21 FAQs about redundancy
- We need to make some people redundant. Is it advisable to establish a formal redundancy procedure, and if so, what should it cover?
- How much notice do we have to give of proposed redundancies?
- In cases of collective redundancy, what information, if any, do we have to provide in writing to employee (or trade union) representatives?
- How much do we have to pay in redundancy pay?
- Will we run into problems if we just weed out the people we would like to get rid of?
- Do we have to go through a redundancy procedure if we can offer alternative employment at a site 20 miles away?
- Can we select candidates for redundancy from amongst the part-timers, most of whom work for pin money?
- Three employees with less than one year's service say our redundancy selection process was unfair. Can they do anything about it?
- Former employees are claiming that redundancies were not genuine because we have subsequently taken on more people. Do we need to worry?
- Some employees are threatening to ask for a 'protective' award. What is this?
- Are we obliged to minimise redundancies by cutting overtime elsewhere in the business, even if that could cause some good employees to leave?
- Is it reasonable to select people for redundancy on a LIFO (last-in-first-out) basis?
- Can we select people for redundancy based on performance?
- If we select people for their skills, can we include their ability to speak and understand English?
- We're thinking of taking over a rival's business, but not their company. We don't have to take on their staff, do we?
- Can we take over a business, make the staff redundant, and then offer jobs to the ones we want to keep on our terms?
- Is redundancy money paid gross, or do we have to deduct tax and National Insurance contributions (NICs)?
- Our company normally gives generous redundancy pay. Our employees say they have a right to it this time. Do they?
- Do we have to give redundancy pay to employees who have turned down alternative employment two miles away?
- We are in financial trouble, and will not be able to meet our redundancy payments. What happens now?
- One employee has tried the alternative employment we offered, says it is not suitable, and wants the redundancy money. Do we have to pay?
1. We need to make some people redundant. Is it advisable to establish a formal redundancy procedure, and if so, what should it cover?
Yes. Redundancies are subject to a range of requirements, and failure to observe them could give rise to claims for constructive or unfair dismissal (if the employee has over two years' service), as well as discrimination, (which has no minimum service requirement). The best way to reduce these risks is to have a procedure and stick to it. It should cover:
- looking for alternatives to redundancy;
- identifying a reasonable 'pool for selection', ie the group of employees from whom the employees selected for redundancy will be chosen;
- adopting objective selection criteria and applying them fairly to the employees within this pool;
- establishing a clear proposal regarding the potential redundancies and supporting rationale;
- warning employees about the proposal;
- consulting with employees about the proposed redundancies;
- seeking a view from the trade union (if the employee has one)
- informing and consulting employee representatives (or trade union representatives) in cases of collective redundancy;
- considering alternative employment for those employees whose roles are made redundant;
- allowing employees to appeal the decision reached; and
- giving reasonable paid time off to look for work or make arrangements for training for future employment.
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.
2. How much notice do we have to give of proposed redundancies?
Where you are proposing to make small scale redundancies (ie fewer than 20 redundancies over a period of 90 days), there are no specific notice requirements. However, as much notice as possible should be given to the employees to show you have adopted a fair and reasonable redundancy procedure. Follow the Acas guidance where applicable.
Where you are proposing to make large scale redundancies, ie you are proposing to make 20 or more employees redundant from one establishment in a period of 90 days, you have a statutory duty to inform and consult employee representatives (or trade union representatives where applicable) about your proposals. This is known as ‘collective consultation’. Collective consultation must take place for a set period of time before the first dismissal by reason of redundancy can take place.
If you are proposing to dismiss between 20 and 99 employees for redundancy at one establishment within 90 days or less, collective consultation must begin at least 30 days before the first dismissal takes place.
If you are proposing to dismiss 100 or more employees for redundancy from one establishment within 90 days or less, collective consultation must begin at least 45 days before the first dismissal takes place.
3. In cases of collective redundancy, what information, if any, do we have to provide in writing to employee (or trade union) representatives?
You have to disclose the following, in writing, to the appropriate representatives during the consultation process:
- the reasons for your proposals;
- the number and description of employees whom you propose to make redundant (for example, 10 shop floor workers);
- the total number of employees of that description employed at the establishment in question (for example, 32 shop floor workers);
- the proposed method of selecting people to be made redundant;
- the proposed method of carrying out the redundancies, including the period over which the redundancies are to take effect (for example, five notices to be issued within the next three months, and another five at the end of the year); and
- the proposed method of calculating the amount of any redundancy payments to be made.
Read the Acas guidance on how to manage large-scale and small-scale redundancies.
