Employers must follow a clear and fair redundancy process. However, there is no legal obligation to have a fixed formal written policy. Employers can choose to adopt a formal procedure or follow a more flexible approach according to the circumstances of each round of redundancies.
Employers who adopt formal redundancy policies may choose the terms themselves, or may agree the policy terms with recognised trade union or employee representatives.
If there is no fixed written process, employers implementing redundancies should let staff know the key elements of the redundancy process to be followed. Whichever approach is taken, the process should include at least these steps:
- Identifying the pool for selection
- Seeking volunteers
- Consulting employees
- Selection for redundancy
- Suitable alternative employment
- Appeals and dismissals
- Redundancy payment
- Compassion during redundancy
Assess Whether Redundancy Is Necessary
The first stage for employers to consider is whether redundancies are necessary. Organisations should identify their reasons for the redundancies, as these will need to be explained.
Redundancy arises when there has been, or is going to be, either:
- the closure of the business
- the closure of the workplace
- a reduction or expected reduction in the need for employees.
Only if one of these situations has arisen will the redundancy be a genuine one.
If redundancies are handled incorrectly employees may be able to claim they were unfairly selected and bring a claim for unfair dismissal. Following the correct redundancy procedures minimises these claims. Furthermore, employers should always check to see whether any redundancies will have a disparate impact on a protected group, such as part-time, disabled or older staff, and look for ways to avoid this, otherwise discrimination claims may arise.
A redundancy plan will help employers manage each stage of the process. Staff or trade union representatives may need to be involved in developing it. The planning stage will involve alternatives to compulsory redundancies (see below). The initial plan may include checking if there is a genuine redundancy situation, the timescales involved, how consultation will take place and involving any absent staff in consultations. Communications are important throughout including what to say to staff who are not at risk of redundancy and even how to handle publicity or press. Record keeping is essential throughout the process.
The employer should write to everyone affected, explaining why there is a redundancy situation and the likely timetable. At an early stage there should be a meeting with all employees potentially affected, not just those at risk of redundancy, where the employer explains the risk of redundancy and why this may be necessary, how many redundancies are being considered and the next steps including how consultation will take place. The employer should continue to keep employees informed throughout, including details of the possible number of redundancies and (once it is decided) the selection pool and the selection criteria.
If redundancies seem unavoidable, the later stages of the plan will include further consultation, selection, notices and payments.
Alternative options to redundancy
It is important to be able to prove that every possible alternative option to redundancy has been considered to avoid unfair dismissal claims. Employers should keep a record to show they have considered other cost cutting measures such as inviting volunteers for redundancy, recruitment freezes and overtime bans. Some potential alternatives could include consideration of:
- Forms of flexible working including statutory flexible working requests.
- Agreed changes to working hours, job shares, hybrid and home working. · Unpaid sabbatical or career breaks, returning if business increases.
- Agreed redeployments, for example by agreed moves to other roles using transferable skills.
- External secondments for work experience at other companies, paid for by the other employer, where businesses work in partnership.
- Reducing numbers of genuinely self-employed contractors or temporary workers including any agency workers.
- Short time working and lay off clauses if contained within the contract of employment.
- Offers of voluntary redundancy to avoid a compulsory redundancy process.
- Agreed early retirement if available (bearing in mind age discrimination risks).
Short-time working or lay-offs as an alternative to redundancies
An employee is laid off if an employer doesn’t give them work for a week and gets no pay for that week. Employers can tell employees not to turn up for work, but there is no general right not to pay them because work is not available.
However, lay-offs can be useful when an employer doesn’t have enough business to employ all or part of its workforce for a temporary period.
This occurs when employees’ working hours are reduced by more than 50%. An employer and its trade unions may agree to short-time working to save money as an alternative to redundancies.
Lay-offs or short-time working can only be imposed if:
- the employment contract allows for this
- a collective agreement with a trade union exists which allows for it
- a precedent has been created through previous lay-offs and periods of short-time working.
If the contract allows for lay-offs or short-time working, there may be entitlement for:
- a statutory guarantee payment, or
- a redundancy payment.
If an employee is put on short-time working for four consecutive weeks or more, or for six weeks in a period of 13 weeks, the employee can give the employer written notice that they intend to claim a redundancy payment.
If there is no express or implied agreement to short-time working or lay-offs, the employer will have committed:
- a constructive unfair dismissal; and
- an unlawful deduction of wages (Part II, Employment Rights Act 1996).
The employee must meet the qualifying criteria and raise a grievance internally before making a claim to an employment tribunal.
