The ultimate guide to redundancy

Redundancy is a type of dismissal that happens when an organisation needs to reduce the size of its workforce.

It happens because either:

• An organisation is closing completely.
• A workplace location is moving or closing.
• The demand for work performed by an individual (or individuals) has diminished or ceased completely.

You can find more detail on the reasons for redundancy in the next section.

There are two main types of redundancy: voluntary and compulsory. We probably don’t need to explain those – but we will do any way:

1. Voluntary (or non-compulsory) redundancy – this is where employees choose redundancy, often after the offer of some sort of incentive e.g. a monetary pay out.
2. Compulsory redundancy – this is where employees are forced to accept redundancy (due to the reasons stated above).

Pool redundancy

You may have also heard of pool redundancy. This is a form of compulsory redundancy where more than one person carries out the role being considered for redundancy, and only some of these people will be made redundant.

For example, you currently employ 10 salespeople and you need to make two of them redundant. Note that the same role may have more than one job title e.g. a sales representative, sales associate, business and development consultant may all carry out the same tasks.

Of course, this requires a formal selection process to be used – more on this in the section on carrying out the redundancy process.

Collective redundancy

This is also a type of compulsory redundancy and a term used when an organisation is making 20 people or more redundant. In this scenario, employers must carry out group consultation as part of the redundancy process – again, more on this later.

Organisations may need to consider redundancy for different reasons.

We’ve touched on the three overarching reasons already, but let’s take a look at these in more detail.

1. An organisation is closing completely.

This is a common reason for redundancy. Where a business or part of a business is closing completely, it will subsequently have no requirement for its employees. In these circumstances, it’s very likely the employees will be made redundant.

A recent – and well known – example of this is the retailer Debenhams, who closed their branches permanently in May 2021. This led to a wave of redundancies as store workers were no longer required.

2. A workplace location is moving or closing.

It’s not uncommon for organisations to close a workplace location e.g. a national retailer closes a store in Liverpool because there’s been an unsustainable decrease in sales in that particular location.

Alternatively, an organisation may relocate e.g. a manufacturer requires increased factory space and it’s cheaper to rent this in Newcastle than it is in Bristol, so it moves to this brand-new site.

In these instances, redundancy will arise where the employer ceases to carry on in the area that the employee(s) can work/travel to.

3. The demand for work performed by an individual (or individuals) has diminished or ceased completely.

This reason can be more complex than the two we’ve outlined so far. There are many reasons that demand for work may drop off or cease completely. We’ll outline a few examples for you.

New systems

Let’s say a new piece of software is implemented in an office that automates manual work. This would reduce or eliminate someone’s workload. If they cannot be redeployed, redundancy might be the only option (because remember – it must the last resort).

Specific skillsets are no longer required

An example of this might be where a business decides it no longer wishes to keep an internal HR department, instead they choose to outsource the work to an external provider. Where alternative solutions aren’t viable, this would result in the redundancy of any internal HR employees.

Other employees are doing the work

A job may no longer exist where the core tasks have been given to other people to do i.e. the skills are still required in the business, but there is a surplus of employees with those skills to carry out those tasks.

A business is transferred to another employer

This does not always mean redundancy, i.e. it the business can keep hold of all its employees.

However, let’s say the company acquired has a large sales team, and so does the acquiring business, there may be a requirement to reduce the overall headcount.

Of course, there are many ‘unfair’ reasons for redundancy too – these are things that organisations should steer clear of! We cover these in the next chapter in unfair reasons for redundancy.

Let’s cover off the important stuff: the law.

It’s a bit dry but you should really know about it, especially if you’re considering making redundancies at your organisation.

Employment Rights Act 1996

The statutory definition of “redundancy” set out in the Employment Rights Act 1996, an employee’s dismissal must be “wholly or mainly attributable to”:

• Business closure (closure of business altogether)
• Workplace closure (one of several sites, or relocation to new site)
• Reduction of work of a particular kind

Happily, we’ve covered these reasons in plenty of detail already – but according to legislation these are the permitted reasons for redundancy.

‘Automatically unfair’ reasons for redundancy

With the above legislation in mind, lets look at some of the reasons that employees should not be made redundant.

• Because of a protected characteristic
• Because of asking for a right at work e.g. asking for minimum wage, holiday or maternity leave
• Because of pregnancy or maternity
• Because of taking action about health and safety, e.g. making a complaint
• Because of whistleblowing
• Because of working part-time or being on a fixed-term contract
• Because of being in a trade union or being on an official strike
• Because of being on jury service

These are called ‘automatically unfair’ reasons. They’re unfair no matter how long you’ve been working for your employer.

