What is redundancy?
Redundancy is the dismissal of employees because the employer needs to reduce the workforce. Employment law regards redundancy as different from a typical dismissal because it is not focused on the employee and their capability or conduct. In redundancy, it is the job and the services it provides that is deleted or reduced rather than the employee who is sacked because of his or her personal deficiency. Redundancy also gives employees more rights than an employee who was sacked because he or she did not fulfil the employment contract.
Good employment law advice would highlight, as an important consideration, whether a redundancy is genuine. That means employers must avoid using the redundancy process as a means to get rid of an employee or employees. Redundancy could amount to unfair dismissal, constructive dismissal, or other employment law breaches if not carried out for genuine reasons or if not done in a fair and objective way.
What are the three types of redundancy?
- – The employer stops or intends to stop carrying on the business or type of
work that the worker was hired for.
- – The employer wants to stop using the place where the worker was
employed – for example, the closure of a factory or shop.
- – The type of work stops or reduces, so an employer needs fewer
- – The employer stops or intends to stop carrying on the business or type of
Can I challenge a redundancy?
There are three main reasons a redundancy can be challenged:
- – the consultation with staff is poor; employers should start consulting with staff when they propose redundancies
- – if the employer does not offer at risk employees alternative work where it is available
- – if the selection criteria and scoring are carried out badly and unfairly.
What are examples of a genuine redundancy?
Redundancies should be made for business reasons. Employment law advice would point to the introduction of new technology or a new system that makes a job unnecessary, the need to cut costs, or that a business is moving location.
A good employment solicitor would insist that a redundancy must fit the statutory definition under Section 139 of the Employment Rights Act 1996. Redundancy legal advice suggests that a redundancy situation arises where the employer ends or will end the:
- – business for which the employee was employed,
- – place of employment from where the business took place, or
- – type of work for which the employee was hired.
What is a sham redundancy?
A sham redundancy is when a business uses the redundancy process to unfairly dismiss staff.
What is a non-genuine redundancy?
An example of a non-genuine redundancy is when an organisation does a restructure in order to get rid of a department even though there is no business reason to do so. Particularly, if a team in another department is doing the same work and was not faced with a redundancy process, this could be an unfair dismissal.
What are examples of a bogus redundancy?
If the reasons for a redundancy are not for a legitimate business reason, then an employment tribunal claim can be made against an employer. A redundancy is automatically unfair if there are particular reasons for it. If the employee:
- – is pregnant or on maternity leave
- – on family related leave, for example parental, paternity or adoption leave
- – asked for a benefit they are legally entitled to, such as a minimum wage
- – took action to ensure health and safety in the workplace
- – works in a shop and refused to work on a Sunday
- – took part in trade union activities
- – is legally a whistleblower.
What are the alternatives to redundancy?
Sometimes employers will consider other options before starting the difficult process of redundancies. They may need to cut back on spending, so they may try alternatives.
Withdrawing job offers or delaying start dates
An offer of employment can be withdrawn once has been made, but when the offer has been accepted, the employer would need to terminate the employment by giving the required notice or making a payment in lieu.
Once an offer has been accepted, the new employee’s start date could be changed, possibly with an offer of compensation.
Employers can more easily terminate the contracts of non-permanent staff, such as those hired through an agency. Self-employed contractors tend to have very short notice periods.
This is the same for agency workers unless they have been working for a company for more than 12 weeks. Then under the Agency Workers Regulations 2010 they must be given similar rights to those of permanent staff.
Lay-offs and short-time working
Laying-off staff on a short-term basis means that they retain their employment but do not work or get paid. Short-time working is a temporary reduction in work hours with a reduction in pay.
Other alternatives include freezing recruitment and sabbaticals or unpaid leave. Stopping any new recruitment can save employers money, especially if they have a high staff turnover.
Who can get statutory redundancy pay?
If you have been working for your employer for two years or more, you will normally be able to get statutory redundancy pay.
How much is statutory redundancy pay?
- – half a week’s pay for each full year for those under 22-years-old
- – one week’s pay for each full year for those 22 or older, but under 41
- – one and half week’s pay for each full year for those 41 or older.
Weekly pay is the average you earned per week over the 12 weeks before the day you got your redundancy notice.
Length of service is capped at 20 years.
If you were made redundant:
- – on or after 6 April 2022, your weekly pay is capped at £571 and the maximum statutory redundancy pay you can get is £17,130
- – before 6 April 2022, it will be less.
Why would I not get statutory redundancy pay?