A critical step in implementing redundancies is to identify the pool from which employees will be selected. Failure to consider the pool correctly is likely to give rise to unfair dismissal claims, for example if employers merely identify employees who are under-performing and place them in the selection pool.
There are no fixed rules about how a redundancy pool should be defined. The employer should identify at the planning stage the group of employees whose work takes place at a particular location, or those engaged in work that has ceased or diminished or is expected to.
The pool should contain all employees who undertake the kind of work that is disappearing and employers should also consider the extent to which employees are doing similar work and those with interchangeable roles.
Employers should consider the day-to-day activities of employees and the terms of their contracts, looking at the reality of the situation, rather than what their contract says in theory they may be required to do.
If employees are multi-skilled and do different types of work or the work is low skilled, employees may be more likely to object to redundancy selection, especially if there are others with whom they share interchangeable skills. Employees who have previously done work other than the kind of work that is disappearing, may have interchangeable skills, and this may strengthen their argument that other employees should be included in the pool.
Employers can consider bringing subordinate employees into the pool by looking at how different the two jobs are, the differences in remuneration, length of service, risk of an age discrimination claim and the qualifications of the employee at risk of redundancy (see North v Lionel Leventhal, 2005 ). This can be a form of ‘ bumping’ (see below). However, it is a myth that employers are required to make a junior employee redundant to make space for a more senior individual whose role is redundant. Part of a redundancy consultation may involve asking employees if they would accept a more junior role at a reduced salary but it is not necessary for the more senior employee to have agreed to demotion. In some cases, it may be fair to consider selecting a more junior employee provided they are not automatically chosen and age is not the only reason (as this would be age discrimination).
Problems can arise if the size of the pool is too small. Employers should consult on the size of a redundancy pool as part of a fair redundancy selection. (See Capita Ltd v Byard EAT ) where a selection pool of just one employee was unfair where other employees were doing similar work.)
Employers can widen the redundancy pool by including employees whose roles are not redundant but are indirectly affected by the redundancy situation. ‘Bumping’ is dismissing someone else to give their job to the employee who would otherwise be redundant.
As employees whose roles are not redundant are ‘bumped’ out, to have their roles filled by employees whose roles are redundant this can be confusing for employees, and lead to allegations that it is unfair on the employee who is being bumped out of their role. Although it does not sound like a lawful process in fact, the concept is recognised as part of a fair redundancy process. There is no obligation to consider “bumping”, but in some cases, not considering bumping could be unfair, especially in low-skilled roles or roles which rely on easily transferable skills. Employers can carry out redundancies by using bumping, provided all the proper redundancy procedures, including consultation, are followed. For examples - see Fulcrum Pharma (Europe ) Ltd v Bonassera and Anor (EAT 2010) and Murray and Another v Foyle Meats Ltd (1999 HL).
Employers must still consider if an alternative role can be found for an employee who is being bumped. However, the definition of redundancy will be satisfied if one of the three main redundancy situations has ultimately caused the dismissal.
Employees don’t have to indicate that they would accept a pay cut or reduction in status before the employer considers bumping. Bumping is always hard to understand, but an employee can be dismissed for redundancy where their own job remains, but the needs of the business for different employees reduces. Whether it is fair for an employer to consider bumping will depend on the facts of each case. Employees do not need to raise the possibility of bumping for an employer to consider it (Mirab v Mentor Graphics UK (EAT 2018)). Employers should keep a careful record of their decision and thought processes when considering bumping to defend any claims that it was unfair on the individual who is being bumped out of their role.
Identify objective selection criteria
Once the selection pool has been decided the selection criteria to select those in the pool must be applied consistently. To be genuine, adequate and effective, consultation employers should already have provided adequate information and consulted on the selection criteria and scoring process. If there is only one person in the pool then no selection criteria will be required.
There may be a collective agreement with a recognised trade union which identifies the selection criteria to be used. All criteria should be completely objective and the overall test is one of reasonableness. Common criteria used in selection for redundancy include:
- skills or experience
- formal appropriate qualifications, advanced skills and other aptitudes
- attendance records, but excluding any absences due to pregnancy or disability (to avoid discrimination claims)
- disciplinary records (current offences)
- performance (this will require objective evidence drawn, for example, from the company’s existing appraisal system).
Employers then need to apply the relevant scoring mechanism that is being used for selection, which employees should have been made aware of from an early stage. Many employers enclose a copy of the employee’s completed sheet with the notification of selection as it is preferable for the selection process to be transparent.
