are you offering?
• Their skills and ability to perform the role.

Redundancy and suitable alternative employment go hand in hand.

For instance, if an alternative role becomes available, you must make the employee who is to be made redundant aware of it. That way, they have the option to apply for it.

How to offer an alternative job instead of redundancy

Offering an alternative job instead of redundancy may seem daunting at first.

However, it can just be as simple as informing the employee of any other positions you currently have available in the business. They might decide to refuse—and accept redundancy instead. If they accept, then it’s up to you how to proceed. The employee might require additional training to take on the new role, or there is a statutory right to a trial period for all roles offered as an alternative to redundancy

In some cases, it may be a good idea for them to interview for the position. The most important thing is to ensure you provide the job offer before their current job ends. The employee should also start their new role within four weeks of their current job ending.

So make sure you give enough time for all of these elements to be considered.

The employee refuses the alternative position—what are my options?

This depends on the reasons for refusal. For example, if the employee is refusing the position because they would have to change location, you may just have to accept and provide redundancy pay.

However, if you have a mobility clause, this might not be the case.

There are plenty of variants and lots of solutions to go with them. For help with your situation, call a Croner HR expert on 0800 142 2784.

Do I have to offer alternative employment?

You have to provide employees with information about any alternative roles available. When considering redundancy, a reasonable alternative role offer is part of the process.

That doesn’t mean you have to give them the job. If you’re not sure that they’re a good fit, conduct an interview process.

Give them a fair chance. If they’re really unfit for the role, the interview will highlight that. Then, you can proceed with the redundancy process as normal.

Redundancy & alternative roles rules

As with all HR processes, there are a few rules you need to be aware of.

Employment law and alternative employment redundancy is complex, but here are a couple of the main areas you need to consider.

Firstly, you can offer a person facing redundancy an alternative job on less pay. Failure to do so, in fact, may result in a claim of unfair dismissal.

The role is less likely to be accepted and is unlikely to be deemed a “suitable” alternative. But, if it’s the only alternative available, you should make them aware of it.

We mentioned before about redundancy and suitable alternative employment distance. A mobility clause in the contract means you can reasonably expect an employee to relocate.

Without one, any relocation to a site that isn’t the employee’s current workplace is likely to make the alternative unsuitable.

If you do have a mobility clause, relocation is possible, but can still be unfair. This is dependent on the distance you’re asking the employee to travel and how much notice you give. Asking an employee to move great distances in a very short space of time is likely to be considered unfair.

Consult with the individual to find out how long is reasonable.

How to manage redundancy in the workplace

It's important that every employer manages their redundancy process with care and compassion. Redundancies can bring about all kinds of troubles - for you and your employees. So, make sure you follow the correct, legal method when letting people go.

Every formal redundancy procedure should cover nine major areas. These include:

• Establish the business case for the redundancy
• Seeking volunteers.
• Consulting employees.
• Selection for redundancy.
• Suitable alternative employment.
• Appeals and dismissals.
• Redundancy payment.
• Counselling and support.

Let's look at each category in more detail:

Planning

Before taking any steps, an employer should try to avoid making redundancies in the first place.

It should only be used when there is no other choice - for the individual, as well as the business. Instead of redundancy, think about using alternative methods or plans like:

• Freezing your recruitment process for a short time.
• Stopping or reducing the use of overtime.
• Offering early retirement (whilst avoiding age discrimination).
• Retraining or redeploying employees.
• Offering lay-offs or short-time working.

Every employer needs to be cautious when using any of these steps. If done wrong, you could end up breaching an employee's employment contract. So, take extra care and plan these steps out fully.

Identifying the selection pool

If you decide to go with redundancy, you need to think about the employees themselves. You could be making one employee redundant; or a whole department of workers.

The next step in your redundancy process is to identify the selection pool. This group is made up of employees who could face redundancy for a number of reasonable points. For example:

• They perform similar work to other employees.
• They work in the same department as other employees.
• Their work has reduced, stopped, or is expected to stop.

