Getting redundancies right: a guide
When considering making redundancies, you're legally obligated to:
- Ensure there's a genuine redundancy situation
- Consider alternatives that could reduce or avoid redundancies
- Follow a fair process.
Genuine redundancy situations
It's important to know whether a dismissal meets the legal definition of redundancy, which broadly covers these situations:
- The reason for the employee's employment ends because the entire business closes.
- The business will stop operating from the location where the employee is based.
- Fewer employees are needed to do a particular kind of work (i.e. their job function/role), either across the whole business or in the location where they work.
- All the employees who do a particular kind of work are no longer required, either across the whole business or in the location where they work.
The need for redundancies is usually:
- Economic (often financial difficulties)
- Organisational (e.g. relocation); or
- Operational (e.g. the need to be more efficient because of new technology or changes to the products or services sold).
If you've acted honestly, you won't need to justify your reasons. In disputes, Employment Tribunals will initially focus on the requirements of the business at the time you decided redundancies were needed. As long as these commercial decisions were genuine, tribunals won't question your judgment about the need for redundancies. However, they will rule on any dispute over whether a genuine redundancy situation existed.
Throughout the process, you must consider whether you can avoid or minimise compulsory redundancies. For example, you might be able to:
- Temporarily stop work and production
- Reduce numbers by freezing recruitment, withdrawing job offers and delaying new starters
- End agreements with self-employed contractors and agency staff, and stop giving work to casual workers
- Redeploy or second employees to other businesses, e.g. to clients
- Ask if anyone agrees to temporarily stop working, e.g. unpaid sabbatical/leave
- Temporarily lay-off employees or put them on short-time working (reduced hours), if their contracts allow it: note they'll have an automatic right to redundancy if laid off for 4 consecutive weeks, or any 6 weeks in a 13-week period
- Ask for volunteers for early retirement: you must consider its effect on their future pension entitlement, advise them to get independent advice about it and retain the right to refuse their request
- Reduce hours and payroll costs, e.g.:
- negotiate temporary or permanent cut in hours, pay, pension payments and any contractual overtime/payments
- request employees take part-time or flexible-working roles
- ban non-contractual overtime
- stop non-contractual payments (e.g. discretionary bonuses)
- Ask for volunteers for redundancy: do this before consultations begin and retain the right to refuse any request, to avoid losing key staff. Tell them their request can be withdrawn at any time before a set date and that, if they aren't selected, the fact that they volunteered won't impact decisions about any compulsory redundancies or their future employment.
A fair redundancy process
For your process to be fair, you must:
- Warn and consult employees about the proposed redundancies
- If only some staff will be made redundant, identify an appropriate poolof potentially redundant employees and choose them using proper selection criteria
- Consider any suitable alternative employmentwithin your business
- Follow any contractual redundancy procedures you may have.
Check the following before deciding on a process to follow:
- Employee contracts and/or any staff handbook in case they list any steps you have to take. You may be contractually required to follow a procedure and should only depart from it if you've got the written agreement of the affected employees.
- Whether you've historically used a particular procedure, which remains fair and up to date. You should only not use it if it'd be reasonable not to.
If neither of the above apply, you'll need to create your own procedure. You can use this article to help.
Apply the procedure consistently, or else you risk discrimination claims being made against you.
Who is consulted?
Give individual employees as much warning as possible.
If you propose fewer than 20 redundancies, you must consult your employees individually.
Start consulting employees when the redundancy proposals are yet to be determined. Consultations usually begin with a general announcement to all staff, informing them that redundancies are proposed. Then letters/emails are sent to the individual employees whose jobs are at risk.
Ensure that you also warn and consult absent employees, such as those on maternity or other types of family leave, on long-term sick leave or who've been seconded elsewhere.
Note: If your business recognises a trade union, you must involve them in the redundancy process. And if you want to make 20-99 redundancies within a 90-day period (including any employees who volunteer for it), you must notify and consult 'appropriate representatives' of the affected employees – this is known as collective consultation. These must be trade union representatives if you recognise one that's relevant to the affected employees. Otherwise, they'll be employee representatives. More than 20 redundancies also means you need to notify the Redundancy Payments Service (or, in Northern Ireland, the Department for the Economy). For the purposes of this article, we'll assume you're making fewer than 20 redundancies and don't have to involve a trade union.
Give enough information before consultations start to ensure they're meaningful. Give employees enough time to consider and (if necessary) respond. As a minimum, give the following to each employee individually:
- Reasons for proposing redundancies
- Number and descriptions of employees at risk
- Total number of employees at the workplace
- Proposed pool and selection criteria (if only some staff will be made redundant)
- Outline of the planned procedure (or direct them to it if an agreed procedure already exists)
- Planned timeframe
- How you intend to calculate any extra redundancy pay (above the statutory redundancy payment)
- Total number of any agency workers working for you (in all parts of your business) and the type of work they do.