You are not entitled to statutory redundancy pay if:
- – your employer offers to keep you on
- – your employer offers you suitable alternative work which you refuse without good reason
- – you are dismissed for misconduct
- – you are a former registered dock worker (covered by other arrangements) and share fishermen
- – you are a crown servant, member of the armed forces or police services
- – you are an apprentice who is not taken on at the end of your training
- – you are a domestic servant who is a member of the employer’s immediate family.
When you lose your right to statutory redundancy pay?
You could lose your right to statutory redundancy pay if:
- – your employer offers you suitable alternative work which you refuse without good reason
- – you leave before your dismissal date.
How much is redundancy pay?
A redundant employee who has worked for the employer for two years is legally entitled to receive at least the minimum statutory pay and up to the maximum statutory pay. Employees have the same statutory redundancy rights during Covid-19 pandemic, including furlough. An employee may have further rights and pay entitlements if they are specified in the employment contract. There are a number of jobs where the employee does not have entitlement to redundancy pay, e.g. employee laid off or kept on short term.
The employer should tell the employee how and when payments will be made. The deadline for payments is the final pay day for the employee, unless another date has been agreed.
The calculation of redundancy pay is based on:
- – employee’s age
- – how long they have continuously worked for the employer, up to 20 years’ length
- – each year of work is equivalent to half to one and a half weeks’ pay depending on age.
If you don’t get your redundancy pay:
- – step 1: write your former employer a letter
- – step 2: early conciliation
- – step 3: take your employer to a tribunal.
How do I work out my redundancy pay?
Use the government’s redundancy pay calculator or the Sharma Solicitors’ www.sharmasolicitors.com/redundancy-calculator/.
How do I work out an employee’s redundancy pay?
How many weeks’ statutory redundancy pay someone is entitled to depends on:
- – age of the employee
- – length of service (capped at 20 years)
For workers with regular working hours and pay
Base their redundancy pay on their normal weekly pay before tax (gross weekly pay).
For workers whose pay changes from week to week
Get an average figure for a 12-week period. Use the 12 weeks to the day they got their redundancy notice but If they did not work for a whole week during that time, swap it for an earlier week.
You must inform employees how you have calculated their redundancy payments.
Overtime, bonuses and commission
The employee’s weekly pay should also include:
- – regular overtime
- – bonuses and commission.
Work out average pay for bonuses and commission on the GOV.UK website.
When should redundancy be paid?
Redundancy should be paid no later than on an employee’s final pay day, unless a later date is agreed by both parties in writing.
An employer should tell employees when and how they will be paid. If they do not pay on time, an employee can make a claim to an employment tribunal.
What is the ‘relevant date’?
The relevant date is the day the notice period ends or when the employee ends work. It is used to calculate redundancy pay.
Working backwards from the relevant date, add all that apply:
- – one and a half week’s pay for each full year if aged 41 years or older
- – one week’s pay for each full year if aged 22 or over but under 41
- – half a week’s pay for each full year if aged under 22.
The relevant date is different if an employee has contractual notice and they are taking pay in lieu of notice (PILON). A contractual notice period is longer than the legal minimum (statutory) notice period. The relevant date for someone with a contractual notice period can be worked out by:
- – how many weeks the statutory notice would have been, and
- – add that to the employee’s leaving date.
What is the selection process?
If the reasons are genuine, the employer must select employees on a fair and objective basis. An employment tribunal would expect an employer to use an objective criteria to do this. The employer should not discriminate during the process or use a criterion that, in effect, indirectly discriminates against particular employees. Employers risk a legal claim if redundancy is made on the basis of an employee’s part-time or fixed-term contract. The Equality Act 2010 also provides particular reasons as to why an employee should not be directly or indirectly discriminated against. It protects workers based on particular characteristics they have. The protected characteristics are:
Employers typically use other factors as part of their criteria to assess a candidate for redundancy. These are:
- – time keeping and attendance that are based on accurate records
- – disciplinary record that are also based on accurate records
- – skills or experience
- – standard of work performance and
- – aptitude for work.
What is the redundancy process?
A good employment solicitor would recommend a number of steps an employer should take in order to have a redundancy process. The process should be fair, objective and not discriminatory. The steps are:
- – checking whether redundancies are needed
- – creating a redundancy plan
- – offering voluntary redundancy
- – saving costs by having staff work more flexibly
- – moving employees into other parts of the organisation
- – informing employees
- – holding redundancy consultations
- – checking whether collective consultation is needed
- – selecting employees for redundancy
- – working out redundancy pay
- – giving redundancy notice
- – offering an appeal process
- – offering alternative employment
- – supporting staff and plan for the future.