Unfair dismissal

In the next chapter we’ll be covering off the redundancy process. Where employers fail to follow process or they make mistakes, they may find themselves taken to tribunal for claims of unfair dismissal, or direct and indirect discrimination. This can be costly for businesses, not to mention reputationally damaging – we cover this too in the risks of redundancy.

Try our blog for information on how to avoid unfair dismissal claims.

Statutory notice periods

One final point to cover in this section is the statutory notice periods that you are legally obliged to give employees who are made redundant.

The notice period is based on the number of years they have worked for your business:

• Between 1 month < 2 years’ service = 1 weeks’ notice (at least)
• 2 years < 12 years’ service = 1 weeks’ notice per year of service
• 12 years’ + service = 12 weeks’ notice (capped)

The notice can be more than the above, but it cannot be less. And be sure to check the employment contract!

Employees with more than 2 years’ service are also entitled to statutory redundancy pay, skip to that section to learn more.

OK, so we’ve covered the context, now we need to explain: how does redundancy work? What is the redundancy process?

This is where things get complicated, so brew yourself a strong coffee and pay close attention.

Now before we get into the detailed steps of the redundancy process, let’s summarise the requirements.

Employers should:

• Take all reasonable steps to avoid redundancies.
• Develop strategies to deal with short-term labour fluctuations, minimise the risk of enforced redundancies and maximise alternative resourcing opportunities.
• Manage redundancies legally and in a way that minimises the potential adverse impact on both those who lose their jobs and the ‘survivors’.
• Implement a communication strategy to ensure everyone in the organisation has information about the redundancies.

Important! Evaluating the work

It’s critical to explain here that in any case of redundancy it’s the ROLE that’s being made redundant, not the individual.

It may seem obvious to you whose job is ending, but it’s vital to step back and consider the remaining work and the skills across your workforce before making any decisions.

If people are doing similar work and you need fewer of them, then you may have to ‘pool’ them in order to choose between them. Through consultation you must agree a fair way of evaluating the work and everyone’s skills in order to reach a decision on who is selected for redundancy. More on this shortly…

Redundancy process summary

The procedures you follow will depend on how many roles are being made redundant. Plus, you’ll need to review your organisation’s formal redundancy process, and/or the agreement you have with trade unions or employee representatives (if indeed these are in place).

Where more than one role is being made redundant, here are the minimum steps to follow:

1. Planning
2. Identifying the pool for selection
3. Seeking out volunteers
4. Employee consultation
5. Redundancy selection
6. Suitable alternative employment
7. Appeals and dismissals
8. Redundancy payment (skip to next section for this)
9. Counselling and support

Let’s have a look at a few of these steps in more detail.

Identifying the pool for selection

Fair reasons for selecting employees for redundancy that are used in modern practice as part of a scoring matrix include:

• Skills and performance
• Qualifications
• Attendance (and lateness)
• Disciplinary record
• Length of service

The length of service ‘last in, first out’ approach is permissible only if you can justify it. It could be indirect discrimination if it affects one group of people more than another. And don’t rely on length of service as your only selection criteria – this is likely to be age discrimination.

Further, when considering attendance in your selection criteria, it’s vital you exclude any absences which are a result of an employee’s disability or pregnancy.

Subjective criteria

It’s essential the redundancy selection is made on a fair and objective basis. So as a rule, the more subjective the criteria the greater the risk!

The following selection criteria could be characterised as subjective and as a result, you should avoid them where possible:

• Reliability
• Customer rapport
• Attitude towards others
• Ambition/drive

Employee consultation

The aim of consultation is to avoid any – if not all – redundancies. What’s more, it’s important to remember that employees are redundant at the end of the process, not before you’ve consulted with them.

If there are fewer than 20 redundancies planned, there are no set consultation rules to follow. However, it’s good practice to fully consult employees and their representatives. An employment tribunal could decide that you’ve dismissed your employees unfairly if you fail to do this.

Collective redundancies

There are special rules that apply to collective redundancies where 20 or more roles are affected. Failure to follow these rules can have significant financial implications:

• 20 to 99 redundancies within 90 days in 1 workplace: you must begin consultation at least 30 days before giving the first redundancy notice.
• 100 or more redundancies within 90 days in 1 workplace: you must begin consultation at least 45 days before giving the first redundancy notice.

Counselling and support

If an employee is selected for redundancy, it can be very stressful and negatively affect their mental health. Employers should make sure that immediate and ongoing support is available to the individual to safeguard their health and wellbeing.

One option could be to provide an Employee Assistance Programme (EAP) that offers confidential support from qualified experts.

How much is redundancy pay?

Well, employees may be entitled to statutory redundancy pay, and contractual redundancy pay (depending on what you’ve got in your contract of employment or if you choose to provide enhanced redundancy pay).

Qualifying for statutory pay

An employee qualifies for statutory redundancy pay if they’ve worked for their employer for at least two years.

