Making redundancies - what you need to know
Mark Pearce • June 4, 2020
Following the right procedures is key to avoiding problems
Overview
Redundancy is when you dismiss an employee because you no longer need anyone to do their job. This might be because the business is:
• Changing what it does
• Doing things in a different way, e.g. using new machinery
• Changing location or closing down
• Needing fewer workers, either for financial reasons or because there's not enough business
• Re-organising the business and a role is no longer needed
For a redundancy to be genuine, you must demonstrate that the employee’s job will no longer exist.
Redundancies can be compulsory or non-compulsory.
Compulsory redundancy
If you decide you need to make compulsory redundancies, you must:
• Identify which employees will be made redundant
• Make sure you select people fairly - don’t discriminate
Non-compulsory redundancy (Voluntary redundancy)
This is where you ask employees if they’d like to volunteer for redundancy.
You must have a fair and transparent selection process and tell employees they won’t automatically be selected just because they applied.
Identifying those at risk of redundancy
If there is only one role that was no longer needed and only one person doing that job, the selection for redundancy was likely to be fair. If there is more than one employee doing the same type of work then, it is good practice for an employer to select a pool of people whose jobs may be at risk. A fair selection process then needs to be agreed, this is known as the redundancy pool.
If you don't do this it might be an unfair dismissal. It might also be discrimination.
Unfair selection criteria
Some selection criteria are automatically unfair. You must not select an employee for redundancy based on any of the following reasons:
• Pregnancy, including all reasons relating to maternity
• Family, including parental leave, paternity leave (birth and adoption), adoption leave or time off for dependants
• Acting as an employee representative
• Acting as a trade union representative
• Joining or not joining a trade union
• Being a part-time or fixed-term employee
• Age, ethnicity, disability, gender reassignment, marriage and civil partnership, religion or belief, sex and sexual orientation
• Pay and working hours, including the Working Time Regulations, annual leave and the National Minimum Wage
Consultation
All affected employees will need to be consulted with individually. In addition if there are more than 20 redundancies being made, then collective consultation should also take place with elected representatives. There’s no time limit for how long the period of consultation should be, but the minimum is:
20 to 99 redundancies - the consultation must start at least 30 days before any dismissals take effect
100 or more redundancies - the consultation must start at least 45 days before any dismissals take effect
Information you must provide to representatives or staff
You must provide written details of:
• The reasons for redundancies
• The numbers and categories of employees involved
• The numbers of employees in each category
• How you plan to select employees for redundancy
• How you’ll carry out redundancies
• How you’ll work out redundancy payments
Redundancy pay
Employees you make redundant might be entitled to redundancy pay - this is called a ‘statutory redundancy payment’.
To be eligible, an individual must:
• Be an employee working under a contract of employment
• Have at least 2 years’ continuous service
• Have been dismissed, laid off or put on short-time working - those who opted for early retirement don’t qualify
You must make the payment when you dismiss the employee, or soon after.
A redundant employee also has the right to a written statement setting out the amount of redundancy payment and how you worked it out.
The redundancy payment is a tax free payment up to £30,000.
Statutory redundancy pay rates
These are based on an employee’s age and length of employment and are counted back from the date of dismissal.
Employees get:
• 1.5 weeks’ pay for each year of employment after their 41st birthday
• 1 week’s pay for each year of employment after their 22nd birthday
• 0.5 week’s pay for each year of employment up to their 22nd birthday
Length of service is capped at 20 years and weekly pay is capped at £538. The maximum amount of statutory redundancy pay is £16,140.
You can give your employees extra redundancy pay if you want to, or have a qualifying period of less than 2 years.
Avoiding redundancies
You should take steps to avoid compulsory redundancies including:
• Seeking applicants for voluntary redundancy or early retirement
• Seeking applications from existing staff to work flexibly
• Laying off self-employed contractors, freelancers etc.
• Not using casual labour
• Restricting recruitment
• Reducing or banning overtime
• Filling vacancies elsewhere in the business with existing employees
• Short-time working or temporary lay-offs
• Furloughing employees (Coronavirus Job Retention Scheme)
Offers of alternative work
Even if you’ve selected someone for redundancy, you can still offer them alternative work.
For an offer to be valid:
• It should be unconditional and in writing
• It must be made before the employee’s current contract ends
• It should show how the new job differs from the old
• The job must actually be offered to the employee - they shouldn’t have to apply
• The new job must start within 4 weeks of the old job ending
Employees who accept an offer of alternative work are allowed a 4-week trial period to see if the work is suitable. If you both agree that it isn’t, they can still claim redundancy pay.
Giving notice
Employees will be entitled to their contractual notice as set out in the Contract of Employment.
Furloughed Employees
The Coronavirus Job Retention Scheme does not prevent an employer making redundancies.
Legal Tests if a Tribunal Claim is made
The tribunal will look at whether:
• A genuine need to make redundancies in your workplace existed
• A fair procedure for consulting the workforce and selecting people for redundancy took place
• The decision to select was fair
• Reasonable efforts to find alternative employment elsewhere in the company
If the tribunal decide that redundancy was not the real reason for the dismissal, then an employee may be able to make a claim for unfair dismissal or discrimination, or both.
This information is provided for guidance purposes only, if you wish to discuss the particular circumstances of redundancies or restructuring to your business, please contact us for further information.
What you need to know about changes to current procedures
Discover the importance of having an employee's agreement when extending the decision period for flexible working applications.
Find out why it is important to formalise job roles in family-run businesses.
Here we look at the risk assessments needed, and what is expected of an employer if significant risk is identified, whilst looking at the considerations needed relating to COVID.
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