The Arbitration and Conciliation Service (ACAS) recommended that redundancies during Covid-19 pandemic should be avoided.
How do I give a redundancy notice?
You must go though the consulting and selection processes before you can give an employee notice of redundancy.
- – meet with each employee at risk of redundancy, ideally in person.
- – allow them to be accompanied at this meeting
- – put the details of their redundancy in writing, including:
- – selection criteria scores and the reasons
- – notice period and leaving date
- – details of redundancy pay and calculations
- – details of any other pay due, such as holiday pay and when it will be paid
- – how to appeal the redundancy decision
- – not share how others have been scored but you could show the overall, anonymous score.
How much notice should I give?
Under the Employment Rights Act 1996, there are statutory notice periods. These are the minimum amounts of notice you must give.
What is the redundancy notice period?
A redundancy notice period is the amount of time an employee has to work for their employer after he or she is formally informed their job is redundant.
The amount of notice depends on their length of service and what is in their employment contract.
What consultation is required?
It is good practice to hold consultations with staff before employees are selected for redundancy. The consultation should be with recognised trade unions or staff associations. If consultation is not done properly for large scale redundances, the employer could face a legal claim and an award of up to 90-days’ pay under Section 189 Trade Union and Labour Relations (Consolidation) Act 1992.
By law, an employer must hold collective consultation if:
- – there are plans for 20 or more redundancies
- – the redundancies are in one workplace, if not the whole organisation
- – plans are to make the redundancies within 90 days.
The consultation process for the collective redundancy usually includes writing to the employee concerning:
- – the reasons for redundancies
- – jobs that could be deleted
- – the number of people facing redundancy
- – how employees are selected for redundancy
- – the plan for redundancies
- – how redundancy pay is calculated, and
- – details of any agency workers they’re using.
Can I be made redundant if I am pregnant?
In short, yes. If the redundancy is genuine, and not discriminatory because of an employee’s pregnancy, then a pregnant woman can be made redundant.
What if I am on maternity leave?
There is special protection for woman on maternity leave under threat of redundancy. An employer must offer them any suitable alternative employment as a priority over any other candidates.
Am I protected when I return from maternity leave?
No – the special protection for women on maternity leave does not extend to when they return to work. An employer does not need to offer them suitable alternative employment as a priority in a redundancy situation.
Is the law changing on pregnancy/maternity redundancy?
Employers need to be aware that the law may soon be changing. In October 2022, the government introduced to Parliament the Pregnancy/Maternity Discrimination Bill, which seeks to extend protection for pregnant women to before they start maternity leave and then after they return to work. It will also protect new parents returning to work after shared parental leave or adopting a child.
What are my redundancy rights under TUPE?
Employees have rights to a fair redundancy process in a TUPE transfer.
If 20 or more employees are at risk of redundancy, a consultation can start before the transfer if both current and new employers agree. Workers cannot be made redundant by the new employer before the transfer. This would be an unfair dismissal.
After the TUPE transfer, the new employer can only make redundancies if there is a genuine redundancy situation and a need to make changes to the workforce for economic, technical or organisational (ETO) reasons.
ETO reasons include a change in work location, a reduction in staff and a surplus of employees transferred to similar roles.
If the redundancies are not related to the transfer, an employer can use the normal redundancy process. TUPE transferred staff must be treated in the same way as the other staff and must be subject to correct redundancy procedures and fair selection criteria.
Redundancy pay after TUPE
The new employer is responsible for any redundancy pay after a TUPE transfer. Redundancy pay must be based on length of service (‘period of continuous employment’), including time worked for the previous employer.
Redundancy consultation process
Employers must consult with all staff affected by redundancy, even if they not at risk of redundancy themselves.
They must also consult with a recognised trade union or employee representatives on ways to avoid or reduce redundancies if:
- – there will be 20 or more redundancies AND
- – the redundancies are in one establishment AND
- – they plan to make the redundancies within 90 days.
If current and new employers agree, they can start consultation before the transfer – it must start at least 30 days before anyone is made redundant.
No redundancies can be made until after the transfer.
Can you volunteer for redundancy?
An employee can request that he or she be made redundant before any employees are selected. An employee can write to the employer volunteering for redundancy or write when the employer formally asks employees to put themselves forward for redundancy.
An employer is not legally obliged to accept a redundancy request if the redundancy is not in the interests of the business. Also, an employer is not legally obliged to ask all employees to put themselves forward. An employer, though, should not discriminate in a way that would breach the Equality Act 2010.
What is voluntary redundancy?
