This article is divided into Eight Parts for easier reading:
- Part 01: Background.
- Part 02: Redundancy Pay and Taxes.
- Part 03: Redundancy and Consultation.
- Part 04: Suitable Alternative Work and Finding Other Work.
- Part 05: Redundancy and Other Factors.
- Part 06: Redundancy and Insolvency.
- Part 07: Directors.
- Part 08: Miscellaneous.
Below is a PDF version of the whole article.
Part 01: Background
This article provides an overview of redundancy, which is a form of dismissal.
When the economy is in difficulties, redundancies are in the news every day. However, even when times are better, redundancies still happen as businesses reorganise or get taken over.
Redundancy is one of the potentially fair reasons for dismissing an employee under section 98 of the Employment Rights Act (ERA) 1996 which the employer must establish to show that an employee was not unfairly dismissed.
To ensure that such a dismissal is fair, an employer must demonstrate there is a redundancy situation as defined under section 139 of the ERA 1996, i.e. where an employer decides to reduce the number of its employees, whether within the business as a whole or within a particular site, business unit, function or job role.
This article is provided as general background information and should not be taken as legal advice or financial advice for your particular situation. Make sure to get individual advice on your case from your union, a solicitor, and/or an independent financial advisor before taking any action.
1.1 Brief History
Prior to the introduction of the Redundancy Payments Act 1965 (RPA), employees who lost their jobs did not receive a statutory redundancy payment, although they may have received some form of non-statutory payment.
The RPA introduced a safety net and established the principle that after a qualifying period of work, employees would have a right to a severance (or redundancy) payment in the event of their jobs becoming economically unnecessary to the employer.
The introduction of a statutory redundancy payment served several functions, including to:
- Internalise the social cost of unemployment to the employer;
- Make employers think more carefully before making employees redundant (and consider alternatives to redundancy);
- Compensate the employee for the loss of their job; and
- Provide a minimum sum of money for the employee in case future employment could not immediately be found.
Together with the requirement of statutory minimum notice in the Contracts of Employment Act 1963, and the right to a fair dismissal first found from the Industrial Relations Act 1971, redundancy pay forms one of the three pillars of rights in dismissal.
The RPA was eventually codified in the Employment Protection (Consolidation) Act 1978, and its provisions are now updated and found in the Employment Rights Act 1996 Section 135.
1.2 What is Redundancy?
Redundancy is when you dismiss an employee (or employees) because you no longer need anyone to do their job due to changes in the business.
- The work the employee was doing no longer being available or diminished;
- A relocation (e.g. from one part of country to another, or to another country);
- Change how the business works (e.g. using new machinery or technology);
- Reorganisation (e.g. merging two roles into one or dividing work amongst other staff); and/or
- Closing down all or part of the business, or part of a business (e.g. subsidiary);
The basic process in a redundancy situation can be summarised as:
- The need to make job losses arises.
- Volunteers are sought.
- Volunteers are picked.
- The pool is identified.
- Selection criteria are decided upon (where relevant).
- The staff in the pool are notified.
- The staff in the pool are consulted.
- The selection criteria are applied.
- Redundancy notices are issued.
It is important to note that only a few of these steps have any legal requirements attached to them.
If you are made redundant due to your employer being insolvent there is a different process (refer to Part Six).
If you are a company director refer to Part Seven.
1.3 Ways of Avoiding Redundancy
While redundancy may not be preventable, taking the time to consider how an employer might avoid it (and making a note of this process) will leave the employer better protected against a claim of unfair dismissal.
Things to consider before making an employee(s) redundant include:
- Introduce a recruitment freeze;
- Ask for volunteers/offering voluntary redundancy or early retirement;
- Retrain employees and transfer them to vacant posts;
- Implement cost savings (reduce work hours, overtime, wages, benefits, leave, etc.);
- Agreeing to flexible working;
- Temporarily reducing working hours;
- Asking employees to stop working for a short period;
- Letting go of temporary or contract workers; and/or
- Limiting or stopping overtime.
