01 April 2022
We answer your frequently asked questions surrounding redundancies
What does redundancy mean?
Redundancy involves three types of situation: business closure, workplace closure or a reduction in the workforce.
What are the alternatives to redundancy?
The alternatives to redundancy include lay off and short-time working as well as other workforce cost reduction measures such as pay reductions, freezes from hiring, of promotions and of salary rises, incentives payment and benefit deferrals and reductions, none of which involve terminating employees’ employment. Reducing agency workers’ hours should also be considered to prioritise work for employees.
What category of personnel does redundancy protection apply to?
Only employees have statutory employment rights in relation to redundancy. They do not currently apply to workers or to the self-employed. Status assessments will be key to establishing who has redundancy rights.
Is there a prescribed process that must be followed to make redundancies?
There is no mandatory procedure laid down by statute in Great Britain for fairly dismissing an employee for redundancy, but a fair procedure should be followed and there are additional requirements for large groups each with sanctions for non-compliance.
Can an employer set their own redundancy process?
Employers should consider whether there are contractual redundancy procedures set out in their contractual employment documents, agreed in a workforce agreement with a recognised trades union or established by custom and practice, that apply in relation to their workforce. If there are, these should be followed.
What other general requirements are there concerning redundancy processes?
When undertaking redundancies, employers must follow a fair procedure which includes individual consultation and make dismissal decisions that are fair and reasonable in the circumstances. They should follow established principles of fairness in order to avoid claims for unfair dismissal and/or discrimination.
Does the employer have additional requirements if the affected group of employees proposed as redundant is larger?
The obligations with regard to an individual are distinct from the employer's collective redundancy obligations.
Whenever there is a collective redundancy situation, there will still be a need for individual as well as collective consultation, so the two processes will often run in parallel and may sometimes overlap, although some aspects of the collective consultation will need to take place first.
When must an employer inform and consult collectively (with trade unions or employee representatives) about redundancy?
Where 20 or more employees are to be made redundant at one establishment within a period of up to 90 days, the employer must consult employee representatives about certain aspects. If no trades union is recognised or other workforce consultative body exists for the workforce affected, the employer will have to hold elections for the affected employees to elect employee representatives from the affected workforce for the purposes of that consultation.
How do these collective consultation requirements connect with other workforce change proposals that affect larger numbers?
Redundancy has a wider meaning in terms of collective consultation. Collective consultation is required for all of the below. To establish whether the numbers in scope reach the threshold for collective consultation and which consultation period is triggered, where any or all of these may apply within a period of 90 days, the numbers in each category are aggregated.
- Dismissal by the employer because there is no work.
- Dismissal for some other substantial reason.
- Dismissal and re-engagement on different terms.
- Constructive dismissal resignation – an indirect redundancy.
- Voluntary redundancy.
The only terminations of employment not included as redundancy for collective consultation purposes are:
- the expiry of a fixed term contract; or
- a dismissal that specifically relates to an individual.
What other notifications are required for larger groups of redundancies?
The employer must notify the Secretary of State (BEIS) that it is planning to make collective redundancies:
- at least 30 days before the first dismissal takes effect (in other words, the date on which notice is to expire or employment is to end) where the employer proposes to dismiss 20 to 99 employees within a 90-day period; or
- at least 45 days before the first dismissal takes effect where the employer proposes to dismiss 100 or more employees within a 90-day period.
The notification must be in writing (either by letter or on a form HR1) and a copy must be provided to the employee representatives or trades union. The employees cannot be given notice of dismissal until the Secretary of State has been notified.
How do you deal fairly with individuals being considered for redundancy so as to minimise claims by them for unfair dismissal?
The employer should ensure that it follows a fair procedure in relation to individuals, including consulting with them, so as to minimise claims for unfair dismissal.
It will be necessary to follow a fair procedure in relation to each employee at risk of redundancy.
If selection will be necessary these steps are required.
- Consider the appropriate pool of employees.
- Establish a proposed set of objective selection criteria.
- Put together a list of alternative vacancies on a group wide basis.
- Consider whether there are any employees who are pregnant, or on maternity, adoption or shared parental leave as special rules apply to them on redundancy.
- Score each potentially redundant employee using the selection criteria and scoring guidelines.
- Ensure that at least two line managers conduct the scoring, to ensure scores are objective.
What should be covered at a first meeting with employees proposed as redundant?
- Meet with all of the employees who might be made redundant (as a group).
- Explain the reasons for the potential redundancies.
- Explain how many jobs are at risk of being redundant (making sure it is clear that the redundancies are only a possibility at this stage).
- Explain that ways of avoiding the redundancies are being explored (for example, restrictions on recruitment, alternative employment, re-training, taking voluntary early retirement under the pension scheme, voluntary redundancy, short-time working and restricting overtime).
- Ask the employees for their suggestions of ways to avoid redundancies.
- Consider asking for volunteers for redundancy.
- Explain the pools and proposed selection criteria (if relevant) to be used to select those proposed as redundant.
- Explain those selected for redundancy have a right to take time off to seek alternative employment.
- Take a note of the meeting.
What key stages must any redundancy process include?
(These are the bare minimum, but each redundancy process will require significant detail to be added for fairness to be secured)
Stage 1: establish whether there is a genuine redundancy situation.