A redundancy is where an employer offers a financial package to workers who can then choose to be made redundant. After an employer judges that redundancies are required, he or she will communicate to staff the numbers of workers that the organisation needs to lose and what financial benefits staff may receive.
How can I make voluntary redundancy attractive to staff?
Employers should think about what would make employees take voluntary redundancy. The redundancy pay package, payment in lieu of notice and flexible or part-time working during the notice period can all be used as incentives.
What if not enough people want to take voluntary redundancy?
If too few people volunteer for redundancy, compulsory redundancy is the next step. Employers must tell their staff what happens next and go through a fair process.
What are the steps to voluntary redundancy?
The voluntary redundancy procedure is the similar to compulsory redundancy:
- – explain that the company needs to make redundancies, and ask for volunteers
- – consider offering an enhanced package including increased pay and benefits
- – hold at least one consultation meeting with everyone at risk
- – hold individual meetings with the people who volunteer for redundancy
- – send a redundancy notice to relevant staff, detailing what will happen and what benefits they will receive, and
- – when all expressions of interest have been received, consider who to make redundant
- – there is no legal entitlement to an appeal against a voluntary redundancy.
What is the voluntary redundancy notice period?
Employees with two years’ service are entitled to the statutory notice period and pay but an employer can offer a longer notice period. The legal entitlements are:
- – one week’s notice if the employee has worked for more than one month, but less than two years
- – for those who have worked for two years or more, an additional one week (up to 12 weeks) for every further year, and
- – 12 weeks for staff who have worked for 12 years or more.
Employers should also check the employment contracts to ensure that the redundancy does not breach any terms, or the employee could claim wrongful dismissal.
What are the benefits of offering voluntary redundancy?
Offering voluntary redundancies can help a company to reduce long-term operating costs whilst avoiding compulsory redundancies.
What are the risks of offering voluntary redundancy?
There are also risks to consider when offering voluntary redundancy:
- – can be costly when offering a good redundancy package
- – valued employees may want to leave
- – potential for a discrimination claim if you refuse them redundancy, and
- – impact on morale and motivation of all staff.
Can you be dismissed during redundancy?
An employee can still be dismissed during the redundancy process if they breach their contract of employment, such as committing gross misconduct.
Can you re-employ a redundant employee?
Yes, a company can choose to re-employ staff after making them redundant. If the company’s situation improves, and the employee left on good terms, it could be beneficial to re-employ them. Allowing time between the redundancy and the new start date will break the employee’s continuity of employment, so they do not have to give back any statutory redundancy payment.
It could lead to claims of unfair dismissal by the other employees made redundant, so an employer needs to show the:
- – redundancy was genuine and necessary at the time
- – situation has changed and the company now needs to re-hire.
How does being furloughed affect statutory redundancy pay?
If you furloughed because of the coronavirus pandemic, your statutory redundancy pay is based on what you would have normally earned.
Furlough and redundancy pay
If employees were furloughed, they may have received reduced pay, so this must be topped up to 100% when calculating redundancy pay.
What is a Settlement Agreement in redundancy?
A Settlement Agreement is sometimes used to terminate employment instead of going through a formal redundancy or other process.
It is a legally binding contract between an employer and employee that is accepted by employment tribunals and where the employee waives the right to start legal proceedings (with some exceptions) against the employer in connection with their employment or its termination. This is usually in return for a payment above the minimum statutory redundancy payment and notice pay.
Settlement Agreements can also include a reference, confidentiality clauses and other agreements. Employees do not have to accept a Settlement Agreement, and should get legal advice about their circumstances.
News stories related to redundancy
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Drop in redundancy numbers predicted to end
The number of employers making workers redundant each month declined for over a year, according to government statistics published on 6 August. Insolvency Service data shows that in June 2020, 1,289 employers made 155,576 redundancies and by July this year, 142 bosses made 14,078 employees redundant. The Service released figures from its Advanced Notification of …
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Job redundancy or unfair dismissal
The looming end to the government’s job subsidies in November will lead to some cynical bosses using redundancy to victimise and sack workers. To deal with this, employees and employers need redundancy advice that clearly defines what is a job redundancy and what is not. Around 1.3 million people could face joblessness in the short …
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The BBC reported on 1 July 2020 that employers had announced over 12,000 coronavirus redundancies. Redundancies driven by a coronavirus downturn in business are fraught with legal danger. Recently, the Equality and Human Rights Commission published advice for employers about coronavirus redundancies resulting from the withdrawal of the government’s salary subsidy scheme. Government’s coronavirus advice …
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