What you must consult about
Consultations must focus primarily on ways of avoiding or minimising the proposed redundancies, and reducing their consequences.
Enter consultations with an open mind. Give employees a fair and proper opportunity to express their views and genuinely consider their responses or suggestions.
There'll usually be more than one consultation meeting. It's acceptable to have them via video-conference if need be – however, make sure everyone involved can access the required technology and use it.
You must consult all at-risk employees, even if they're prepared to take voluntary redundancy.
Companions at consultation meetings
There's no legal right for employees to bring others to consultation meetings, but it's good practice to offer it – if there's a dispute later, it could help show that your process was fair. The companion could be a colleague, but ultimately you decide who they can bring. E.g. you might only allow an accompanying colleague who's neither a manager or at risk of redundancy.
Suggested consultation procedure
All meetings should usually be attended by a line manager (though not necessarily their direct one), the employee and any companion you've allowed them to bring.
Step 1: The first individual meeting
- The reason(s) for the proposed redundancies
- Why they're in the pool of at-risk employees
- The selection criteriayou've proposed and how it relates to them (give them a copy of it here)
- Whether they want to volunteer for redundancy (having previously told them how much they'd receive)
- What you've done to investigate avoiding or minimising redundancies, explaining the alternatives you've considered and why they aren't viable
- Anything else they may need to be aware of.
Get their feedback and allow them to air any concerns they may have.
Step 2: Optional follow-up meeting
You could have this if you need to give information that wasn't available to you at the first meeting or investigate any suggestions that have been made.
Step 3: Scoring the employee against your selection criteria
This step is required where only certain individuals are being made redundant. If you're making all members of a team, a whole department or the whole organisation redundant, skip to Step 6.
After you've scored the employee against your selection criteria, you can email them the scored criteria or give it to them in a meeting.
Step 4: Meeting to discuss score and provisional outcome
After giving the employee a reasonable amount of time after Step 3 to consider their score, use this meeting to:
- Explain why they received their score
- Tell them whether or not they've been provisionally selected for redundancy as a result of their score i.e. do they fall below the cut-off point?
- Let them comment on and/or challenge any aspects of their score
- Consider those comments and discuss
- Listen to any ideas they have to avoid their redundancy
- Inform them if any suitable alternative jobs are available
- Inform them of the terms of any redundancy package.
Take notes in the meeting and give the employee a written summary of the discussion and outcomes. If they've been provisionally selected, make it clear that no final decision has been made.
Step 5: Optional follow-up meeting
You might need this if the employee challenged their score or made suggestions to avoid their redundancy, and you had to consider your response.
If you decide their score should be adjusted and they're now above the cut-off point, or that you can implement their suggestion avoiding their redundancy, you can tell them at this meeting and then confirm in writing. Or, you can simply confirm in writing without this meeting.
Step 6: Meeting confirming redundancy
Tell the employee:
- Their score has/hasn't been adjusted, with reasons
- They're being made redundant
- No suitable alternative jobs are available
- The terms of any redundancy package
- About any right to appeal
Employees have no legal right to appeal, but it's good practice to offer this as it's likely to help demonstrate a fair process.
Take notes and give the employee written confirmation of their dismissal. This should state:
- The redundancy decision and the reason(s) why
- The dates and results of the consultation meetings
- That no suitable alternative jobs are available
- Whether they're expected to work out their contractual notice or a shorter notice period, or if they'll be paid in lieu of notice or placed on garden leave
- The length of their notice or garden leave
- The date their employment will end
- How their termination payment is broken down: usually, a redundancy payment, pay for untaken holiday (if any) and pay for notice (if paid in lieu)
- That they have a right (if they do – see below) to take a reasonable amount of paid time off during working hours to find a new job or undergo training
- How and when they can appeal (if you're allowing it).
If they've worked for you (continuously) for a month or more, they must get a minimum amount of notice:
- 1 month to 2 years = 1 week's notice
- 2 years to 12 years = 1 week for each complete year, up to a maximum of 12
If there's a longer notice period in their employment contract, then that period applies.
Employees with 2 years' service being made redundant are entitled to reasonable time off, either to look for new employment or arrange training. You must pay their normal hourly rate for this, up to an amount not exceeding 40% of a week's pay for the whole notice period. You can give enhanced payments or time off for other reasons (paid or unpaid).
Fairly selecting employees
Fair selection involves:
- Identifying an appropriate pool of employees who'll be at risk of redundancy
- Producing objective selection criteria
- Applying those criteria fairly to the pool.
