In order to fairly dismiss an individual employee by reason of redundancy, an employer must ensure that there is a genuine redundancy situation, that it adopts a fair procedure when carrying out the redundancy and that the decision to dismiss is reasonable in all the circumstances. A key element in adopting a fair procedure is proper individual consultation with the “at risk” employee.
If the employer is proposing to dismiss 20 or more employees at one establishment within a 90 day period, there is a statutory obligation on the employer to consult collectively with appropriate representatives of the employees. For guidance on when the statutory obligation arises and how it applies you should refer to our Guide to Collective Redundancies in the 'Redundancy and Business Organisation' section of our website.
Even if the statutory collective consultation provisions do not apply, an organisation that does not consult with a recognised trade union (or employee representatives, if they are appointed for such purposes) with a view to explaining the business rationale for the proposed redundancies and agreeing matters such as the relevant redundancy pool and selection criteria is at risk of an unfair dismissal finding. Collective consultation is in addition to the employer’s obligations to individually consult with an employee.
In order to fall within the statutory definition of "redundancy" for fair dismissal purposes (as set out in section 139(1) of the Employment Rights Act 1996 (ERA)), an employee's dismissal must be "wholly or mainly attributable to" the employer:
Whilst this element of the definition typically covers a business closing down altogether, it may also be applicable where changes to the nature of an employer’s business mean that it is effectively replacing the old business with an entirely new one. Whether the new business is different enough to amount to a business closure is a question of fact for an employment tribunal to decide.
This element covers the scenario where an employer closes down a particular workplace at a particular location, or moves part of its business to another location. Whether a redundancy situation exists will depend upon where the employee was employed to work. Whilst in many cases this will be clear (e.g., the employment contract will specify the employee’s place of work and the employee will have always worked there), the issue may be more complicated where a mobility clause allows the employer to change the employee's place of work. In this situation, the correct test is to consider the location where the employee's duties are actually carried out. Some employers may be able to rely on a mobility clause in the employee’s contract to move employees to a different site, rather than treat the situation as a redundancy situation. The employer needs to ensure that the mobility clause is wide enough to cover this situation; however, care should be taken in drafting such a clause to ensure it is deemed reasonable and therefore valid. An employee who then refuses to transfer, might be dismissed for a misconduct matter, depending on the reason for the refusal. This would result in the employer not having to make redundancy payments. If looking to rely on a mobility clause, it is best to contact the HR Rely helpline.
This third scenario tends to be the most problematic: what matters is the employer’s requirement for employees, not whether the employer can demonstrate a business case for its decision to make redundancies. Thus, it is possible to have a redundancy situation even if the amount of work remains the same or even increases, provided that the employer needs fewer employees. This scenario might arise, for example, where there has been:
Where employees see that the work has reduced in their particular work area then, there is usually an acceptance by the employees that there is a redundancy situation. Some employees struggle to understand that there is a redundancy situation where the work remains the same but the employer has identified that it does not need as many employees to carry out that work for example where some duties can be allocated elsewhere or efficiencies can be made requiring less people, etc. In this latter situation, it is sensible as part of the individual consultation process to spend perhaps a bit more time explaining how the need for redundancies in that particular area has arisen and what is likely to happen to the employee’s work in the future.
A redundancy is a potentially fair reason for dismissing an employee (under section 98 of the ERA). As mentioned above, whether or not a particular redundancy dismissal is in fact fair will depend upon the employer being able to demonstrate that:
If an employer is able to demonstrate a genuine redundancy situation, it will still need to show that the procedure followed was a fair one. The employer will need to demonstrate the following:
The employer should provide as much warning as possible of the potential redundancies to the employees who may be affected, and to their relevant union/employee representatives. This enables them to take early steps to digest the relevant facts, consider possible alternative solutions and, if necessary, look for alternative employment within the employer or elsewhere. An organisation may wish to consider meeting with all its employees to announce the redundancy situation. In any event, a letter should be sent to all employees potentially affected by redundancy informing them of the risk of redundancy and the business case for this. Potentially affected employees will include those who may be indirectly affected by the redundancies, for example, by an increase to their own workload.
