Redundancy

What is redundancy?

“Redundancy” is defined in English law in section 139(1) Employment Rights Act 1996. The definition provides that an employee who is dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to either:

• the employer ceasing or intending to cease to carry on the business which required the employee
• the particular type of work for which the employee was engaged ceasing or diminishing
• the employer ceasing or intending to cease to carry on the business in the place where the employee was employed
• the particular type of work for which the employee was engaged ceasing or diminishing in the place where the employee was employed

The dismissal must be caused by the employer’s need to reduce its workforce – redundancy is the removal of a post or position not the removal of the individual.  Consequently it is not redundancy if the employer simply replaces one person for another.

Redundancy may happen because a business or branch of a business is closing, or because fewer employees are needed for work of a particular kind.

Redundancy procedure

Redundancies cannot be implemented without an examination of business needs and possible alternatives to redundancy.

A typical redundancy procedure will involve the following:

Step 1:

The employer should:

• establish that there is a genuine redundancy situation
• take adequate steps to consider alternatives to redundancy
• warn staff that they are being considered for redundancy and
• consult generally with affected staff.

Step 2:

The employer should consider the “pool” from which redundancies will be made.  This involves deciding which individuals and/or group of staff are under review for redundancy.

The employer should then formulate the criteria that will be applied for the selection of staff for redundancy.

Step 3:

The employer should meet with all of the employees who might be made redundant and explain to them the reasons behind the potential redundancies.

The employer can ask for volunteers (voluntary redundancy), and should outline the redundancy package that would be on offer.

If an employer is proposing to dismiss 20 or more employees within a 90 day period, it must consult with appropriate employee representatives such as a recognized trade union or elected employee representatives.  A failure to consult with the appropriate representatives exposes the employer to the risk of having to pay redundant employees a “protective award” which can be as much as 90 days’ pay per employee.

Step 4:

The employer needs to review the “pool” of staff subject to the redundancy process and score each of them using the selection criteria being adopted.

Step 5:

The employer now writes to those employees that have been selected for redundancy and invites them to a meeting to discuss the outcome of the process and the terms of the redundancy.  Consideration should be given to alternative roles within the business, if any, and details of such roles and the salary and benefits should be disclosed.

Step 6:

The employer should confirm the decision of redundancy in writing to the affected employee(s). The written notice should set out the termination date and specify the appeals process that the employee can follow if they disagree with the decision.

If an employee does appeal, a further meeting will be required to hear the appeal.  The appeal should be conducted by someone independent of the original process.

Unfair dismissal

If an employee believes that the redundancy is not fair, justified or the correct procedure has not been followed then they can bring a claim for Unfair Dismissal.

To bring a claim the employee must have at least one year’s continuous employment, however, in certain circumstances, the one year requirement does not apply, such as claims for sexual or racial discrimination.

In defending an Unfair Dismissal claim the employer would have to prove that it had a “fair reason” for dismissal.   “Fair reasons” are set out in the Employment Rights Act 1996.

Payments and notice period

If an employee is dismissed by reason of redundancy, he or she will be entitled to receive their contractual notice period.  The employer can make a payment in lieu of notice provided the employment contract allows this.

The redundant employee will be entitled to:

• a minimum statutory period of notice of one week for each year of continuous employment with the business (subject to a 12week maximum);
• statutory and/or contractual redundancy pay;
• pay in lieu of any outstanding holiday.

Statutory Redundancy Pay

Employees are entitled to statutory redundancy pay if they meet the qualifying conditions.  These include a requirement that the employee has at least two years’ continuous service with the business.

If anything else over and above statutory redundancy pay has been agreed in the employment contract then the employee may also be entitled to such payments.

Self-employed people and members of a partnership do not qualify for redundancy pay under the Employment Rights Act – only employees who have a contract of employment are eligible.

Some workers are excluded from the statutory protection, such as the Armed Forces.

Alternatives to Dismissal – Short Hours and Lay Off

As an alternative to redundancy an employer may consider reducing a worker’s hours, or laying the worker off for a short period.

If an employee is laid off (i.e. receives no wages) or put on short time (i.e. receives less than half a week’s pay) for either 4 weeks in a row or 6 weeks out of 13 weeks, the employee may bring a claim to the employer for a redundancy payment without waiting to be dismissed by the employer. The employer has the right to refuse to make the payment if the employer believes that normal working is likely to resume within 4 weeks.

Alternative job offer

If, before their employment comes to an end, an employee is offered a new job with the same employer, an associated employer or an employer who takes over the business, then the employee may not qualify for a redundancy payment eventhough their position has disappeared.

An employee can test the new job over a four-week trial period, and if retraining is needed then the trial period can be extended by written agreement.

If an employee turns down the offer of a suitable alternative job without good reason, the employee forfeits their right to a redundancy payment.

Redundancy payments

The amount paid by way of statutory redundancy is dependant on:

• the employee’s length of continuous service; and
• how old the employee is; and
• what the employee’s weekly pay is.

If the employee is less than 22 years old then the amount of redundancy pay will be one half a week’s pay for each full year of continuous service.

If the employee is between 22 years of age and 41, then the amount of redundancy pay will be one whole week’s pay for each full year of continuous service.

If the employee is over 41 years of age the amount of redundancy pay will be one and a half week’s pay for each full year of continuous service.

A statutory limit applies to the level of weekly pay allowed for the calculation purposes and this changes each year.

Equally, a maximum of 20 years continuous service can be considered – any excess is disregarded.