Making your employees redundant

If you’re making one or more members of staff redundant, it’s worth asking an employment solicitor to advise you on the correct procedure and documentation before you begin the process.

Redundancy occurs where:

• The business in which an employee (or employees) work(s) has or will cease to exist;
• The business has or will cease to exist in the place where employee(s) work; or
• The need for employee(s) to carry out work of a particular kind has (or will) ceased or diminished

The focus is on the need for employees, so if the same amount of work is to be done by fewer employees that is still a redundancy. For all redundancies, a fair and proper procedure must be carried out.

We’ve the experience and the expertise to advise you on every step of the procedure to ensure that you’re remaining compliant with the law and correct process; thereby minimising the risk of any employment tribunal claims (such as for unfair dismissal) being brought against you. Such claims may be brought if the reason for dismissal is not a genuine redundancy or if there has been a failure to follow a fair procedure. It’s therefore a good idea to seek legal advice at the outset.

All employees who are made redundant have the right to work out or be paid in lieu of their notice period. You may alternatively have the right to place your employees on garden leave. Generally, as the employer, it is your choice.

If an employee has two years’ continuous service or more, they may be entitled to bring a claim for unfair dismissal. The requirement for two years’ continuous service doesn’t apply in a number of cases, such as where the dismissal is on the grounds of discrimination or ‘whistleblowing’. Redundancy is a potentially fair reason for dismissal but individual circumstances could mean that it’s not fair in a particular case, which is why it’s crucial to seek expert legal advice.

Employees with two years’ or more continuous service have the right to a statutory redundancy payment, calculated on the basis of age and length of service. To calculate the statutory redundancy payment that employees would be entitled to, visit the gov.uk page.

Employees may also have a contractual right to an enhanced redundancy payment. Employees are entitled to an enhanced redundancy payment if they can show that either it’s an express contractual entitlement, or it’s implied by custom and practice because there has been a very consistent, uniform and notorious formula or policy applied by you to calculate redundancy payments in the past.

The age discrimination provisions of the Equality Act 2010 suggest that any enhanced redundancy schemes should mirror the statutory scheme in terms of payments linked to the age of an employee.

Finally, if there are 20 or more employees being made redundant within a period of 90 days, you as the employer will have collective consultation obligations owed to a union or employee representatives. This collective obligation is quite separate from the obligation of a fair employer to consult even if only one employee is to be made redundant.

Our expert redundancy employment solicitor can advise you on every step of the process. Contact us on 0330 041 5869 or contact us and we’ll call you.

Should I have a formal redundancy policy?

You may wish to have a formal redundancy policy to ensure that your procedure is fair and consistent. This also gives employees clarity as to what the procedure will be and what they can expect, which may minimise the risks of complaints further down the line. We can advise on the content of a formal redundancy policy (which may also be incorporated in your Staff Handbook or other workplace policies).

Do I have collective consultation obligations?

That depends on how many employees you’re planning to make redundant. If you’re planning to make 20 or more employees within any period of 90 days or less redundant, you’re legally obliged to inform (provide information to the appropriate representatives), consult (with appropriate representatives), and notify (the Secretary of State for the Department of Business, Energy and Industrial Strategy).

You may be subject to significant financial penalties if you have collective consultation obligations and don’t comply with them.

Where less than 20 employees are being made redundancy within such a period, there’s no obligation for consultation on a collective level, but a fair and proper procedure must still be applied including individual consultation.

Where do I begin?

Before embarking on a redundancy exercise, there are a number of points to consider, which we’re able to assist with. Some of these are included below:

• Conduct an initial calculation of the likely costs of the redundancy exercise and how long the consultation process will take;
• Calculate the statutory redundancy payment costs;
• Consider whether any enhanced redundancy pay is being offered and, if so, what the initial proposed package will be and whether the employees will be required to enter into a settlement agreement;
• Consider who’ll attend the consultation meetings on the employer’s behalf;
• Consider whether reasonable adjustments need to be made to the process in respect of a disabled employee;
• Consider whether any of the employees are on maternity leave and therefore have preferential rights to alternative employment; and
• Consider requests for time off work to look for new employment or make arrangements for training

This is not an exhaustive list, and is situation specific. It is therefore a good idea to obtain legal advice at an early stage of the process.

What constitutes a fair procedure on an individual level?