From the outset, the employer should consult with the union/employee representatives about ways of avoiding redundancies and the redundancy process, whether or not there is a statutory obligation to collectively consult.
Ways of avoiding redundancy could include, for example, restrictions on recruitment, re-deployment to alternative employment, retraining, voluntary early retirement, voluntary redundancy, short-time working, work sharing and restricting overtime. Employers should continue to review ways of avoiding redundancies throughout the redundancy process and up to the employee’s last day of service; an opportunity to avoid a redundancy may arise even late on in the process.
The following should be discussed as part of the collective consultation process where the employer recognises a trade union or other collective body. Where there is no collective consultation process, then once the relevant employees have had time to absorb the contents of the ‘at risk’ letter, the employer should arrange an initial meeting with all the potentially redundant employees to explain:
It would be appropriate for the employer to ask whether there are any potential volunteers for redundancy at this meeting (see below). The content of the meeting should be confirmed in writing to each potentially redundant employee and a copy of the selection criteria and any guidance about its application should be included with the letter.
Employers must not forget to include any employees on maternity leave, shared parental leave, career breaks, long-term sick leave, etc. in any consultation discussions. This can be done by either allowing them to participate in any group meetings in person or by telephone, or by telephoning them after any such group meetings to update them. It will, of course, also be necessary to hold individual consultation meetings with them; these might take place in the office, at their home, at a mutually convenient venue or by telephone. If such absent employees are overlooked, then there is a risk of claims being brought for sex discrimination, disability discrimination and/or unfair dismissal. It is also important to remember that any employees on maternity or adoption leave and shared parental leave have an automatic right to be offered suitable alternative work, where vacancies are available with either the employer or an associated employer.
Employers with an occupational pension scheme may, in some situations, consider offering an early retirement pension on favourable terms as an alternative to redundancy. However, employers should be wary of adopting a compulsory early retirement policy, as this may:
One of the ways of avoiding compulsory redundancies is to invite volunteers for redundancy and it is good practice to do this, although it may not be appropriate for every redundancy exercise. The more redundancies that can be achieved on a voluntary basis, the better for morale.
Any organisation inviting volunteers for redundancy should clearly state that it reserves its right not to accept volunteers for redundancy:
For example, the organisation may need to avoid losing too many of its key skilled employees. Care needs to be taken if the reason for rejecting a volunteer is purely or mainly due to the cost of the redundancy package as if the cost is higher due to the age or service of the employees, this could constitute age discrimination. If this situation arises, we suggest you telephone the HR Rely helpdesk for further advice.
If the voluntary redundancy process is one that the organisation wishes to follow, the first step is to invite those who wish to be considered to apply for details of their redundancy package. Once these have been provided, if the employee still wishes to proceed, they should apply in writing and this should then be acknowledged on receipt. The voluntary redundancy process should set a deadline for applications and once all applications have been received, they should be promptly considered.
The employee should be informed of the outcome of their application in an individual consultation meeting. For the successful volunteer, the meeting may be to discuss any outstanding issues but for the rejected volunteer, it is to try and minimise any disappointment they may feel by having been turned down. There should be cogent (and non-discriminatory) reasons for the rejection of any volunteer. See:
One of the first considerations, having identified a redundancy situation, is to consider the appropriate redundancy pool(s) and selection criteria. Where the redundancy involves a stand alone position, e.g., removal of a receptionist as the organisation is going onto direct dial, then there is no need to apply a selection pool or criteria as this is a stand alone role. If, however, an organisation has, for example, a group of receptionists but one position is no longer required due to a downturn in work because of direct dial being introduced, then the receptionists should be pooled and a selection criteria fairly applied to everyone in that group.
Consideration should be given to whether there needs to be a redundancy pool and then what the correct redundancy pool is. Looking at the group of employees at risk of redundancy, in identifying the correct pool, the employer should genuinely apply its mind to:
Where there are a number of employees doing the same job but across different shift patterns, consideration should be given as to whether to pool all the employees regardless of the shift, or simply select one particular shift. If the employees can be required to work different shift patterns then it might be difficult to satisfy a Tribunal that a pool of only one shift is appropriate. It is also sensible to look back and see what has been done before, although this does not mean a previous pool was correct or that the organisation of work within the business remains the same. There may also be an agreed procedure that defines the pools. Ideally, the selection pool should be agreed with the union/employee representatives.
