Redundancy

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Although it’s often used to describe somebody losing their job, redundancy has a specific legal meaning.

If an employee’s post has become redundant:

• They will be entitled to receive a redundancy payment, providing they have been employed as an employee for more than two continuous years

If the post is not genuinely redundant, or a fair procedure has not been carried out:

• An employee has the right to claim that he or she has been unfairly dismissed if they have been employed for more than two years continuously.

What is a genuine redundancy situation?

Under the Employment Rights Act 1996, “redundancy” occurs only in the following three circumstances:

• Business closure
• Workplace closure
• The needs of the business for employees to do work of a particular kind has ceased or diminished

Has a fair procedure been carried out?

Even in genuine redundancy situations, the employer must carry out a fair procedure that should involve:

• Selecting a fair pool of employees at risk of redundancy using a fair criteria
• Warning the employees that their jobs are at risk and consulting with them
• Considering alternative employment in the business and offering a position where appropriate
• Holding a meeting and allowing the employee to be accompanied to it if they choose
• Allowing an appeal to the redundancy decision

Collective consultancy obligations

If 20 or more employees are going to be made redundant within a 90-day period, the employer must:

• Inform and consult with the employees’ representatives
• Inform the Secretary of State

The penalty for failing to inform and consult is potentially a tribunal award of 90 days’ pay for each redundant employee. Failure to provide the notification the the Secretary of State is a criminal offence.

How do redundancy payments work?

If the employee has been employed for two years continuously, he or she will be entitled to a tax-free statutory redundancy payment.  The amount depends on their age and length of time in employment, calculated as follows:

• One and a half week’s pay for each year for employees aged 41 and over
• One week’s pay for each year for employees aged 22 to 40
• Half a week’s pay for each year for employees aged 21 and under

A week’s pay is calculated up to a weekly maximum wage which usually changes each year. The maximum amount of years calculated is 20.

Alternative employment – the facts

An employer must consider suitable alternative employment for a redundant employee.  Not doing so may make the dismissal unfair.

‘Suitable’ depends on the employee’s personal circumstances, and aspects like these should all be considered:

• Qualifications
• Experience
• Travel-distance
• Contract terms (e.g. pay and working hours)

What happens if an employee refuses an alternative employment offer?

If the employer offers suitable employment and the employee unreasonably refuses to take it:

• The employee is still dismissed
• No statutory redundancy payment will be made

For employees, it is therefore important to determine if they are unreasonably refusing an offer.

Alternatives to redundancy

Before starting redundancy proceedings, an employer may consider alternative cost-saving measures such as:

• Restricting recruitment
• Deferring new joiners
• Laying off
• Reducing hours
• Offering unpaid career breaks