A fair procedure comprises a number of stages:

• Whether the role really is potentially redundant or if it could be considered as a sham for dismissing for another reason;
• Adequate warning for employees that they’re at risk of redundancy, consultation (giving each individual an opportunity to learn and understand how they’ve been selected and the chance to challenge the basis of their selection if they feel that they should not have been chosen, an opportunity to discuss potential suitable alternative employment and for them to make suggestions as to how their redundancy might be avoided);
• Fair basis for selection (and where a number of employees are doing the same type of work, they’re included in a pool for selection and are scored against fair and objective selection criteria);
• Keep selection criteria as objective as possible (avoiding anything that may be considered discriminatory);
• Consideration of suitable alternative employment and alternatives to redundancy (consider all reasonable alternatives to dismissal including whether there are any suitable jobs elsewhere in the organisation for the employee. You must offer any such positions. However, you’re only obliged to offer actual vacancies and there is not necessarily an obligation to displace another employee to accommodate the employee being made redundant. Employees may lose their statutory redundancy payment if they unreasonably refuse an offer of suitable alternative employment); and
• Offer the employee the opportunity to appeal their redundancy

Employees may have a claim for unfair dismissal if you as the employer have failed to show that the reason for their dismissal was fair and/or that the procedure followed prior to dismissing was fair. A claim could be brought on the basis that their dismissal was not genuinely due to redundancy, that they were not adequately warned and consulted, that they were unfairly selected for redundancy, or that there was a failure to make reasonable efforts to redeploy them into suitable alternative employment.

What constitutes a fair procedure on a collective consultation level?

If you’re making 20 or more people redundant within a period of 90 days or less, you’ve collective consultation obligations. Before consultation can begin, you’ll need to provide information to the appropriate representatives (trade union representatives or elected employee representatives), consult with such representatives, and notify BEIS before any notices of redundancy are issued, within the specified time frame.

The obligations for collective consultation include:

• Informing and consulting representatives of all affected employees (a trade union if affected employees have a recognised trade union, or if no union, the employee representatives)
• Disclosing in writing the reasons for the redundancy proposals, number of employees intended to dismiss, total employees of such description at that establishment, method of selection, proposed procedure and time period and proposed payment calculations. There may be room for the employee to argue about the date consultation began and when it should end if proper information has not been provided at the start; and
• Consulting on avoiding the dismissals, reducing the number of employees to be dismissed and mitigating the consequences of the dismissals - this must occur when the redundancies are still at a formative stage and the representatives have adequate detail and time to respond

The time limits for starting consultation are as follows:

• If you’re proposing to dismiss 100 or more employees at one establishment within a 90-day period – consultation must begin at least 45 days before the first dismissal takes effect; or
• If you’re proposing to dismiss between 20 and 99 employees in a 90-day period – consultation must begin at least 30 days before the first dismissal takes effect

Failure to arrange for the election of employee representatives or to consult with relevant union or body may lead to you being held liable to pay each redundant employee a protective award of up to 90 days’ gross pay.

What is the impact of COVID-19?

If you’re required to make an employee’s, or employees’, role(s) redundant due to the impact of COVID-19, the legal principles for redundancy and unfair dismissal referred to above apply in the usual way.

You should firstly consider whether there are any suitable alternative roles that the affected employee(s) are able to move into and consider any other options to try and avoid redundancy. The Government has also announced measures to support employers to avoid redundancy as being the only option open to employers, such as furloughing employees and reimbursing employers 80% of the employee’s salary (up to £2,500 per month). We’re able to provide you with more detailed advice as appropriate and necessary, and as the situation changes (which it’s doing rapidly).

For further information please refer to our COVID-19 hub.

What actions can be taken by employees?

Failure to comply with the requirements can lead to employment tribunal claims, whereby the tribunal can make its own declaration as to the fairness of a redundancy and/or dismissal.

In a successful unfair dismissal claim, a tribunal may make a compensatory award up to a maximum of the lower of a year’s pay or £105,707 (where the final day of employment is on or from 6 April 2023), and a failure to collectively consult can lead to awards of up to a maximum of 90 days’ pay, as included above.

If you’re thinking about making one or more members of staff redundant, you should ensure that your business complies with the relevant and appropriate requirements for a fair procedure.

Contact our employment law team to discuss your circumstances. Call us on 0330 041 5869 or contact us and we’ll call you.