Redundancy Advice for Employers

Redundancy is a lawful reason for dismissal where an employer’s workforce requirement for work of a particular kind has ceased or diminished. However, redundancy can give rise to serious legal claims if the correct redundancy process, consultation obligations, and selection criteria are not applied fairly and consistently.

Key Redundancy Considerations

Employers must:

  • establish a genuine redundancy situation
  • conduct meaningful consultation with affected employees
  • apply objective and non-discriminatory selection criteria
  • consider suitable alternative employment
  • calculate statutory redundancy pay and notice correctly
  • keep robust records of consultation and decision-making processes

These steps help manage legal risk and avoid claims for unfair dismissal, discrimination or failure to consult.

What Is Redundancy?

Redundancy can arise where:

  • the employer has ceased or intends to cease to carry on the business in the place where the employee worked;
  • the employer’s need for employees to carry out work of a particular kind has reduced or ceased;
  • the employer’s need for employees to carry out work of a particular kind has changed.

In each case, the focus is on the employer’s genuine need for labour rather than the individual employee’s performance.

Redundancy Consultation

When Consultation Is Required

Consultation should be undertaken whether or not employees have sufficient service to bring unfair dismissal claims, because consultation duties arise under employment law and may also involve collective consultation obligations.

Employers should begin consultation with all affected employees as soon as possible once redundancy is considered and before any final decisions are made.

Meaningful Consultation

A meaningful consultation process should:

  • explain why redundancies are proposed
  • consider ways to avoid or reduce redundancies
  • explain the basis for selection
  • explore alternative roles or redeployment
  • allow employees, or their representatives, to provide feedback

Selection Criteria

Where more than one employee is at risk, employers must apply objective and transparent selection criteria. Common lawful criteria include:

  • skills, qualifications or experience
  • performance records
  • attendance (excluding absences protected by law, e.g. arising from a disability)
  • disciplinary record

This criteria must be work-related, non-discriminatory, consistently applied, and objectively measured. Employers should avoid criteria that directly or indirectly discriminate unless objectively justified.

Suitable Alternative Employment

Employers should consider whether there is any suitable alternative employment within the organisation that could retain the employee. If a suitable alternative role exists, an employer should offer it in writing, explain how the terms differ (if at all), allow the employee time to consider, and provide a trial period (if appropriate).

If an employee refuses a suitable alternative role, this may affect their entitlement to redundancy pay.

Redundancy Pay and Notice

Statutory Redundancy Pay

Redundant employees with sufficient qualifying service are generally entitled to statutory redundancy pay which is calculated using a set formula based on the employee’s age, length of service and weekly pay (subject to statutory limits).  Employees are entitled to:

  • One and a half weeks’ pay for each complete year of service after age 41;
  • One week’s pay for each complete year of service between ages 22 and 40;
  • Half a week’s pay for each complete year of service under the age of 22.

Redundancy payments are usually tax-free up to the statutory threshold of £30,000.

Notice Period

Employers must provide the greater of the statutory notice period, or the period set out in the employee’s contract of employment.

Pay in lieu of notice (PILON) may be considered, where permitted.

Employers should ensure that holiday pay, notice pay and statutory redundancy pay calculations comply with current UK law.

ACAS Guidance

ACAS has produced guidance for employers on how best to handle redundancies.

More Information

If you need more advice on the topic of redundancy, please contact a member of our team.