21 FAQs people ask about redundancy
Yes. Redundancies are subject to a range of requirements, and failure to observe them could give rise to claims for unfair dismissal. The best way to reduce the risk is to have a procedure and stick to it. It should cover:
In addition, if you are making individual employees redundant you must follow fair and reasonable procedures. Refer to the Acas guidance on redundancy for more specific advice on fair and reasonable procedures in redundancy.
There is also an Acas Code of Practice which provides practical guidance and principles to help you (and your employees and their representatives) establish and operate fair and reasonable disciplinary procedures. However the Code of Practice does not apply to redundancies.
Where you have to make collective redundancies, you have a statutory duty to inform and consult employee representatives about your proposals.
If you are proposing to dismiss 100 or more employees for redundancy from one establishment within 90 days or less, consultation must begin at least 45 days (previously 90 days) before the first dismissal takes place.
If you are proposing to dismiss between 20 and 99 employees for redundancy at one establishment within 90 days or less, consultation must begin at least 30 days before the first dismissal takes place.
Where you are proposing to dismiss smaller numbers, it is obviously reasonable to give as much notice as possible, and you must in any case observe the notice provisions within the employees' contracts.
You have to disclose the following, in writing, to the appropriate representatives during the consultation process:
Read the Acas guide 'How to manage collective redundancies'.
The amount of the statutory redundancy payment depends on the employee’s age, length of service and pay, and is calculated using the following starting point:
An employee must have two years’ continuous employment at the relevant date in order to qualify for a redundancy payment. The maximum length of service that may be taken into account is 20 years.
Age-related limits on redundancy entitlement and redundancy pay remain, notwithstanding the legislation banning age discrimination. However, younger workers can now claim for service before the age of 18, and older workers can claim for service beyond 65.
The week’s pay is subject to a statutory maximum (£475 per week from 6 April 2015).
You might want to offer more than the statutory redundancy payment, particularly if you want to encourage voluntary redundancies. However, you should be careful that you do not create a contractual ‘right’ to such enhanced payments. In a case before the Court of Appeal, an employee successfully argued that mention of an ‘entitlement’ to enhanced redundancy payment in the staff handbook meant that he should have been given more than the statutory minimum. Also take care to avoid the situation where your scheme might benefit older workers more than younger workers. The latter may be able to claim age discrimination unless you can show that the benefit was a proportionate means of achieving a legitimate business aim.
Yes. To reduce the risk of being sued for unfair dismissal and unlawful discrimination, you should, in the first instance, identify a fair 'pool for selection' for redundancy.
If there is an agreed procedure or a customary arrangement which prescribes a particular selection pool, you would normally be expected to follow it, unless you can show that it was reasonable not to do so (but see 12, below).
If there is no agreed procedure or customary arrangement, you have flexibility in identifying the pool for selection. Nevertheless, you should ensure that you act reasonably in identifying the pool for selection, for example, by considering whether employees' jobs are interchangeable.
Having identified a fair pool for selection, you should then fairly apply objective selection criteria, in order to identify which members of the pool should be made redundant (that is, those who score lowest). Such criteria could include performance and attendance.
If you want to use length of service as a criterion, be very careful - and take legal advice. Older employees are likely to have been with you longer, so using length of service as a criterion is potentially age discrimination against younger employees. Men are also more likely to have longer service than women, so it is potentially sex discrimination too.
When using length of service as one of the criteria for selecting employees for redundancy, it must be objectively justified. For example, where it fulfils a business need such as encouraging the loyalty or motivation, or rewarding experience, of some or all of the workers. In these circumstances, it is not necessarily age discrimination (although using 'last in, first out' is likely to be discriminatory).
Yes. Some people might be happy to take up the offer, but for others it will either mean moving, or a considerable increase in travelling time. An Employment Tribunal would be unlikely to consider this an offer of 'suitable' alternative employment, although much will depend on individual circumstances. (See 19).
Not if you select those candidates because they are part-time workers. Part-timers are entitled to the same employment rights as full-timers, and that includes the right not to be singled out for redundancy. It is unlawful to treat part-timers less favourably than full-timers, unless you can justify the different treatment on objective grounds. Moreover, if most of your part-timers are women, you risk being accused of indirect sex discrimination.
Possibly. Employees with less than two years' service (one year if employment commenced before 6 April 2012) cannot sue for unfair dismissal — unless the dismissal was for an ‘inadmissible’ reason (such as pregnancy, or involvement in trade union activities). However, if the employees have characteristics which set them apart from the majority of your workers — for example, if they are women, or older workers, or from a racial minority group, or disabled — be careful.