4. How much do we have to pay in redundancy pay?
The amount of the statutory redundancy payment (SRP) an employee is entitled to depends on their age, length of service (based on complete years) and their weekly salary, and is calculated using the following starting point:
- one and a half week’s pay for each full year of service in which the employee was aged 41 years or more at the beginning of the year;
- one week’s pay for each full year in which the employee was between the ages of 22 and 40 at the beginning of the year; and
- half a week’s pay for each full year in which the employee was under the age of 22 for any part of the year.
An employee must have at least two full years’ continuous employment at the date of termination in order to qualify for a SRP. 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 cap (£538 per week from 6 April 2020).
You might want to offer more than the SRP, particularly if you want to encourage voluntary redundancies. You may include this in an employee’s Contract of Employment if you want to make it legally binding. However, if you only want to offer enhanced redundancy payments in some discretionary circumstances, 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.
5. Will we run into problems if we just weed out the people we would like to get rid of?
Yes. To reduce the risk of employees claiming unfair dismissal and/or unlawful discrimination, you should, in the first instance, identify a fair 'pool for selection' for redundancy. It is important to focus on the roles that you may wish to make redundant, not the individuals occupying the roles.
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 of roles for selection. Nevertheless, you should ensure that you act reasonably in identifying the pool for selection, for example, by considering whether roles are interchangeable.
Having identified a fair pool for selection, you should then apply fair objective selection criteria ,The selection criteria must not be based on personal, subjective opinion. Usually, it is those who score lowest when this selection criteria are applied, that will be selected for redundancy. Such criteria may include, but is not limited to, performance and ability, attendance records and disciplinary records.
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 employed by you for longer, so using length of service as a criterion could potentially be discriminatory 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 loyalty or motivation or rewarding the 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). If length of service is used, it is safest to use it alongside other, more important, criteria or as a tie-break criterion where the scoring of two individuals is equal.
6. Do we have to go through a redundancy procedure if we can offer alternative employment at a site 20 miles away?
Yes. Some employees might be happy to take up the offer, but for others it will either mean moving, or a considerable increase in travelling time. Given these considerations, an Employment Tribunal may not consider this an offer of 'suitable' alternative employment, although much will depend on individual circumstances. (See 19).
7. Can we select candidates for redundancy from amongst the part-timers, most of whom work for pin money?
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.
8. Three employees with less than one year's service say our redundancy selection process was unfair. Can they do anything about it?
Possibly. Employees with less than two complete years' continuous service cannot bring claims for unfair dismissal, unless the dismissal was for an ‘inadmissible’ reason (such as pregnancy, or involvement in trade union activities) where there is no minimum service requirement to bring such a claim. These limited exceptions to the general two-year rule are known as ‘automatic unfair dismissal’ claims.
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. These are known as protected characteristics. There are nine protected characteristics that an employee could potentially rely on: age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation. If the employee successfully shows that their selection for redundancy was on the basis of one or more of these characteristics, they will be able to claim for discrimination despite their short length of service (a claim for discrimination does not require a minimum length of service).
9. Former employees are claiming that redundancies were not genuine because we have subsequently taken on more people. Do we need to worry?
It depends on the context in which the redundancies took place. For redundancy to be considered a fair reason for dismissal, you must be able to demonstrate there is a genuine redundancy situation.
A genuine redundancy situation is where:
- You have closed or intend to close the business where your employee worked;
- You have closed or intend to close the place of business where your employee worked; and/or
- There is a reduced requirement or you expect there to be a reduced requirement for your employee to carry out their work.
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 demonstrate you had a reasonable expectation that the business in which your former employees worked was about to cease or the former employees' work was about to cease or diminish, then - even if you were wrong - you will 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 where there was no genuine redundancy situation, they may succeed in brining an unfair dismissal claim.
However, employees only have three months minus one day from the date of their dismissal to bring such a claim, therefore if you took on new employees over three months after the dismissal of the ex-employees, they will be out of time to bring a claim in the Employment Tribunal in relation to this.
10. Some employees are threatening to ask for a 'protective' award. What is this?
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 is 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. There is no cap on the gross weekly pay the employee can receive for the protective award, unlike for statutory redundancy payments. This is why it pays to start collective redundancy consultation sooner, rather than later.
11. Are we obliged to minimise redundancies by cutting overtime elsewhere in the business, even if that could cause some good employees to leave?
Yes. Redundancies should be the last resort. A redundancy is more likely to be viewed as “fair” if you consider alternatives in advance of commencing a redundancy consultation process. Options open to you include:
- cutting overtime;
- offering early retirement to employees who volunteer to take retirement;
- terminating temporary contracts;
- retraining or redeploying workers - maybe to lesser jobs (this in itself will require consultation and consent);
- deferring starting dates for new employees;
- offering sabbaticals or arranging secondments; 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 cannot bring any Employment Tribunal claims arising out their employment or its termination. Again, advice is essential.
