An employer’s guide to the redundancy process

Making staff redundant is tough at the best of times but following the Covid-19 pandemic, it’s even more stressful. Employers who follow the process carefully and are mindful of their employees’ wellbeing, can safeguard the reputation of their business, support their staff through a difficult time and minimise the risk of legal claims.

What is redundancy?

If an employer ceases (or intends to cease) their business, this is classed as dismissal by redundancy in law. It is also when the need for employees to carry out work of a particular kind have ceased or reduced (or are expected to cease or reduce). A redundancy situation can take place in the business generally, or at a particular site.

In other words, redundancy is not about the performance or conduct of an individual employee (you’re not giving someone the sack). It’s about the needs of the employer to reduce the size of the workforce.

A redundancy must fit the legal definition, as laid out in Section 139 of the Employment Rights Act 1996 to be considered a genuine redundancy. If, for example, an employer makes someone redundant, and then recruits or promotes someone else to do that same role, that is not a redundancy.

Planning redundancy

A business must consider how many roles are at risk from redundancy, what alternatives there might be to avoid redundancies, and who will handle the process – including the consultation with affected employees.

Types of redundancy

A redundancy might happen because of a reduction in work or a closure of a site of work. Or it may be there is a similar amount of work, but new technology or more efficient systems mean there is a need for fewer employees.

Some employers may offer employees a chance to apply for voluntary redundancy. The other main type of redundancy is what’s called compulsory redundancy, where an employer serves notice on an employee to end employment.

Calculating redundancy pay

An employee with two or more years’ service is entitled to a statutory redundancy payment. The level of payment is calculated by reference to a formula using the employees’ length of service, age and weekly gross pay (subject to a cap). An employee will get half a week’s pay for each full year they are under 22, one week’s pay for each year they are 22 or older, but under 41, and one and a half weeks pay for each full year they were 41 or older. The maximum length of service is 20 years. Every year, the government adjusts the weekly pay cap. For dismissals on or after 6 April 2020, the weekly cap figure is £538, and the maximum statutory redundancy payment is £16,140. The government calculator can help with this.

Employers will often offer an enhanced package for voluntary redundancy package, applying a formula the employer decides on, to incentivise staff to apply.

Some employers may also have a contractual redundancy scheme that entitles employees to an enhanced redundancy payment. It’s worth checking your policies, handbooks, and employment contracts to see if these apply.

Legalities of redundancy

Unfair Dismissal

Any employee that has two or more years services has a right not to be unfairly dismissed. That means an employer must have a fair reason and follow a fair procedure. Redundancy is one of the potentially fair reasons to dismiss, if a fair redundancy procedure is followed.

Some reasons for dismissal are automatically unfair – so for example, if an employee is selected for redundancy because they are a whistle blower, or have raised a health and safety concern, or as a result of discrimination, they will still be able to bring an employment claim as a result of the illegal action of their employer.

Following a fair, open consultation procedure with all employees, regardless of their length of service, is essential. This gives the employee a chance to question and if needs be, to challenge their selection; and it gives the employer the opportunity to engage with the employee about those concerns before making any final decision.

In broad terms, an employer will be expected to meaningfully consult with an employee about the redundancy proposal and explore ways of avoiding redundancy, for example by offering suitable alternative roles within the business.

Redundancy pool

An employer must also ensure they correctly identify the employees at risk – called the redundancy ‘pool’ – and ensure a fair selection process is undertaken. Typically, this will mean the employer will draw up criteria, for example, based on performance, skills, and disciplinary record, which is reasonably objective and fairly score each employee in the pool before consulting with the employees about their scores – who should be given a chance to see their scores and challenge any they think are unfair.

The employer must ensure the criteria does not inadvertently discriminate on the grounds of protected characteristics, to avoid claims of discrimination.

Collective consultation period

If an employer proposes to dismiss 20 or more employees in a 90-day period, at the same place, there is a statutory obligation to collectively consult and notify the government of the proposed redundancies, using a HR1 form.

The minimum period of collective consultation is 30 days where 20 or more (but fewer than 100) redundancies are proposed and this increases to 45 days where 100 or more redundancies are proposed.

The purpose of collective consultation is to provide specific information (laid out in legislation) and consult employee representatives or trade union representatives on ways of avoiding redundancies, reducing the number of redundancies and the consequences of redundancy.

A failure to properly inform and consult will result in a protective award of up to 90 days’ pay for each affected employee. As you can imagine, the liabilities for an employer of getting the process wrong are potentially substantial.

Other redundancy rights

An employee will also be entitled to notice pay (either the statutory minimum notice or what’s set out their employment contract, whichever is the greater). There’s also a right to reasonable time off to find another job during the notice period.

Alternatives to redundancy

Redeployment

An employer has a duty to make a reasonable effort to offer suitable alternative roles within the business, as a way of avoiding making someone redundant. The role must be suitable – it’s not reasonable to expect a manager to take on the role of a junior, for example – but an employer should identify suitable alternative roles and offer them to an employee at risk of redundancy.

The redundancy process

Step by step procedure for individual redundancy situations

Prepare

identify the departments and roles affected by the redundancy proposal. Identify the pools of employees and the number of proposed job losses. Compile a list of any available alternative roles in the business and group companies.

Begin consultation

Many employers will conduct one or more meetings with the affected team or department initially. This may be an opportunity to seek volunteers, discuss proposed selection criteria and seek ideas on ways of avoiding redundancy, in open communication with affected staff.

Individual consultation meetings

Affected employees should be invited (in writing) to an individual consultation meeting, with a manager. Usually, HR will also be present to advise the business on procedure. Typically, the process will involve at least two meetings, with initial meeting(s) focused on the redundancy proposal and ways of avoiding redundancy/alternative roles. Later meetings can cover the redundancy selection and scores, if there is a pooling situation.  Before the final consultation meeting, it’s a good idea to remind employees of their right to be accompanied by a work colleague or union representative – and make it clear the outcome of the meeting may result in their employment ending due to redundancy.

Outcome

Where no alternatives have been found, and the employer decides to move forward with the proposal, the employer must then notify the employee of the decision and serve notice of redundancy.

Appeal

Typically, an employer will offer an employee a right of appeal. If the employee appeals, make sure an independent, more senior manager from the business, conducts the appeal meeting.