Employment contracts may not have the above as options or terms within them, and employment contracts may need to be updated to reflect changes if not already included in the contract.
1.4 What are your Rights?
Employees have certain rights in relation to redundancy, for example:
- Possibly being entitled to redundancy pay (both statutory and non-statutory);
- The right to reasonable time off to look for a new job or arrange training;
- Not be unfairly selected for redundancy;
- A notice period;
- A consultation with your employer; and
- Suitable alternative work with the company.
1.5 Unfair Dismissal and/or Discrimination
If you select an employee (or employees) for redundancy for any of the following reasons (whether wholly or mainly and directly or indirectly), then the business may face a claim for unfair dismissal and/or discrimination:
- Marital status;
- Sexual orientation;
- Religion or belief;
- Being named on a blacklist;
- Membership or non-membership of a trade union, accessing union services, or carrying out trade union activities at an appropriate time, including supporting trade union recognition;
- Health and safety activities, , taking action on healt hand safety grounds, acting as a safety rep, raising health and safety concerns with your employer, participating in safety consultations, leaving or refusing to return to a place of safety in circumstances of serious and imminent danger, or taking other appropriate steps to protect yourself and others;
- Acting as an employee representative, or standing as a candidate for an employee representative;
- Working pattern (e.g. flexible working, part-time or ﬁxed-term employees), maternity leave, birth or pregnancy, paternity leave, parental or dependants leave;
- Their exercise of their statutory rights (e.g. the right to a rest break);
- Making an allegation;
- Exercising the right to be accompanied or acting as a companion;
- Whistleblowing (e.g. making disclosures about wrongdoing);
- Taking part in lawful industrial action lasting 12 weeks or less;
- Exercising your right to object to working on a Sunday if you work in retail or betting;
- Taking or asking to take jury service;
- They are the trustee of a company pension scheme;
- Asking to be paid the National Minimum Wage;
- Trying to enforce your rights to participate in pensions auto-enrolment;
- Breaching a contract term banning you from working for another employer (if you are a zero hours contract worker);
- Asserting equal treatment rights under the Agency Workers Regulations 2010 (if you are a directly employed temp worker);
- A reason that would be a breach of TUPE laws; and/or
- Having a spent conviction (except in certain occupations, covered by the Exceptions Order to the Rehabilitation Act 1974).
1.6 Fair Procedure
Even if the business can show that the reason for the redundancy is genuine, the business will also have to show that it has followed a fair procedure when it selected the employee(s) who will be made redundant.
Common and fair ways of selecting employees for redundancy are discussed next.
1.7 How Will I Be Selected for Redundancy?
Your employer should use a fair and objective way of selecting you for redundancy. With this in mind, it is supposed to be the role itself which is identied as being redundant first, and then the employee is identied afterwards, but this is not always the case. Commonly used methods include:
- Last in, first out (employees with the shortest length of service are selected first).
- It should not be used as a sole criterion as that would be a ‘blunt instrument’, an approach likely to result in claims for unfair dismissal and indirect discrimination on grounds of age and sex.
- For example if it means only young people are made redundant.
- Asking for volunteers.
- Known as self-selection.
- Should apply to the whole workforce.
- An employer does not have to select an employee just because they volunteered.
- Not automatically given by the employer.
- Can offer enhanced redundancy pay to encourage volunteers.
- Disciplinary/conduct records.
- It is advisable to not take account of expired warnings.
- Staff appraisal scores (aka standard of work/capability), skills, qualifications and experience.
- What type of work is needed to be done by those remaining?
- Do your skills, qualifications, and experience match this work?
- Attendance record (although do not include absence related to disability or maternity).
Things to Consider:
- Selection criteria should be objective and verifiable, and not reflect personal opinions, prejudices, or be quesswork (eg. flexibility, attitude to work, and teamwork).
- There is no actual right to see to anyone else’s scores but there is no harm asking for them, perhaps offering to take them in an anonymised form.