You are not obliged to implement alternatives if you do not believe these would be beneficial to the company. However, if you opt for redundancies over potential alternatives, it will be important to be able to reasonably justify these decisions in case any employees bring claims of unfair dismissal or discrimination.
12. Is it reasonable to select people for redundancy on a LIFO (last-in-first-out) basis?
Be careful. This is unlikely to be reasonable if new workers taken on by the company 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 on the basis of age unless you can show that the application of LIFO is objectively justified.
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.
If LIFO is used as a criterion, it should be used alongside additional, more important and weightier, criteria or as a tie-break criterion where it is necessary to separate two individuals whose scores are equal on all other objective criteria used.
13. Can we select people for redundancy based on performance?
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 and appraisals - to demonstrate that you are selecting the people who make the least contribution to the business for potential redundancy, rather than merely exercising favouritism.
It is important to bear in mind potential discrimination claims when doing this, eg if an employee was pregnant during the time period considered in relation to performance, they may argue any poor performance was as a result of their pregnancy, making their selection for redundancy discriminatory.
14. If we select people for their skills, can we include their ability to speak and understand English?
Be careful. If an ability to speak and understand English is essential to doing the job, this may be a reasonable criterion to use. However, you will need to demonstrate conclusively that a certain standard of English is required; and you will also have to show 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 in relation to this criterion, while native speakers are excused, you lay yourself wide open to a claim of race discrimination.
15. We're thinking of taking over a rival's business, but not their company. We don't have to take on their staff, do we?
This is a tricky area of law. 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 2006 ('TUPE Regulations'). If the TUPE Regulations apply, you will be required to continue on their current terms and conditions of employment, and cannot dismiss them for a reason relating to the transfer unless this is an ‘economic, technical or organisation’ (ETO) reason entailing a change in the workforce, or you will be opening yourself up to a variety of claims, in particular unfair dismissal.
The question of how the TUPE Regulations will apply, and whether you can use the ETO exemption, will depend on the particular facts and circumstances of the transfer of the business. Take legal advice.
16. Can we take over a business, make the staff redundant, and then offer jobs to the ones we want to keep on our terms?
If the TUPE Regulations apply to the take-over, you will risk automatic unfair dismissal claims if you make the staff redundant following the transfer. An employer may avoid liability for a dismissal in a TUPE transfer situation 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.
17. Is redundancy money paid gross, or do we have to deduct tax and National Insurance contributions (NICs)?
Statutory redundancy pay (SRP) up to £30,000 is paid gross to the employee (that is, tax free). Anything above this amount will be subject to the employee’s usual deductions.
Payments made in lieu of notice, whether contractual or not, are now subject to both tax and class 1 NICs. This reflects the fact that if the employee worked their notice, rather than receiving a payment in lieu of notice, this would be subject to such deductions.
It may be possible to pay any additional severance pay, above the SRP, 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.
18. Our company normally gives generous redundancy pay. Our employees say they have a right to it this time. Do they?
Possibly. If the employee's contract states that they will receive enhanced redundancy payments, you are legally obliged to pay them. This is known as an ‘express’ right. Even if there is no clear, express right to enhanced redundancy payments, employees may be able to establish that an implied right to an enhanced redundancy payment has developed by custom and practice. If there is a history of enhanced redundancy payments being awarded by the company, this will support the employee’s argument. Even if such a benefit is described in company documents as purely 'discretionary'. it may be held to be a contractual entitlement because of the way the payments have been administered in the past. This can be a difficult area for employers. Take legal advice.
19. Do we have to give redundancy pay to employees who have turned down alternative employment two miles away?
This will depend on:
- whether the alternative employment is deemed suitable; and
- whether the employees' refusal of it is reasonable.
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 is likely to constitute suitable alternative employment, however to avoid a redundancy situation arising, the employee must start this new role within four weeks of the last day in their current role.
Whether it is reasonable to refuse suitable alternative employment is assessed objectively on whether the nature of the role is suitable, but importantly, also subjectively - from the individual employee's point of view, taking into account their circumstances, 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 the employee unreasonably refuses an offer of suitable alternative employment, you are under no obligation to provide them with a redundancy payment. However, it is very risky to rely on a rejection of suitable alternative employment to withhold a redundancy payment. Take legal advice.
20. We are in financial trouble, and will not be able to meet our redundancy payments. What happens now?
If you are unable to make your statutory redundancy payments because the Company is insolvent, 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.
21. One employee has tried the alternative employment we offered, says it is not suitable, and wants the redundancy money. Do we have to pay?
Providing the employee has decided they do not want the job within four weeks of trying it (or up to a maximum of eight weeks if an extension has been pre-agreed), yes. The employee will be treated as if they were dismissed by reason of redundancy on the date their old role ended and must receive their usual entitlements, including a redundancy payment if applicable (see above).
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