Redundancy

What is redundancy?

An employee is dismissed by reason of redundancy if the reason for dismissal is:
1) the employer ceases carrying on the business in which the employee worked
2) the employer ceases carrying on the business in the place in which the employee worked, or
3) the business needs fewer people carrying out work of a particular kind

In general, employees dismissed by reason of redundancy have rights to:

• a redundancy payment
• the application of a fair redundancy procedure
• reasonable time off work to look for alternative employment

The redundancy payment

A statutory redundancy payment is payable when an employee with two years’ continuous employment is dismissed because of redundancy. This can include where:

• a fixed term contract comes to an end without renewal
• circumstances operate to terminate the contract
• an employee volunteers to take redundancy
• the work which one employee performs has not diminished, but the employee is dismissed to allow their position to be given to another employee whose work has diminished
• an employee who is paid according to work done earns less than half their usual week’s pay for a period of time
• the amount of work of a particular kind is reduced, but there is no reduction in headcount

The payment is calculated according to an employee’s age, the employee’s weekly pay (subject to the statutory cap) and the number of years of continuous employment the employee has. An employee can lose their right to a redundancy payment if:

• they are reinstated or re-employed in suitable alternative employment within a certain period of time (ie the employee is treated as not having been dismissed)
• the employee unreasonably refuses an offer of suitable alternative employment or tries out a new position and unreasonably terminates it during the trial period

There are also various technical exclusions from a right to a redundancy payment, relating either to classes of employee, or other matters such as pension entitlement, failure to serve out a notice period or striking during the notice period.

If an employer cannot or will not pay a redundancy payment, the employee can apply to the Department for Business, Energy and Industrial Strategy (BEIS) for payment

Unfair redundancy

Redundancy is a statutory fair reason for dismissal.

However, as with other potentially fair reasons, the fairness of a dismissal is to be determined by the test of whether an employer’s decision to dismiss falls within the band of reasonable responses of a reasonable employer in those circumstances and in that line of business. Failure to follow a fair procedure will normally render the dismissal unfair.

A fair procedure comprises a number of stages:

• warning and consultation
• fair basis for selection
• consideration of alternative employment
• appeal

 Statutory consultation obligations

Where an employer is proposing to dismiss 20 or more employees as redundant in any 90-day period, it must consult with trade union representatives or other elected employee representatives before redundancies are made.

The employer may also need to consult with employee representatives:

• if there is a works council agreement in place under the Information and Consultation of Employees Regulations 2004 (ICER) or a European Works Council agreement under the Transnational Information and Consultation of Employees Regulations 1999; or
• as part of a fair procedure and for good industrial relations, particularly where there is in place a collective agreement with a recognised trade union in relation to the business affected by the redundancies

Bumping

When a redundancy situation arises, an employer may wish to retain a more senior, skilled or long-serving employee whose work has reduced and dismiss another employee who is not apparently redundant. This practice is called ‘bumping’.

Collective agreements may make provision for this, and it may sometimes be unfair for an employer not to consider including other employees whose work has not reduced in a pool for redundancy.

If an employee whose work has not diminished is dismissed to make way for an employee whose work has diminished, the employee will be dismissed by reason of redundancy.

Time off to look for other work or arrange training

An employee who has been given notice of redundancy may be entitled to time off to look for alternative employment, as long as the employee has two years’ continuous employment and certain other criteria are met. The employee will also be entitled to be paid up to two days’ pay for this time off. In practice, this means employees are entitled to request reasonable time off and employers may not refuse it unreasonably.

Renewal of contract, re-engagement and trial periods

If an employee is offered their old job back or suitable alternative employment within four weeks of their employment ending by reason of redundancy:

• they are considered not to be dismissed
• they are not eligible for a redundancy payment (unless they reasonably refuse the offer)

Where the employee is not offered their old job back on identical terms and conditions but is offered a job in a different place, a different capacity or simply on materially different terms, both the employer and the employee are given an opportunity to try out the new arrangement under a statutory four-week trial period.

If the new employment is terminated during or at the end of the trial period, the employee’s eligibility for a statutory redundancy payment will depend on whether the employer or employee terminates the employment, and the reason for the termination.

Redundancy payments for lay-offs and short time

An employee may claim a redundancy payment without being dismissed in one situation: where instead the employer suspends the contract (a lay off) or asks the employee to work shorter hours for less pay.

Redundancy policies

Many employers put in place a redundancy policy, setting out the employer’s approach to redundancy situations. The issues for an employer to consider in relation to a redundancy policy, such as whether to have a formal policy at all and, if so, what terms and level of detail to incorporate