Stage 2: consider the pool from which those to be made redundant will be selected, establish fair selection criteria and prepare a list any alternative vacancies.
Stage 3: notify the Secretary of State (BEIS), if collective redundancy obligations apply.
Stage 4: first meeting with all of the employees who might be made redundant (as a group).
Stage 5: first letter to all of the affected employees confirming in writing the information given during the first meeting
Stage 6: where collective consultation is required:
- hold election to elect employee representatives; and
- consult the appropriate representatives (with a view to reaching an agreement) on ways and means of avoiding or reducing dismissals and mitigating their consequences.
The consultation will usually also cover the appropriate pool(s) for selection and the selection criteria.
Stage 7: scoring of the individuals in scope.
Stage 8: second letter write to those employees that have been provisionally selected for redundancy, inviting them to a meeting to discuss their provisional selection giving the right to be accompanied.
Stage 9: hold first individual meetings.
Consult with each employee individually about their scores, the proposal to select them for redundancy and the terms of the proposed redundancy.
Stage 10: follow up. After the meeting, follow up any suggestions made by the individuals to avoid the redundancies and consider any representations made on scoring.
Stage 11: second individual meeting. Reply with any follow up and receive any further response points from the individual and then consider them and afterwards make a decision.
Stage 12: dismissal letter. Write to the employee confirming the decision to dismiss them as redundant and specify the termination date (termination may be with immediate effect if the employer is paying the employee in lieu of notice) and providing the right of appeal.
Stage 13: appeal by the employee determined by someone senior to the person who held the previous meeting and made the initial decision.
How do you calculate an employee's entitlement to a statutory redundancy payment?
The amount of a statutory redundancy payment depends on the employee’s age, length of service and salary.
The statutory redundancy payment is equal to:
- one and a half weeks' pay for each complete year of service in which the employee was aged 41 or over at the beginning of the year*;
- one week's pay for each complete year of service in which the employee was aged 22-40 at the beginning of the year*; or
- half a week's pay for each complete year of service in which the employee was under the age of 22 for any part of the year*.
*For these purposes, a year is a period of 12 complete calendar months. The number of years that an employee has worked should be rounded down to the nearest complete year. A maximum of 20 years can be taken into account when calculating a statutory redundancy payment. If the employee has more than 20 years' service, the earlier years are ignored.
The figure used will be the employee's week's pay as at the 'calculation date'. It is the gross amount. The sum is then capped at the statutory maximum, which is increased in line with the Retail Prices Index on 6 April each year. The statutory maximum from 6 April 2022 is £571 per week.
What other payments should be made to the employee when they are dismissed by reason of redundancy?
The employee should be paid:
- salary or wages during consultation;
- notice pay either statutory or contractual whichever is greater to include all benefits (please see above as to the calculation of a week's pay);
- holiday pay for holiday which is accrued but untaken; and
- redundancy pay either statutory or contractual whichever is greater (for statutory redundancy payment calculation please see above as to the calculation of a week’s pay).
What can happen if the employer fails to undertake a fair redundancy process?
If a redundancy dismissal is unfair, an employee will normally (in addition to the redundancy pay and notice entitlements), be entitled to
- an unfair dismissal basic award (however, this will be cancelled out by the amount of any statutory redundancy payment received).; and
- an unfair dismissal compensatory award, to compensate for financial loss arising from the unfair loss of their job (although this may be reduced in some cases by any ex gratia or contractual redundancy payment in excess of the statutory redundancy payment).
A tribunal may make an order for an employee's reinstatement or re-engagement, instead of monetary compensation (although in that case compensation will be ordered to cover the intervening period between dismissal and reinstatement or re-engagement).
An employee can bring a claim for compensation for unfair dismissal even after they have accepted their statutory or contractual redundancy payment, unless they have entered into a settlement agreement.
Is there any way to mitigate a claim if errors have been made in redundancy selection process and a claim is notified?
Consider a settlement agreement. If the employer is proposing to make an ex gratia payment to employees in addition to any statutory or contractual entitlement, it is sensible to consider making such payments conditional on their entering into a settlement agreement, so that the employees have no further claims against the employer. However, employers should note that a settlement agreement requires the redundant employees to obtain independent legal advice in relation to their dismissal in order for the settlement agreement to be legally binding and the employer is usually asked to reimburse the cost to the employee of that advice.
What is the sanction for failing either to conduct collective consultation at all or for missing any of the stages or undertaking them incorrectly?
A protective award of up to 90 days gross pay for protected employees (those affected) can be made in addition to other payments or awards unless there are special circumstances.
What is the sanction for failing to notify BEIS?
Failure to provide the notification to the Secretary of State is a criminal offence and the employer will be liable on summary conviction to a fine not exceeding level 5 on the standard scale. Level 5 criminal fines are unlimited.
Are there any practical points additional points to consider during the redundancy process?
- Ensure there is someone available to answer any employee queries. Redundancy is an uncertain time for employees, and it is helpful if the employer can arrange for someone to be available throughout the consultation period to answer any queries raised by employees as and when they arise.
- Consider other support for employees:
- producing question and answer sheets on a larger scale redundancy exercise, for employees to assist the consultation process;
- explaining to employees that they have a right to time off to look for alternative work;
- speaking to the local job centre; and
- offering assistance with their CVs.
For more information, please contact Charlie Barnes.