GUIDE TO MAKING REDUNDANCIES

Making redundancies: how to do it right

No employer likes making redundancies, but sometimes they're necessary.

However, if not done right, the employer could be left open to a claim in the employment tribunal. Read on to find out when employers can make redundancies and what could lead to a claim.

Reasons for redundancy

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.


Alternatives to redundancy

Before making redundancies, employers should 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

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Redundancy process

Where more than 20 people will be made redundant (known as a “collective redundancy”) employers need to follow a more formal consultation procedure which, as well as consulting with individual employees, requires consultation with trade union or employee representatives. As such, employers making more than 20 employees redundant should consult a specialist employment lawyer to ensure they follow the formal procedure correctly.

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

  1. establish a genuine redundancy situation – make sure redundancies need to be made and there are no remaining alternative solutions.
  2. brief staff and review process – make sure those who will handle the process know what they’re doing.
  3. 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).
  4. 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).
  5. 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.
  6. 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).

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When can redundancy be challenged?

Dismissing an employee who has worked for their employer for more than two years can lead to a claim for unfair dismissal unless the dismissal is for one of five “fair” reasons (see our Guide to Dismissing Staff for more information). Redundancy is one of the five "fair" reasons for dismissal.

Despite this, when considering making redundancies employers need to be very careful to ensure:

  • that there is a genuine need for them;
  • that employees are not selected for inadmissible reasons (e.g. pregnancy or membership of a trade union) or unlawful (i.e. discriminatory), 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.


Do you need legal advice?

Employers considering redundancies, especially those who’ve never made redundancies before, don’t have written redundancy/dismissal policies and/or are making significant numbers of staff redundant, should consider taking legal advice. If they don’t they have a much higher exposure to a potentially costly and time-consuming unfair dismissal or discrimination claim by a disgruntled ex-employee.

Employees who think they’ve been discriminated against or unfairly made redundant should take advice quickly as they will usually only be able to make a claim within 3 months of the dismissal. For more detail on making an employment claim as an employee, see our Guide to Dismissal Claims.


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