Depending on the situation, an employer may choose people from several redundancy selection pools. When doing so, you need to make sure you consult them properly.

Seeking volunteers

Before you make anyone redundant, try to seek out anyone who may be willing to volunteer themselves.

Voluntary redundancies can instantly help employers with overstaffing or financial issues.

But remember, these employees must not feel pressured or manipulated into compulsory redundancies. They should decide for themselves and volunteer on their own.

Consulting employees

Once you've got your list of employees, it's time to hold your redundancy consultation meetings.

At the consultation, employers need to answer the following questions:

• What is the reason for the redundancy?
• How many proposed redundancies will take place?
• How many employees will be affected?
• What does the redundancy procedure include?

The employer should have meetings with everyone at risk of redundancy. A meaningful consultation process includes offering as much information and support as possible.

If 20 or more employees are being made redundant, you need to also hold collective consultations. This involved inviting trade union and employee representatives.

You'll also have to inform the Redundancy Payments Service about these affected employees. They act on behalf of the Department for Business and Trade.

Selection for redundancy

When the consultations are done, the employer needs to specifically choose which employees are being made redundant. Start with anyone who volunteered before moving onto your redundancy selection pool list.

When selecting employees for redundancy, think about their:

• Length of service.
• Attendance records.
• Performance and disciplinary reports.
• Skills, qualifications, and capability.

These can be used as a starting point, but you may need to take a different approach for each employee. For example, you wouldn’t look at the attendance record for an employee who was absent due to disability or pregnancy.

Sometimes, an employer may choose to use the 'last in, first out' method. Whilst this method isn't illegal, it can lead to discriminatory acts.

Suitable alternative employment

Once you've accumulated your selection list, you can choose to offer some employees suitable alternative employment instead of making them redundant.

This might be a new position in a different department or a brand-new role at a different location. If they accept the suitable alternative role, employees should be given a four-week trial to settle in.

If the employee rejects the new role, they may be considered for redundancy. However, this can depend on the reason for their refusal. For example, if they are refusing the new role due to a change in location, you have the option of making them redundant and offering them redundancy pay.

If an employee is looking for a new job elsewhere, they should be given reasonable time off to do so, if the redundancy dismissal is confirmed. But only those with two years' service are entitled to paid leave.

Dismissal and appeals

Once the employer has finalised the redundancy list, they need to start with their dismissal process.

The employer should hold further meetings with the selected employees to go over any ongoing concerns. You need to inform employees about redundancy dismissals through written notices. This will outline the whole redundancy process and where it leaves the affected employees now.

The employer will then provide the selected employees with statutory notice periods. Or a notice period that they're contractually entitled to - whichever one is longer.

Redundancy payment

Once the affected employees have been given their notice, their employer must offer them redundancy pay.

This could be the minimum statutory redundancy payment or contractual redundancy payment - whichever one is more.

Along with redundancy payments, you need to pay them any other money benefits you owe them. For example, remaining wages, commission bonuses, or holiday pay entitlements.

Employees won't be able to claim money through the Redundancy Payments Service unless their employer goes into insolvency.

Counselling and support

When employees are made redundant, it could alter their professional and personal lives. It could affect their mental health, as well as their economic state.

Every employer has a legal duty to protect their staff's wellbeing throughout their employment. So, offer counselling referrals or access to employee assistance programmes (EAPs).

You can even offer external support like financial advice sessions, outplacement support. Or help them with finding a suitable alternative job that matches their work capabilities.

How do you support remaining employees after redundancy?

A redundancy can completely turn an employee's life upside-down. But they also affect employees who weren't selected, too.

Of course, some might argue they got a better outcome than others. But it doesn't mean they're completely immune to the aftermath of what redundancies bring.

An employer can help support remaining employees by:

• Giving them detailed explanations on why the redundancies were made.
• Presenting what the future looks like for them and the business.
• Making sure managers know how to keep normal operations going.

The employment law on the redundancy notice period

Redundancy is just another form of dismissal you can opt for under special circumstances. 