"Bumping" is the term used to describe the situation where an employee, whose job is redundant, is redeployed to another existing job and the employee in the existing job is the one who is actually dismissed for redundancy, i.e., “bumped” out. This is potentially fair, although the dismissed employee's job is not actually redundant, their dismissal is due to redundancy as it has been brought about by the reduced requirement for work of a particular kind, i.e. the work previously done by the other employee. It is sensible for an organisation to consider whether it is appropriate to allow for bumping and to make a record of their reasons for doing so or not as the case may be. Whether it is unfair to dismiss for redundancy without considering bumping is a matter of fact for the tribunal and will depend upon factors such as:
Having identified the appropriate selection pool, an employer must then devise and apply fair selection criteria in choosing those employees who are to be made redundant. Often organisations have redundancy policies that set out the criteria to be used or to be included.
The selection criteria must be carefully drawn up so that they:
Tribunals will accept the use of some subjective criteria but as this is dependant on the opinion of the person(s) carrying out the selection process (as opposed to objective criteria that can be supported by evidence) there is a greater risk of a challenge to the fairness of the selection. See example selection matrix:
Examples of subjective criteria are adaptability, flexibility and attitude; when used, such criteria should be sufficiently descriptive to avoid ambiguity when scored.
Objective criteria could include disciplinary warnings, timekeeping, production records, attendance records and skills where supported by a skills matrix. Criteria such as Last In First Out (LIFO) can potentially discriminate against younger employees and so may only be used if an organisation can justify it, perhaps as a criteria with a lower weighting. LIFO should not be used as the sole criteria or as a tie break.
When devising a criteria, consideration should be given to how many criteria are needed; there is no magic number but the more criteria to be considered, the more open an employer may be to making mistakes in the selection process. Care needs to be taken to ensure that there is no double counting. For example, if occasions of absence is used as a criteria it would be double counting to also include elsewhere as a criteria, warnings for absence. The employer should also consider whether to give added weight to any of the more important criteria (for example, to reflect the importance of specific skills to the remaining available roles), but it needs to be able to justify the weighting given.
On occasion, the selection process may result in two or more employees having the same score and it is necessary to decide which is to be the one selected for redundancy. It is sensible, therefore, as part of the consultation on the selection criteria to agree the criteria to be used in a tie break situation.
Applying the selection criteria fairly and consistently is key. It is sensible to make sure that those responsible for carrying out the selection process are briefed as to the process and how to carry out the selection process. Those carrying out the selections need to make sure that they compare each employee against the criteria and do not compare employee against employee.
Where subjective criteria is included, then if possible, two managers who know the employees in the pool should carry out their assessment of each employee independently of each other with a third person, e.g., HR reviewing the scores.
When applying the criteria, care needs to be taken not to discriminate, for example, when scoring for time keeping and attendance, consideration needs to be given as to the reasons for the absence/lateness and whether they are related to pregnancy, maternity, time off for dependants, disability and disregard them as appropriate. See Guidance for managers on carrying out a selection process:
Selecting an employee for redundancy will be automatically unfair if the reason for doing so falls within one of a number of prohibited reasons, details of which appear in Appendix 1. In addition, selection on the basis of some of these prohibited reasons may result in an unlimited compensatory award for unfair dismissal in that particular case.
The employer should meet with each potentially redundant (“at risk”) employee informing them of their provisional selection for redundancy and inviting them to an individual consultation meeting.
The employer must warn each employee of the possibility of redundancy and then consult individually with them before reaching any firm decision regarding their dismissal. (This obligation to consult individually with employees applies irrespective of whether the employer is legally obliged to collectively consult with union/employee representatives in the case of large scale redundancies).