Employers should consider giving employees an explanation for their scoring method, and a meaningful chance to comment on the scores and challenge them. Employers will have scored other members of staff who are at risk of redundancy and may reveal the average scores however they must not allow an employee to see other individual’s scores.
Redundancy procedures should be based on business needs. Whatever selection criteria are chosen for redundancy, employers need to ensure they are neither directly or indirectly discriminatory on grounds of age, sex, marital status, pregnancy, race, disability, sexual orientation, or religion or belief.
Organisations should take particular care to enure that selection criteria are not indirectly discriminatory. For example, selecting part-timers for redundancy may amount to indirect discrimination against women, because more women work part time than men.
Length of service was used in the past as a criterion for selection, however relying on this as the sole or main selection criterion runs the risk of being discriminatory on the grounds of age and unlawful. In most cases, selecting someone for redundancy by applying a LIFO (last in, first out) criterion will lead to the youngest being selected. In 2008, the High Court decided that LIFO as a criterion for redundancy selection can be used in certain circumstances, even though it is age discriminatory. For more information, see our Age discrimination and retirement Q&As.
Employers should ensure their choice of objective criteria for redundancy selection is justifiable.
Length of service in itself may give rise to other discrimination claims. The period of continuous employment is normally used to calculate it, whether full-time or part-time, because to take account of only full-time service might be indirect sex discrimination.
Employers are required to make reasonable adjustments to working conditions, including during a redundancy selection process, where they would help accommodate a disabled employee. It is unlawful to treat a disabled person less favourably because of a reason relating to their disability without a justifiable reason. For example, disability-related absences should be disregarded if attendance records are a redundancy selection criterion. Also, behaviour-related scores may need to be adjusted if, for example, a lack of co-operation is attributable to a mental impairment.
Selecting women for redundancy on the grounds of pregnancy will also be discriminatory and unfair . Redundancy selection criteria must not discriminate either, for example, any absences connected with pregnancy, maternity or other family-friendly leave should not be included when scoring an employee on attendance.
Employers must offer a suitable alternative vacancy to a woman on maternity leave as a priority before making her redundant; this applies to vacancies with the employer or an associated employer. Employees on maternity leave therefore have priority over other employees who are also at risk of redundancy. If the employer does not offer suitable alternative vacancies , the employee will have a claim for automatically unfair dismissal.
Since 2019, there have been government proposals to expand the period of redundancy protection from when an employee notifies her employer of her pregnancy (whether orally or in writing) until six months after the end of her maternity leave. Therefore, at the moment priority is only given to employees on maternity leave but this may be extended.
It is worth noting that the usual redundancy procedures applied for redundancies triggered by the COVID-19 pandemic. Although furlough has ended, this and other UK Government assistance, meant there were additional considerations for employers. Employment tribunal cases have been working their way through the system where employers perhaps handled matters incorrectly. Common errors included automatically selecting those who were on furlough for redundancy or consulting inadequately with staff due to their absence (see our COVID case law page for examples).
Employers can ask for volunteers in the early stages of the redundancy process. If there are insufficient numbers, the employer will proceed with compulsory redundancies.
Volunteers are usually invited from staff in the likely compulsory redundancy pool. It is quite common for the voluntary process to go on in parallel to the individual or collective process for compulsory redundancies.
The voluntary redundancy letter should explain the process and the package available for voluntary redundancies. The package will depend on what the employer is prepared to offer or what is provided for in a formal scheme. The employees will be entitled to their contractual or statutory notice period (or payment in lieu) plus a redundancy payment which at least complies with the statutory minimum. Employers should be clear on the amount on offer including any benefits, bonuses and commissions, and what will happen to accrued annual leave.
Employers can offer volunteers an enhanced redundancy payment as an incentive, compared to lower statutory or contractual entitlements for compulsory redundancies. Voluntary redundancies may involve negotiation with the employee to agree the final settlement package.
Employees should be warned that if they volunteer, and then change their mind, they will still be included in the pool for any subsequent compulsory redundancy selection exercise. Volunteers still have to be included in the calculation for collective consultation purposes (the trigger being 20 or more employees being made redundant within a 90-day period at the same establishment).
Those taking voluntary redundancy are entitled to compulsory redundancy protections including time off to find new work.
Employers must meet with all potentially redundant employees individually, even if there is to be collective consultation. Consultation with affected employees and their representatives should include, for example, ways of avoiding redundancies and the potential fair criteria for selection. All those affected must be included even if some staff are off work for instance those on maternity or long-term sick leave. Dismissals are unfair if a union is consulted but not the individual concerned.