Thinking of how to calculate the redundancy notice period, you apply the statutory notice period as a minimum, as follows:

• No notice is required if the employee has worked for you for less than a month
• One week’s notice given if the employee has worked for you for more than a month, but less than two years
• One week's notice for every complete year of service to a maximum of 12 weeks

Remember that making somebody redundant and dismissing them for poor performance or gross misconduct are very different situations.

Before you discuss with your employees, think of how this will impact both sides. For your company, sticking to the minimum statutory requirements might save you money. But will this make a significant difference for your business going forward? If the answer is no, consider offering more than the minimum required notice. If you make the transition easier for them, they will more likely leave on good terms. This will contribute towards keeping a good reputation and good morale for your remaining workforce.

The same applies in the case of a notice period for voluntary redundancy. Even more so, since they have volunteered to leave, find out if a longer or a shorter negotiable period will benefit them. Remember that whatever period you agree on cannot be below the statutory minimum.

You must also remember that any contractual notice period applies to redundancy as well.

When does the redundancy notice period start?

With redundancy regularly emerging as a hot topic in HR, our advisors have seen the above question reoccurring on advice calls.

While the process follows several stages, including the consultation, notice starts on the date identified in the redundancy letter. This date needs to respect the minimum statutory requirements, as explained above, or contractual terms. 

Don’t make the mistake of dating the start of redundancy back to when you announced staff will become redundant.

Do you need to offer an appeal in redundancy situations?

There is no legal obligation to offer an appeal against dismissal in a redundancy situation.

The Acas code of conduct recommends that in cases of disciplinary and performance, an appeal process should be in place.

There is no official employment law status on the right to appeal redundancy decisions. However, it’s good practice to do so, and failure to do so could render the dismissal unreasonable and therefore unfair.

Should you have a redundancy appeal process?

We believe that you should if you have followed a fair and thorough procedure, the outcome will be the same.

However, if you don’t offer those made redundant the right to appeal, you open your process up to scrutiny.

There is a precedent for unfair dismissal because of a lack of appeals process. This was the case with Robinson v Ulster Carpet Mills. The tribunal saw that the redundancy was unfair because of a lack of appeals process.

This is a Northern Irish law case but the principle has been approved in several cases since then.

Offering an appeal also allows you to fix any procedural flaws that happened before the decision. An appeal process gives the employee a fair chance to raise any issues.

The downsides to appeals processes

There is one major flaw with appeals. If the appeal is successful, you are left with an awkward situation.

You likely will have gone through a scoring process and found that this candidate is the most suitable for redundancy. However, if they win the appeal you still need to make someone redundant.

This means you need to go back to the selection process and choose someone who scored higher than this person for redundancy.

Understandably, the employee will feel hard done by and will be more likely to appeal the decision as well.

Employee rights to appeal redundancy

An employee can appeal against being made redundant if they believe their selection was unfair or that you did not follow a fair redundancy process.

They may appeal for a variety of reasons, including allegations of discrimination, or allegations that the redundancy is unfair.

You should check your internal redundancy policies to ensure compliance. Your policy may outline an appeals process, and if you do not follow your process properly, it will probably be an unfair dismissal.

Who should handle appeals?

An independent person who is more senior and didn’t take part in the original redundancy decision maker should handle the redundancy appeals.

If this is not possible, then you should consider hiring an external HR consultant to undertake the appeal. Once the appeal has been decided, you will need to send a follow-up letter confirming the outcome of the employee’s appeal.

This outcome may involve reinstatement or may uphold the original decision.

Expert support on redundancy with Croner

Understanding the laws around redundancy can confuse the best of us. Establishing policies, and understanding rules and legislation around the topic, are all important information to have at hand.

Get our expert team to advise you on contractual agreements and the redundancy process for you. Croner clients get access to our 24/7 HR specialists.

And if you’re not yet a client, our experts provide free help, support, and advice tailored to your requirements. Call us for free today 0800 142 2784.