It is important therefore that the employer meets with each “at risk” employee whilst the proposals are still at a formative stage; providing adequate information to enable each employee to respond, adequate time in which they may respond and adequate time for the employer to properly consider any issues raised by the employee and their representative. It is important that records are kept of all consultation meetings and any follow-up investigations. It may be helpful to have a checklist available for this first meeting to ensure that the key points are covered:
Once an employee has been selected as at risk of redundancy, the employer should meet with the employee simply to advise them that they are at risk and to present them with a letter inviting them to a consultation meeting.
The letter should detail the following:
The employee should be given sufficient time between receipt of the letter and the meeting to consider their response. In addition, employers should allow each employee to be accompanied by a trade union representative or colleague at this individual consultation meeting.
At this first consultation meeting, the following should be addressed:
The employer will need to follow up any of the employee’s suggestions about ways of avoiding their redundancy including any alternative employment opportunities and must consider any representations in relation to the scoring against the selection criteria. If, on further consideration, the employer decides to increase the employee's scores, it will need to check the scores of the other employees in the pool to see if the employee in question remains a candidate for redundancy. The number of individual consultation meetings required will vary depending on what issues are raised, whether the employee is interested in any alternative roles and what challenges, if any, have been made to the selection scores requiring further investigation.
Provided that each potentially redundant employee remains a redundancy candidate, the employer will need to invite each of them to a further meeting (see INVITE TO FINAL CONSULTATION MEETING/POSSIBLE TERMINATION. This letter should state that this meeting may end in dismissal and inform the employee of their right to be represented. Whilst it is not clear whether an employee has the legal right to be accompanied at the earlier consultation meetings, they are legally entitled to be accompanied at this consideration of dismissal meeting and good practice would suggest allowing them to be accompanied at earlier meetings.
Provided that each potentially redundant employee remains a redundancy candidate, the employer will need to invite each of them to a further meeting:
This letter should state that this meeting may end in dismissal and inform the employee of their right to be represented. Whilst it is not clear whether an employee has the legal right to be accompanied at the earlier consultation meetings, they are legally entitled to be accompanied at this consideration of dismissal meeting and good practice would suggest allowing them to be accompanied at earlier meetings.
At the meeting, assuming that nothing has changed following the previous meeting or any follow-up investigations, etc., the employer should confirm to the employee that they have been selected for redundancy and should explain their redundancy package and any outplacement support etc. that is available. In addition, the employer should inform the employee of the right to appeal against the decision. See Final Redundancy Consultation Checklist.
After the meeting, if the decision is made to dismiss for redundancy, the employer should write to each of the redundant employees concerned, setting out the decision to make them redundant and notifying them of their right to appeal. The letter should also confirm whether the employee will be serving their notice or whether they will be paid in lieu of notice, and should set out the calculation of their statutory redundancy pay as well as any enhanced redundancy payments or other payments due on termination. If the employer has a policy in relation to appeals, the employer should make sure that this procedure is followed. Wherever possible, the appeal should be to a higher level of management than the original decision-maker who, where appropriate, has a good knowledge of the job requirements in order to understand whether the selection process was fair:
If the employee does wish to appeal, the employer should invite him/her to attend an appeal meeting:
The employer should allow a colleague or trade union representative to accompany the redundant employee at this meeting. Following the meeting, the employer should write to the redundant employee informing them of the outcome of the appeal:
Once all the appeals are concluded, and assuming that no-one else is at risk, a letter can be to sent to the remaining employees confirming that they have not been selected:
A key aspect in ensuring a fair and reasonable redundancy procedure is to consider alternative employment for potentially redundant employees. This is a continuing obligation whilst the employment is continuing, even if notice to terminate has been served.
The search for alternative employment should include considering alternative employment within any associated companies, as well as the employing company. An employer should keep a record of enquiries that have been made of alternative employment elsewhere. This can be as simple as keeping email records but it is important that if enquiry has been made, the employer chases to ensure a response to those enquiries and makes a record of this also.
Furthermore, an employer's responsibility does not necessarily end with drawing the employee's attention to potentially suitable job vacancies: it should also gather information regarding the packages for alternative jobs and provide these details to those employees at risk of redundancy so as to enable them to make an informed decision. If employees are prepared to accept jobs of lower status, a failure to offer such a job may render a dismissal unfair.
