Redundancy FAQs

Redundancy FAQs

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 unfair dismissal. The best way to reduce the risk is to have a procedure and stick to it. It should cover:

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
warning and consulting employees about the potential redundancy situation
seeking a view from the union (if any)
informing and consulting employee representatives in cases of collective redundancy
considering alternative employment for those employees whose roles are redundant
giving reasonable paid time off to look for work or make arrangements for training for future employment
In addition, if you are making individual employees redundant you must follow fair and reasonable procedures.

2. How much notice do we have to give of proposed 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.

3. In cases of collective redundancy, what information, if any, do we have to provide in writing to employee 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 dismissals, including the period over which the dismissals 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)

4. How much do we have to pay in redundancy pay?

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:

one and a half week’s pay for each full year of service in which the employee was aged 41 years or more
one week’s pay for each full year in which the employee was between the ages of 40 and 22
half a week’s pay for each full year in which the employee was aged up to and including 21
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.

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 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).

6. Do we have to go through a redundancy procedure if we can offer alternative employment at a site 20 miles away?

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).

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 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.

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. 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.

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 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.

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. If you are considering redundancies, take advice on ways to avoid making them at all. Options open to you might include:

cutting overtime
offering early retirement to employees who volunteer
terminating temporary contracts
retraining or redeploying workers – maybe to lesser jobs
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 promise not to bring an employment tribunal claim. Again, advice is essential.

12. Is it reasonable to select people for redundancy on a LIFO (last-in-first-out) basis?

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.

13. Can we select people 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, appraisals – to demonstrate that you are losing the people who make the least contribution to the business, rather than merely exercising favouritism.

14. If we select people for their skills, can we include their ability to speak and understand English?

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.

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. 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.

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 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.

17. Is redundancy money paid gross, or do we have to deduct tax and National Insurance contributions (NICs)?

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.

18. Our company normally gives generous redundancy pay. Our employees say they have a right to it this time. Do they?

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.

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 suitable
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 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.

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, 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 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.