Employers must individually consult with all affected employees. Individual consultation should happen as soon as possible and employers must ensure that individuals have sufficient time to consider the proposals. The law does not provide definitive time scales for individual consultation but requires reasonable consultation in the circumstances.
If there are fewer than 20 employees to be made redundant, the employer must consult individually with the employee but need not consult collectively.
During the consultation process, the employee should be notified they are at risk of redundancy and kept informed of developments. Employers must be able to demonstrate that the employee has been invited to a meeting and had an opportunity to discuss the reasons for the redundancy, the pool for selection, the criteria and any redeployment procedure and alternative employment options available.
Consultation must be meaningful which also entails explaining the situation, exploring alternatives to redundancies, discussing voluntary redundancies, allowing employees to comment on both the proposals and selection criteria and taking any suggestions the employee makes seriously.
It is good practice for the discussions and meeting outcomes to be documented.
Further meetings may be needed. For example, a second consultation meeting may be needed after a scoring system has been applied to discuss scores and give employees a chance to explain any concerns about unfair scoring. Or a second meeting may be appropriate to discuss alternative employment. A further meeting may be needed to confirm there is no suitable alternative employment or simply to confirm selection for redundancy and provide notice in accordance with the contractual notice period.
Employers should allow the employee to bring a trade union representative or work colleague to the formal individual consultation meeting although this may not be a legal requirement.
The rules governing collective consultation depend on whether 20 or more employees, or fewer, are to be made redundant within a 90-day period at the same establishment.
Collective dismissals of 20 or more employees are covered by specific statutory procedures. When an employer wishes to make 20 or more employees ‘at one establishment’ redundant within a 90-day period, the employer is under a statutory obligation to consult representatives of the affected employees in addition to the individual consultation (see our Redundancy collective consultancy Q&As).
Once the consultation and selection process is complete employees can be given notice of redundancy. There are different redundancy notifications at different stages of the process including the initial job at risk letter to inform the employees that they may be under consideration for redundancy, followed by redundancy consultation letters inviting all at-risk employees to the consultations and eventually the final communication informing each employee that they have been selected.
Employees should have been told how they scored in the selection criteria and had the opportunity to comment on this. The final notice of redundancy should include the employee’s notice period, leaving date, redundancy and holiday pay and any other sums due together with the calculations.
Employee selected for redundancy must be offered any suitable alternative job within the company or any group companies. The offer of an alternative role should be made before the notice period expires. The employee must be given enough information about what the position involves to assess its suitability. Whether a position is suitable depends on:
- the terms on offer including pay, benefits, status, hours and location of the job
- the employee’s skills, abilities, and circumstances
If the employer fails to provide salary or other information on the alternative employment then the employee can’t assess its suitability and it may be reasonable to refuse. There are separate legal tests to assess if the alternative role is suitable and the reasonableness of the employee's refusal of an offer:
Is the alternative employment suitable: The suitability is assessed objectively based on the terms on offer.
Is this employee unreasonable to reject any offer: This is assessed subjectively by tribunals, considering the individual's personal circumstances . For example is the alternative role too difficult for the employee to travel to given their health or their childcare commitments.
An employee who unreasonably refuses a suitable alternative role may forfeit their right to a statutory redundancy payment.
Employees have the right to a four-week trial period in an alternative role to decide whether the post is suitable, without prejudicing their eligibility for redundancy pay.
The trial period can be longer if agreed or if the employee needs retraining. Any agreement for a longer trial period must be made in writing before the employee starts work under the new or renewed contract.
After the trial period, the employee can either:
- Decide the new job is suitable and remain in the position beyond the end of the trial date. If there is no express agreement to extend that trial, the employee will then lose the right to a redundancy payment.
- Decide the new job isn't suitable and give notice to terminate the employment during the trial period. This will preserve the employee's right to a statutory redundancy payment (see Optical Express v Williams, 2007).
If the employer offers a suitable alternative job and the employee unreasonably refuses it, the employee may lose the right to statutory redundancy pay. As indicated above an employee on maternity leave should be given priority to other staff for any suitable alternative roles.
Employers should ensure employees have the opportunity to challenge decisions to select them for redundancy dismissal. An appeal procedure can take place at the end of the individual consultation and selection process.