The statutory redundancy pay calculation is then based on:

• Age
• Weekly pay
• The number of years the employee has worked for your business

The calculations

• You should only count full years of service
• Part years are rounded down
• Employees get:
  • 0.5 week’s pay for each full year worked when they’re under 22
  • 1 week’s pay for each full year worked when they’re between 22 and 41
  • 1.5 week’s pay for each full year worked when they’re 41 or older
• Employee weekly pay is the average they’ve earned over the 12 weeks before the day they were given their redundancy notice.
• The weekly cap of statutory redundancy pay is £538.

An example

• Camilla was made redundant on the 31/08/21
  She is 21 years old
• Total length of service with the company is 3 years
• Camilla is weekly paid and it’s the same amount each week at £200

So, here’s how you calculate her redundancy pay:

1. £200 x 0.5 = £100
2. 100 x 3 = £300 (Total statutory redundancy pay due to employee)

Refusing redeployment

An important point to be aware of here: if you give an employee the option to move to an alternative role and they refuse, they’re not eligible for redundancy pay.

There are a number of risks associated with redundancy, many of these can have significant financial implications for an organisation.

Being taken to an Employment Tribunal

Employers who misunderstand the law or don’t follow correct procedures may find their employees pursuing their legal rights at the Employment Tribunal.

There are various claims an employee might be able to make if you dismiss without following a fair process including:

• Unfair dismissal
• Discrimination
• Automatic unfair dismissal

The eye-watering costs associated with the above include:

• Compensation to the employee for unfair dismissal (this is a basic award/fixed sum).
• Compensation for financial loss as a result of the unfair dismissal (this includes loss of wages, future loss of wages, and loss of pension rights and benefits).
• Compensation for failure to collectively consult (this is where you have 20 employees or more made redundant).
• Compensation for discrimination (an employee could be awarded injury to feelings up for £45K depending on the seriousness of the discrimination).
• Legal fees to defend a claim (these can cost businesses up to £25K)

All of this can add up! Which is why it’s critical you follow understand the legislation and follow a fair process.

Employee wellbeing

Redundancy can be detrimental to employee wellbeing. Whether it’s those who are at risk, or those who work alongside them – it can cause a lot of anxiety and be a very tough time. It’s therefore critical that the process is dealt with compassionately, and those involved are treated with dignity, kindness, and respect. This approach can help people to cope better.

Productivity

Of course, the impact on wellbeing has a knock-on effect on employee motivation and overall productivity. This should be another good reason for employers to find alternatives to redundancy, and where that’s not possible, to handle the situation with extreme sensitivity.

Reputational risk

Employment Tribunal judgements are published online – what employers say and how they execute the redundancy process – it’s all in there! Customers may read this, and so might remaining employees and future hires. This is a risk factor to be aware of when considering redundancies.

As mentioned on more than one occasion, redundancy should be a last resort. Which is why this chapter of our ultimate guide is a very important one!

Here are a number of things you can do before considering compulsory redundancy:

1. Seeking applications from existing staff to work flexibly
2. Laying off self-employed contractors, freelancers etc.
3. Not using casual labour
4. Imposing holidays
5. Restricting recruitment / introducing a recruitment freeze
6. Reducing or banning overtime
7. Implementing pay freezes
8. Introducing pay agreed reductions
9. Reducing hours
10. Offering sabbaticals and secondments
11. Retraining or redeployment
12. Filling vacancies elsewhere in the business with existing employees
13. Seeking applicants for voluntary redundancy or early retirement
14. Short-time working or temporary lay-offs

Lay-offs and short-time working

A ‘lay-off’ is where no work is offered to an employee during a particular week. ‘Short-time working’ is where an employee works normally for part of the week but is laid off for another part of it.

The right to lay-off employees or put them on short-time working resides in a specific clause in the contract of employment and/or employee handbook allowing you to do so.

Hopefully you’ve found our ultimate guide to redundancy helpful. We’ve got one last thing to share with you and that’s a checklist.

If you’re considering redundancies at your organisation, we recommend you cover off the points below as part of the consideration and the process itself.

Your checklist

1. Can we avoid redundancy?
2. Is there a genuine redundancy situation?
3. Which jobs are affected?
4. What is the pool for selection?
5. How many jobs are affected and over what time period?
6. Are these all at one establishment?
7. What selection criteria should be used?
8. Do I need to consult collectively, if so with whom?
9. When should the redundancy situation be announced?
10. Who should score any selection criteria?
11. Who will hold the individual consultation meetings and when?
12. Who will take the final decision on dismissal?
13. Who will hear any appeal?
14. What alternative employment is available?
15. What about trial periods?
16. What redundancy compensation should be paid?
17. Should employees work their notice or be paid in lieu?