Identifying an appropriate pool
You have a reasonable degree of flexibility when deciding who should be in the pool, as long as you've genuinely thought about it. The pool shouldn't be too small, as it may help an employee to claim unfair dismissal.
When selecting the pool, think about:
- The work that's being reduced or no longer required
- Which employees perform that work daily or consistently - this can include employees working at other locations
- Whether they're multi-skilled and can also do other types of work that are still required - this can mean that it's reasonable for the pool to be widened to include the employees currently doing those other types of work
- Whether you've made reasonable and genuine decisions about who to include.
In some situations, 'bumping' might be appropriate. This is when an employee has a job that's at risk of redundancy and they're moved to another employee's job that's not at risk of redundancy, causing that other employee to be dismissed. In these circumstances, that dismissal is usually a redundancy. This isn't the case if the dismissal is actually for some other reason. Get legal advice before using bumping.
The selection criteria are used to score those at risk, to decide who'll be made redundant.
When creating criteria, as far as possible use objective factors that are relevant to business needs and can be verified by available information (e.g. appraisals, length of service, disciplinary or attendance records). Ensure the information is accurate.
- Avoid subjective factors or personal opinions (e.g. company values, future potential), unless you're confident they can be applied objectively.
- You can't use a simple 'last in, first out' approach – it could be discriminatory. It may be possible to make this one factor amid other selection criteria, or if all other criteria have been applied and there's a tiebreak situation. Get legal advice first, though.
- You can't select employees becausethey're part-time or on fixed-term agreements: such employees are legally protected from less favourable treatment.
- Don't select employees based on salary: it'll likely be indirect age discrimination.
- Only include performance in the selection criteria if you've got records that support it or if you can score it using measures that aren't subjective.
- If you want to include attendance in the criteria, exclude the following types of absence (and make a note that you've done so):
- Maternity or paternity leave
- Absence due to disability (either their own or one of their dependants)
- Absence due to injury suffered at work (unless you can show you've consistently applied this to all employees).
- Don't discriminate against employees, whether directly or indirectly, on the grounds of sex, sexual orientation, race, age, disability, religion/belief (England, Wales and Scotland) or religious belief/political opinion (Northern Ireland)
If there's a dispute, you must be able to prove that your selection criteria are fair.
Selection criteria must also be applied fairly. Obvious inconsistencies are likely to lead to an Employment Tribunal deeming the redundancy unfair.
Searching for alternative work
You must search for and identify any suitable alternative jobs for all at-risk employees, both within the business and any associated business (including subsidiaries and any part located elsewhere).
You don't need to create new jobs, but you must use reasonable efforts to genuinely search for suitable roles. Make a record of your attempts. Getting this wrong may raise suspicions that your process is unfair.
This obligation continues until employees are dismissed.
What is suitable alternative work?
- The skills, aptitudes and experience of the at-risk employees and whether they meet the requirements of the new role
- The terms of the new role compared with their current role – e.g. status, place of work, tasks, pay, hours and responsibilities.
You should also consider:
- The current state of the job market – ask if they'd accept a demotion, or working part-time, for a fixed-term or casually in order to remain employed.
- If you need to use bumping.
- Tweaking an existing vacancy if this would make it suitable or acceptable, or offering training where needed.
Giving information about alternative work
Give employees enough information about any alternative job so they can make an informed decision.
There are no requirements about how you do this. The most convenient way is often driven by the number of potential redundancies. Examples include providing the information:
- At an individual consultation meeting
- At a separate meeting attended by all the at-risk employees
- Using notice boards, or a post on an internal network
Do you need to prioritise anyone?
Employees on maternity, adoption or shared parental leave have an automatic right to be prioritised for any suitable vacancy (without competitive interviews), ahead of others chosen for redundancy.
Job offers and trial periods
If you offer a suitable alternative job before an employee's current employment ends, there's an automatic 4-week trial period if:
- The trial starts after the employee's existing employment ends
- The new role starts no later than 4 weeks after the employee's current employment ends
- The terms and conditions of the new role differ from their current one – all differences between the old and new terms count, except those that are trivial or insignificant.
- Failing to agree that a trial period applies may make the redundancy unfair.
- You must give the employee reasonable time to consider an offer, otherwise it may be deemed unsuitable and they can claim a redundancy payment.
You can extend the trial period beyond 4 weeks to retrain the employee. You must both agree this in writing before they begin the new role, stating when the retraining will end and identifying the employment terms that will then apply afterwards.
Accepted offers/successful trials
As long as the employee starts their new role within 4 weeks of their old one, it'll mean there is no redundancy and they'll remain employed. No statutory redundancy payment will be due.