ACAS guidance on how to manage staff redundancies confirms that one reason for an appeal the decision is employees who feel selection criteria have been applied unfairly. Complaints about selection may then be resolved internally and reduce the likelihood of employment tribunal claims
Employers should always start thinking about redundancies early and put in place sufficient planning to reduce the consequences. Organisations are open to several claims if redundancy dismissals are not carried out fairly, including:
- A claim for a protective award (see our Redundancy collective consultation Q&As).
- Unfair dismissal, from qualifying employees with two years’ continuous service (one year for employees who joined before 6 April 2012). There are also certain categories of automatically unfair dismissal which do not require one/two years’ continuous service (see our Unfair dismissal Q&As).
- Discrimination, if the selection procedure has been tainted by discrimination, an employee may also claim discrimination on grounds of sex, marital status, race, disability or one of the other protected characteristics under the Equality Act 2010.
- Breach of the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 or the Fixed-term Workers (Prevention of Less Favourable Treatment) Regulations 2002.
Automatically unfair reasons for redundancy selection
An employee dismissed for redundancy will be automatically unfairly dismissed if the principal reason for selecting them is one of the following:
- carrying out trade union-related duties
- performing functions as an employee representative on collective redundancy or TUPE business transfers
- health and safety representative activities
- raising specified health and safety concerns
- performing occupational pension scheme trustee duties
- performing, or proposing to perform, workforce representative duties for the purposes of the Transnational Information and Consultation of Employees Regulations 1999
- taking lawfully organised industrial action lasting eight weeks or less
- asserting a statutory employment right, or rights under the Working Time Regulations 1998, National Minimum Wage Act 1998, Maternity and Parental Leave etc Regulations 1999, Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000, Fixed-term Workers (Prevention of Less Favourable Treatment) Regulations 2002, Tax Credits Act 2002
- maternity and other parental leave related reasons
- refusing, or proposing to refuse, to carry out shop work or betting work on Sundays (England and Wales only)
- making a protected disclosure (whistleblowing)
- seeking to exercise the right to be accompanied at a disciplinary or grievance hearing
- making a flexible working request
Statutory redundancy payments
To claim a statutory redundancy payment, an employee must have been employed for a continuous period of two years and been dismissed by reason of redundancy.
The amount of a statutory redundancy payment depends on the employee's age, length of service and gross week's pay. Only a maximum of 20 years' service may be taken into consideration. The maximum gross week's pay that an employer has to take into consideration is set each year, usually in April, so the maximum statutory redundancy payment at any one time is based on multiples of this sum (see our Unfair dismissal Q&As for further details, and our Statutory rates page for current limits on a week’s pay).
The formula for calculating redundancy pay is:
- half a week's pay for each complete year in which the employee was under 22 years old
- one week's pay for each complete year in which the employee was less than 41 but not less than 22 years old
- one and a half weeks' pay for each complete year of employment in which the employee was 41 years old or more.
The employer must give the employee a written statement showing how the redundancy payment was calculated. An employer who does not do this may be fined for committing a criminal offence (see the Employment Rights Act 1996 Section 165).
An online calculator to assess an employee's statutory redundancy pay is available on the government’s website.
An employee is entitled to a period of notice and holiday pay accrued up to the termination date as well as a redundancy payment. An employee must, therefore, be given either statutory minimum notice under section 86 of the Employment Rights Act 1996 or contractual notice, whichever is the greater.
As managing a redundancy procedure can be challenging and time consuming for an employer some employers may offer you a settlement agreement with a termination payment without going through the procedure in full. This may entail an enhanced payment in return for giving up rights to claim unfair dismissal or other claims.
Furlough and Redundancy Pay
Previously furloughed staff were entitled to be paid their full salary during their notice period, and redundancy pay should be based on full salary not furlough pay. Any outstanding annual leave should also be paid at the full rate of pay.
A redundancy situation has significant impact on the morale, mental health and wellbeing of both those employees who are subject to such process (whether they ultimately leave the organisation or not) and other employees in the organisation.
Although it may have been impossible to avoid redundancies during the pandemic, it is important that every employer approaches a redundancy process with compassion and treats everyone with dignity, respect and kindness. Regular, honest and two-way communication throughout the redundancy process from line managers is vital so that employees don’t rely on the grapevine to hear about what’s happening. Managers should be prepared to deal fully with people’s feedback and concerns, and ensure that the information given out is clear, and understood by those concerned. Immediate and ongoing support should be available to the individual to support their health and wellbeing.
If all of these steps are followed effectively, then the redundancy process should be able to run as smoothly as possible. Appeals for unfair redundancy should remain low, and employees should feel well supported throughout a potentially difficult time in their career.
For further information and help, please refer to the redundancy Q&As.
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