It is also important to note that, when considering alternative employment, any employees at risk of redundancy who are on maternity or adoption or additional paternity leave have special protection and have an automatic right to be offered any suitable vacancies. It is also arguable that employees who are disabled under the Equality Act 2010 and who need to be redeployed should be considered for alternative vacancies alongside those at risk of redundancy when considering alternative employment.
If an employee unreasonably refuses an offer of suitable available alternative employment made before the date on which the redundancy dismissal takes effect (or within four weeks of that date), then they will lose their entitlement to a redundancy payment if the refusal was unreasonable. The question of the suitability of the alternative employment is objective, whilst the question of whether an employee unreasonably refuses alternative employment is subjective and each individual case must be considered in light of its particular circumstances, including the employee’s personal circumstances and subjective perception of the alternative job. See Guide below:
Guidance on matters to consider in determining whether an employee has unreasonably refused an alternative suitable role.
If an employee accepts an offer of alternative work then they are entitled to a statutory four-week trial period to "test" the new employment. The parties may agree to a trial period of longer than four weeks in strictly limited circumstances, namely that the extension must be to retrain the employee for employment in the new job. A longer trial period can be agreed between the parties but the employee will lose their entitlement to the statutory redundancy payment unless certain conditions are met.
Employees who are given notice of dismissal by reason of redundancy, and who have been continuously employed for at least two years, have the right to take a reasonable amount of time off with pay during working hours to seek alternative employment or to arrange training for future employment. “Reasonable” involves balancing the needs of the employer with the need of the employee to search for work or to arrange training, having regard to:
Whilst the amount of time off to seek alternative employment is not specifically limited, the maximum amount of pay to which an employee is entitled during the whole of their notice period is 40% of a week's pay although in practice many employers are flexible in allowing employees time off provided the employee’s requests are reasonable.
Employees with a least two years' continuous employment (at the relevant date) are entitled to a statutory redundancy payment if they are dismissed by reason of redundancy. Although there are some exceptions, the relevant date is usually the effective date of termination of the contract of employment).
The amount of statutory redundancy pay to which an employee is entitled depends on their age, length of service and pay. The employee is entitled to:
The maximum length of service taken into account to calculate a redundancy payment is 20 years. For details of the current statutory maximum, refer to our latest key data sheet in the Employment Matters section of our website (the ERA sets out various rules on how to calculate a week's pay, which rules vary depending upon whether the employee had "normal working hours" or is a shift worker, or a piece worker or is paid a fixed wage for a set number of hours). There are no longer any upper or lower age limits to the entitlement to a statutory redundancy payment. An online calculator is available on the link below:
Typically, only employees are entitled to a statutory redundancy payment which means that certain classes of workers are excluded, including:
In addition to a statutory redundancy payment, an employee may also have a contractual right to an enhanced redundancy payment, either because there is in existence an applicable collective or industry-wide agreement that offers enhanced redundancy payment terms or else there may be an established custom or practice within an individual employer (that is, a consistent policy of paying enhanced redundancy payments in the past) that entitles an employee to an enhanced redundancy payment. In these situations, an employee will only be able to enforce these terms if they can show that they have been incorporated into the contract of employment (either expressly or impliedly).
Many enhanced redundancy payments are calculated on the basis of the employee's age and/or length of service. The Age Discrimination Regulations (Regulation 33 of the Employment Equality (Age) Regulations 2006) include an exemption for certain enhanced redundancy payments provided that they are based on the statutory scheme, but are more generous. However, enhanced redundancy schemes that have some other basis for their calculation will need to be objectively justified under the Equality Act 2010. In particular, enhanced redundancy payments that are based on length of service alone will need to be objectively justified.
Under section 105 of ERA 1996, a redundancy dismissal will be automatically unfair where the reason the employee was selected for redundancy was:
NB: There is no qualifying service requirement in respect of any of the above claims of automatically unfair selection for redundancy (except claims brought under regulation 7 of TUPE 2006), to which the usual qualifying service requirement applies).
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