- Allowances should be made for performance, attendance and conduct issues conducted with an individual’s disability and (and for attendance at least) maternity.
- You should be told what factors have been used in the selection process. If not, you should ask, and if you are still not told, you should seek further advice.
- If you are in a union, it may have agreed a redundancy procedure with your employer, so check with them that this has been followed.
- An employment tribunal will not get involved with whether a decision to make redundancies was sensible, only whether it was genuine, and whether the selection process was objectively fair.
- You might think that the decision to make you redundant is really bad for the business and will result in lost revenues, but that is not the test for the employment tribunal unfortunately.
- Employment tribunals will not ‘put themselves in the shoes’ of the employer for this.
- Where employees have to sit a test as part of the process, test scores alone should not decide who is made redundant (Mental Health Care (UK) Ltd v Biluan & Anor UKEAT/0248/12/SM).
Your employer can make you redundant without having to follow a selection process if your job no longer exists, for example if:
- Your employer is closing down a whole operation in a company and making all the employees working in it redundant.
- You are the only employee in your part of the organisation.
Your employer may offer you a different role if one is available (referred to as suitable alternative work, refer to Part Four).
1.8 Can I Appeal the Employer’s Decision?
- You can appeal if you feel that you have been unfairly selected, although an employer has no legal obligation to take this step.
- As good practice, an employer should ensure an opportunity for appeal is a part of their redundancy procedure.
- Write to your employer explaining the reasons.
- You may be able to take a claim to an employment tribunal for unfair dismissal.
- Adding this step can aid an employer avoid an unfair dismissal claim.
Things to Consider:
- You should talk to your employer ﬁrst and check if they have an appeals process.
- If they do not, you can write to them explaining why you think the redundancy is unfair.
- You can get help from staff representatives such as trade unions who can attend any meetings your employer might set up.
- You can also ask for a senior member of staff who was not involved in the selection process to come to meetings.
- What your employer can do:
- Your employer needs to tell you if they accept or reject your appeal.
- They need to conﬁrm this in writing.
- If they accept your appeal:
- If you are still on your notice period they can offer you your job back.
- This means your employment contract will be the same as before you were selected for redundancy.
- If you have ﬁnished your notice period they can put you back on your previous employment contract.
- They should consider you as having worked continuously from the date they originally hired you.
- You must be paid for the time you were not at work.
- You will need to pay back any redundancy pay.
- If they reject your appeal:
- If you are due redundancy notice and pay, these will continue as planned.
If you are made redundant, then you should make sure that you appeal in writing against the decision, pointing out any defects with the procedure as set out above. This can be useful evidence if you do end up challenging the decision in an employment tribunal, and more importantly it gives you that additional firepower for a negotiation.
1.9 What about Voluntary Redundancy?
- It is up to your employer whether they actually select you if you volunteer for redundancy.
- If you are selected, you are being dismissed even though you consent to it.
- If you are selected, you cannot subsequently claim unfair dismissal.
- Your employer cannot just offer voluntary redundancy to age groups eligible for an early retirement package – this could be unlawful age discrimination.
- However, an early retirement package (for certain age groups) could be one element of a voluntary redundancy offer open to all employees.
- If selected, you should receive a letter from your employer confirming your redundancy (Section 3.5).
- You should still get any redundancy rights you are entitled to, such as time off to look for a new job.
- You might also be able to negotiate your notice period with your employer.
- You should check your mortgage protection policy to see what it says about voluntary redundancy.
- Voluntary redundancy is usually excluded, meaning they will not pay your mortgage payments after your redundancy.
- You can ask to be made compulsorily redundant instead.
1.10 What if I am an Apprentice?
- Talk to your manager and training provider if you are an apprentice and you are worried about being made redundant.
- Your training provider or the apprenticeship service might be able to help you find another employer to help you complete your apprenticeship.
- Apprenticeships are different in England, Scotland, Wales and Northern Ireland.