Rejected offers/unsuccessful trials
This will mean the employee is made redundant. They may lose their right to a redundancy payment if:
- you made the offer before their employment ended and they unreasonably refused; or
- they resigned or gave notice during a trial period.
Whether or not their refusal is unreasonable depends on their personal perceptions or views – not yours. If there's a disagreement, it's ultimately for a tribunal to decide.
Note that if the terms of the new role are, in practice, different from what you offered, the employee's original dismissal for redundancy will stand.
Re-engagement after redundancy
If your circumstances improve, you may want to offer someone their old job back. If you re-engage them within 4 weeks of their employment ending, they'll no longer be entitled to a redundancy payment and you can ask for it back.
Statutory redundancy payments
Redundant employees are entitled to a statutory redundancy payment if they've worked for you continuously for at least 2 years.
The amount is related to the employee's age, length of service and salary (capped at £538 per week, or £560 in Northern Ireland). You must give the employee a written statement of how it's been calculated.
Redundancy payments aren't taxable and you won't be able to recover payments from HMRC.
You can use the Gov.uk calculator to work out an employee's statutory redundancy pay.
Enhanced redundancy payments
If the employee is entitled to a contractual (i.e. enhanced) redundancy payment under the terms of their contract or your staff handbook, you must pay that on top of the statutory payment.
Not paying would be a breach of contract and may result in a court or tribunal claim.
Enforcement of payment
If you don't make a redundancy payment or there's a dispute about the amount, your employee is entitled to take you to court or an Employment Tribunal.
Your employee will have 6 months from the date of their dismissal to claim it from you, otherwise they'll lose their right to it – although a tribunal can extend this by another 6 months if it feels the circumstances call for it.
Their claim for the redundancy payment will start if they send you a written notice claiming it, or start a tribunal claim for it (either solely or as part of a larger claim, e.g. unfair dismissal).
If you're insolvent and can't pay, they can apply for payment from the Insolvency Service (or the National Insurance Fund in Northern Ireland).
Guarding against tribunal claims
Most Employment Tribunal claims made after redundancies accuse the employer of not properly consulting with employees on how to avoid job losses. This is usually accompanied by other claims that the procedure as a whole was unfair or unfairly applied, or that the employee's selection criteria score was unfair.
Therefore, make as much documentary evidence as possible to counter any potential claims, including:
- Letters/emails sent to the employee at each stage and any documents given to them at meetings
- Notes taken at each meeting, including any feedback or suggestions from the employee and your response (preferably signed by them), or correspondence that confirms what was said and done
- Written selection criteria and guidance on how they should be applied
- Any records relevant to the selection criteria (e.g. attendance, appraisals).
Redundancy payments and furlough
New legislation has clarified that if you dismiss a furloughed – or flexibly furloughed – employee (e.g. through redundancy), certain statutory payments must be calculated using their normal (pre-furlough) pay and not their (reduced) furlough pay.
This applies to redundancy payments, along with other statutory payments linked to ending an employee's employment (usually a multiple of a week's pay). The payments covered are:
- Statutory notice pay (Note: you can only claim their notice pay from the Coronavirus Job Retention Scheme if you intend to make them work their notice, i.e. you don't pay them in lieu.)
- Statutory redundancy pay
- Pay for time off taken by the employee to look for new employment or arrange training, following notice of dismissal
- The statutory amount payable if you fail to provide an employee with written reasons for their dismissal
- Statutory compensation for unfair dismissal
- The statutory amount payable if you're unsuccessful in an unfair dismissal claim and fail to comply with a tribunal or court order to reinstate or re-engage the employee.
The new legislation explains how to calculate the above payments, including if the employee's pay or hours vary. In essence, though, for the calculation of a week's pay, an employee's furloughed hours are treated as if they were normal working hours. The pay related to those furloughed hours is treated as if they'd been worked, ignoring any reduction made because the employee was furloughed.
Coronavirus Job Retention Scheme over/underpayment guides
Homeworking guidance update
The UK Government has made several updates to its workplace coronavirus safety guidance. Notably, it no longer advises that staff should work from home if they can, though it continues to list it as one way of ensuring staff can work safely.
The Welsh Government has also updated its guidance, though the emphasis remains on allowing staff to work from home as often as possible. Unless there's a clear business need to require staff to return to work, employers shouldn't do so.
The position is similar in the updated guidance from the Scottish Government, where remote working should remain the default position for those who can.
New recovery grants for SMEs in England
The UK Government has announced new grants of £1,000 - £5,000 for SMEs to help with access to new technology, other equipment and specialist professional advice.