It depends on the context in which the redundancies took place. A redundancy situation can arise not merely as a result of a downturn in business, but also in the expectation of such a downturn. If you can prove you had a reasonable expectation that the business in which your former employees worked was about to turn down, then - even if you were wrong - you have a defence against their claims. However, if your ex-employees can convince an Employment Tribunal that you used the pretext of redundancy to get rid of them, you are likely to end up paying compensation for unfair dismissal.
A 'protective' award may be made when an employer has failed to comply with the obligation to consult appropriate representatives in a collective redundancy situation. The award is for a 'protected period', which may be up to 90 days. If a protective award were made, you would have to pay full pay to all the employees who have been dismissed or whom you propose to dismiss as redundant, for the duration of the protected period. This is why it pays to start collective redundancy consultation sooner, rather than later.
Yes. Redundancies should be the last resort. If you are considering redundancies, take advice on ways to avoid making them at all. Options open to you might include:
Or you may be able to negotiate a reduction in your workforce, offering payments as compensation. You can ask employees to sign a settlement agreement (formerly known as a compromise agreement) so they promise not to bring an employment tribunal claim. Again, advice is essential.
Be careful. This is unlikely to be valid if new workers taken on tend to be younger than older workers, as LIFO is then disproportionately affecting a particular sector of your workforce - ie younger workers - and is therefore discriminatory unless you can show that the application of LIFO is objectively justified.
Similarly, you risk trouble if you make some of your most recent recruits redundant, but hang on to others - unless you have additional criteria (also discussed in the consultation process) that justify the difference in treatment. For example, you might decide to make people redundant on a last-in-first-out basis, unless they have successfully completed a training programme.
LIFO is also likely to be discriminatory if it affects those in your workforce of a particular gender, race, sexual orientation including transsexual people, religious or philosophical belief or disability, unless it can be objectively justified.
Yes, providing this is a genuine criterion. You would need to produce as much objective evidence as you could - for example, sales figures, productivity records, appraisals - to demonstrate that you are losing the people who make the least contribution to the business, rather than merely exercising favouritism.
Be careful. If their ability to speak and understand English is essential to doing the job, this is a reasonable criterion to use. But you would have to demonstrate conclusively that a certain standard of English is required; and you would also have to demonstrate that you are applying exactly the same criterion to workers who are native English speakers. If you attempt to get non-native speakers to take a test while native speakers are excused, you lay yourself wide open to a charge of race discrimination.
This is a tricky area. If you are buying the business as a going concern, then it is possible that the staff will be transferred with it on their existing terms and conditions of employment, in accordance with the Transfer of Undertakings (Protection of Employment) Regulations ('TUPE Regulations').
The regulations make it plain that transfers of services do come under TUPE Regulations, as well as transfers of businesses. However, they also make it easier to transfer insolvent businesses, by providing for agreement on changes to employment contracts to preserve employment. The question of how the TUPE Regulations will apply, and whether you can use the 'economic, technical and organisational' ('ETO') exemption, will depend on the particular facts and circumstances of the transfer of the business. Take legal advice.
If the TUPE Regulations apply to the take-over, you would risk liability for unfair dismissal. An employer may avoid liability for a dismissal in a TUPE transfer if they dismiss for an 'economic, technical or organisational' ('ETO') reason (also see 15). However, if the purpose of the redundancy exercise was to 'cherry-pick' employees, then this would not constitute a genuine ETO reason.
Statutory redundancy pay is paid gross to the employee (that is, tax free). It may be possible to pay any additional severance pay without deduction of tax and NICs, but it will depend on the terms of the employment contract and any agreed terms of severance. Take legal advice.
Possibly. The employees may be able to establish that an implied right to an enhanced redundancy payment has developed by custom and practice. Where employee benefits are described in company documents as 'discretionary' they may be held to be contractual entitlements because of the way they have been administered. This can make this a difficult area for employers. Take legal advice.
This will depend on:
If the new job is the same as, or similar to the old job in terms of content, pay, hours of work and prospects, then it will constitute suitable alternative employment. Whether it is reasonable to refuse suitable alternative employment is assessed subjectively, from the employee's point of view. On the face of it, relocation to a new workplace just two miles away from the old workplace is a relatively small change to terms and conditions of employment. However, it may pose particular problems for some employees in terms of travelling time or domestic commitments and, in those circumstances, a refusal to relocate would probably be reasonable.
If you are unable to make your statutory redundancy payments, they will be paid out of the National Insurance Fund. If your employees are entitled to more than the statutory payments, they join your other (unsecured) creditors in waiting for whatever assets can be released from the business.
Providing they have decided they do not want the job within four weeks of trying it, yes. Even if you know that they have used the time to find another job, if you made them redundant and failed to offer suitable alternative employment, they can take the money and go.