1.11 Will I Have to Reapply for My Own Job?
- You might be asked to reapply for your own job, which could help your employer decide who to select.
- Where there are more applicants than places it is entirely proper for an employer to adopt a mechanism for assessing who to offer the role to, e.g. competitive interviews.
- If you do not apply or you are unsuccessful in your application, you will still have a job until your employer makes you redundant.
1.12 Consulting Employees
Any employees the business selects to make redundant will be entitled to consultation on the matter, where they can discuss the reasons for their selection and any alternatives (refer to Part Three).
If the company is making more than 20 employees redundant then the consultation should take place with a representative, either from the trade union or elected from the workforce.
There is also an obligation to report the redundancies to the Secretary of State for BEIS (Business, Energy, and Industrial Strategy) where more than 20 employees will be made redundant.
1.13 What Notice Period Can I Expect?
The minimum period of notice required to terminate a contract of employment under section 86 of Employment Rights Act 1996.
An employer is obliged to give an employee(s) a minimum notice period before their redundancy takes effect. These are known as statutory notice periods and depend on the employee’s length of service with the employer.
- At least one week’s notice if employed between one month and 2 years.
- One week’s notice for each year if employed between 2 and 12 years.
- 12 weeks’ notice if employed for 12 years or more.
Check your employment contract, as your employer may give you more than the statutory minimum, but they cannot give you less. The parties (employer and employee) may agree longer notice periods. In the absence of express agreement, the common law will imply a reasonable notice period, which cannot be shorter than the statutory minimum.
The notice period starts when your employer gives you a letter (Section 3.5) or email telling you that you have been selected for redundancy. From an employer perspective, it is best to give the employee the letter at work or send it by recorded delivery (although ensure only the employee can sign for it).
1.14 What if I do not Work my Full Notice Period?
- You can ask your employer if you can leave before your notice period ends, for example if you have another job to go to.
- You must get their agreement.
- If not they may consider that you have resigned and you could lose your eligibility for redundancy pay.
- Make sure you get the agreement in writing.
- If your employer agrees you can leave early, your employer does not have to pay you for the rest of your notice period.
- You still get the same redundancy pay.
1.15 What is an Effective Date of Termination?
- An employee’s period of continuous employment will end on the effective date of termination (EDT).
- The EDT is defined as (Section 97, ERA 1996):
- The date on which the employee’s notice expires (where the employee has been terminated with notice); or
- The date on which termination takes effect (where the employee has been dismissed without notice).
- Establishing the EDT is important for determining when an employee should bring a claim for unfair dismissal.
- An employee has three months from the EDT in which to bring a claim (section 128, ERA 1996).
- The EDT is also significant in relation to the availability of interim relief for certain claims.
1.16 What is the Importance of a Contract of Employment?
- Also known as a contract of service.
- A contract of service or apprenticeship, whether express or implied and, if express, whether oral or in writing.
- Whether or not an individual is working under a contract of employment will determine whether they are entitled to certain statutory rights, such as statutory redundancy payments and statutory maternity pay and the right not to be unfairly dismissed.
- This can be contrasted with a contract for services, where the relationship between the parties is not that of employer and employee.
- For a contract of employment to arise there must at least exist an obligation to personally perform the work, mutuality of obligations between employer and employee, and a sufficient element of control over the employee’s work (Ready-Mixed Concrete (South East) Limited v the Minister of Pensions and National Insurance  2 QB 497).
- An employee is an individual who has entered into or works (or worked) under the terms of a contract of employment, whether such contract is expressly agreed (in writing or orally) or is implied by the nature of the relationship (section 230, Employment Rights Act 1996).
1.17 What is the Importance of Continuous Employment?
- An employee must complete a minimum period of continuous employment with an employer to be eligible for certain rights and payments such as unfair dismissal, statutory redundancy payments, statutory maternity pay (SMP), statutory paternity pay (SPP) and statutory adoption pay (SAP).
