Making Redundancies: A Guide For Employers
Employers considering making redundancies should take care to follow certain guidelines. Otherwise they risk expensive tribunal claims.
By MyLegalAdviser - Last Updated February 2018
No employer enjoys making redundancies, but sometimes they're necessary.
If not done right though, redundancies can turn from an unpleasant necessity into a nightmare of expensive and time-consuming employment claims.
In this guide, we explore why an employer might need to make redundancies, the steps they'll need to take and how to avoid expensive tribunal claims.
Do you need to make redundancies?
If an employee has worked for an employer for more than 2 years, dismissing them can lead to a claim for unfair dismissal unless their dismissal is for one of five "fair" reasons.
Five fair reasons for dismissal:
- a reason related to an employee's conduct
- a reason related to an employee's capability or qualifications for the job
- because of a redundancy
- because a statutory duty or restriction prohibited the employment being continued
- some other substantial reason of a kind which justifies the dismissal.
Unless an employee has demonstrated serious or gross misconduct, or is incapable of performing / unqualified for the job, redundancy is likely to be the most applicable reason for dismissing them. Employers will need to take care that there is a genuine redundancy situation though, which we explore below.
Where an employee hasn't been employed for 2 or more years, an employer can safely dismiss their staff provided the dismissal isn't automatically unfair and they follow a fair dismissal procedure (see our Guide to Dismissing Staff).
What is the meaning of redundancy?
The law defines redundancy as occurring when an employer no longer needs, or needs less of, the (a) kind of work an employee provides or (b) the work an employee provides in a particular location.
To make redundancies, employers will therefore need to show that they either no longer need the type of work an employee provided, or that they no longer need their services in a particular location.
When can a business make redundancies?
Businesses may need to make redundancies for many reasons. Some of the most common are:
• financial issues
• change of business direction
• new technology
• too many people for the job
• business moves location
• business taken over
• death of the business owner
Whatever the reason, employers have to show that the work the employee did has disappeared, or reduced such that they are no longer required.
Can employers make redundancies immediately?
Before making redundancies, employers are required to consider alternative options to help avoid, or limit the number of, redundancies. These might include:
- moving employees to different departments/roles
- offering voluntary redundancy or early retirement
- reducing overtime
- stopping recruitment and delaying new joiners
- reducing use of casual/independent workers
- introducing/increasing flexible working
- agreeing shorter working hours/temporary lay-offs
How does the redundancy process work?
More than 20 redundancies
Where more than 20 people will be made redundant (known as a “collective redundancy”) employers need to follow a more formal consultation procedure. This process requires employers to consult with trade union or employee representatives as well as employees.
Employers making more than 20 employees redundant should take care to consult a specialist employment lawyer to ensure they follow the formal procedure correctly.
Less than 20 redundancies
Where less than 20 people are being made redundant, there is no formal legal process. Whether or not the employer has their own formal written process (e.g. in their Staff Handbook) - which they should follow if they do - the employer’s process should look a little something like this:
General Redundancy Procedure
- establish a genuine redundancy situation – make sure redundancies need to be made and there are no remaining alternative solutions.
- brief staff and review process – make sure those who will handle the process know what they’re doing.
- consult with staff – employers are legally required to “consult meaningfully” with all staff identified as eligible for redundancy (not just those who are actually made redundant). Employers should explain the situation and the criteria for the selection process and discuss any alternatives to redundancy (e.g. voluntary redundancy).
- selection - if the employer needs to go ahead with the redundancy process (i.e. not enough employees have taken voluntary redundancy and/or no alternatives can be identified) they will need to draw up the selection criteria. These need to be fair and can include criteria such as performance, attendance or disciplinary record. Employers should also ensure the criteria is applied fairly and consistently when selecting staff for redundancy. Finally, when selecting and applying the criteria, employers should ensure they do not open themselves up to a discrimination claim (see our Guide to Discrimination Claims).
- notice and pay – once employees have been selected, employers should check notice periods and pay in contracts and consider statutory entitlements (which may sometimes be higher). During this period, employees who’ve worked for their employer for more than 2 years are entitled to reasonable time off (taking into account your business needs) to look for work or arrange training at reduced pay.
- appeals – although not legally required this is often a good idea and can give employers an early indication as to when employees might consider they were unfairly dismissed or discriminated against (so potentially avoiding costly and time-consuming court action).
When can a redundancy be challenged?
As explained above, redundancy is one of the five fair reasons for dismissing staff. Despite this, employers need to be careful to ensure:
- that there is a genuine need for redundancies;
- that employees are not selected for inadmissible (e.g. pregnancy or membership of a trade union) or unlawful (i.e. discriminatory) reasons, otherwise the dismissal will be automatically unfair (regardless of length of service); and
- that a fair redundancy process is followed.
Employers who fail to do these things may expose themselves to a claim for unfair dismissal or discrimination.
Should employers take legal advice?
Making redundancies has become something of a minefield for employers dismissing staff.
Where a business has a written redundancy policy prepared by an employment lawyer, the employer should usually be safe if they follow their own policy and usual procedures. It may still be worth consulting an employment solicitor to ensure the correct procedure is followed.
Where there is no written redundancy policy (or the policy wasn't prepared recently by an employment lawyer), the employer hasn't made redundancies before and/or they are making a significant number of redundancies, it is especially important to take legal advice. Employers who don't could open themselves up to costly and time-consuming dismissal claims.