- Continuity will usually be broken by, amongst other events, a break of one clear week (measured from Sunday to Saturday) between two contracts of employment, unless certain exceptions apply.
1.18 What about Garden Leave?
- If your employer says you do not have to be at work (known as ‘garden leave’) you must get paid as usual during your notice period.
- Your employer can ask you to take any unused holiday during your garden leave.
1.19 What if I am Made Redundant During Leave?
- There are many forms of leave, including materity, paternity, sick leave, career break, sabbatical, etc.
- Employees affected by redundancy are entitled to certain payments and treatment privileges depending on their length of service with the employer.
- Under normal circumstances, the calculation of length of service is not usually a complicated one.
- When the employee has spent a significant amount of time on leave, however, the obvious question arises:
- Should the time spent on leave be counted as part of the length of service?
- Simple answer: Maybe, it depends on the nature of the leave being taken.
- If it is maternity leave, the period of absence will count as ‘continuous service’ with the employer.
- The same is true of sick leave.
- Other forms of career break will not normally count as continuous service with an employer and may break the period of continuous service you have accumulated before the leave started (Section 1.17).
- This means that when you return you will be, in effect, starting from scratch again, although in granting you leave, your employer may choose to offer you more generous terms than are required by law.
1.20 What if I Accept Early Retirement instead of Redundancy?
- If you are close to retirement, your employer may suggest you take voluntary early retirement instead of voluntary redundancy.
- You need to look carefully at the ﬁnancial impact of each option, including how it will affect:
- Any occupational or personal pensions you have;
- Any beneﬁts you might be entitled to; and
- The redundancy package you are being offered.
- It is advisable to seek financial advice.
1.21 Should I Offer to Resign Before I Am Made Redundant?
- If you are sure that you are going to be made redundant, then you could offer to resign voluntarily first, on the basis that your employer pays you a sum of money which recognises the amount of time and effort saved by short circuiting the redundancy process.
- For example, you might save them a month of HR and management time, so you could ask for a month’s salary plus say another month to take into account their time and effort.
- It may be attractive from their point of view too as they will not have to carry out any kind of fair process or give you a right of appeal.
- However, it is important to understand the implications of doing this, and seeking advice is advisble.
1.22 Express Terms vs Implied Terms
- Express Term:
- These are terms that have been confirmed either orally or in writing, and understood by all parties to be part of the contract.
- If there is any misunderstanding over the terms, it can lead to a dispute between the employer and the employee.
- When terms are written, the main types of dispute are likely to revolve around their interpretation and application in a particular set of circumstances.
- Where contractual terms are orally agreed, the matter would be a question of what the terms were and this would be for the Court to decide.
- The evidence will likely be the witness evidence of the parties involved, and therefore witness recollection will be key in persuading the Court exactly what was said, when this was said and the true application of the words used.
- Generally express terms are less likely to be in dispute.
- However disputes can arise as to whether the particular term was contractual or whether further policies have been introduced since the original contract.
- Implied Term:
- It is common for an employment contract to be made up of both express and implied terms.
- Implied terms are those which have not been explicitly confirmed by all parties, but they are considered either so obvious that they are part of the contract, or have been ‘inserted’ in the contract by the custom or practice of the parties or industry.
- Terms will only be implied by law in particular circumstances.
- The most obvious type of enhanced redundancy payments cases would be by way of ‘custom and practice’.
- This means it is the employer’s practice to offer enhanced redundancy payments.
- However, this can be difficult to prove, as the employee would need to show the Employment Tribunal or Court that enhanced redundancy payments were paid to other employees, every year, and there were no verbal representations made to the contrary.
- Generally speaking, implied enhanced redundancy terms must be ‘reasonable, notorious and certain’ and must be shown to be the general rule rather than exception.
- The onus (aka responsibility) will be on the employee to demonstrate this to the Employment Tribunal or Court.
- A key factor in deciding whether a term has been implied is whether a clear and certain policy has been communicated to employees.
- This would go some way to showing that the policy was ‘notorious’.
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