What is Redundancy?

Every business has its ups and downs. And if yours is struggling, then you may be left with no choice but to make some of your employees’ redundant.

This can be a difficult time for all. So, it’s important you follow your legal obligations when making staff redundant. If you don’t you could face claims of unfair dismissal or discrimination.

In this guide, we'll discuss everything you need to know about redundancy, how to avoid claims, and why you may make someone redundant. We also have a free notice of redundancy letter template, helping you take the first steps in what is a difficult process.

What is redundancy?

Redundancy occurs when an employer needs to reduce the size of its workforce. Sometimes it is the last resort to save a business from collapsing.

This period is a stressful time for both employer and employee, so you need to get it right. It’s important you’re aware of how difficult this period is.

You need to be aware of the different terms surrounding redundancy to ensure you get it right.

Are redundancies and dismissals the same?

Yes, redundancy and dismissals are the same thing. This is because when an employee is made redundant, the contract is ended by the employer.

However, there is one difference between the two. Redundancy dismissals are different to conduct dismissals because there’s no culpability from the employee involved.

Reasons for redundancy

There are many reasons why you may need to make some of your employees redundant. So, you should become familiar with them.

Below are common examples of genuine redundancy situations:

• An employee's work is no longer required due to the business taking a downturn.
• An employee's job no longer exists, with the work being carried out by other employees.
• The business has become insolvent or has ceased trading.
• The business or a particular process has been moved to another location.
• The business is transferred to a new owner.

As an employer, be aware that even if there are proposed redundancies for genuine reasons - you must follow the procedure fairly and legally. If not, it can be deemed as unfair dismissal.

Redundancies due to restructuring

Yes, you can make redundancies due to a company restructuring. You may choose to restructure your company for several reasons, such as:

• Reducing costs.
• Merging with another company.
• Aiming to decrease debts. 
• Introducing new products, services, or other projects.

If you choose to take this option, you must always follow a fair process. This includes using fair selection criteria, giving the correct notice period, and looking for alternative vacancies You must also ensure you provide the correct amount of redundancy pay following the restructuring.

Redundancy due to restructuring may lead to a large number of employees losing their job. This may be known as collective redundancy.

What is collective redundancy?

Collective redundancies are when 20 or more people are being made redundant in one establishment (under 20 employees is called an individual redundancy). If this is the case for your company, you need to inform the Redundancy Payments Service acting on behalf of the Department for Business, Energy & Industrial Strategy.

You must discuss and agree with a union or employee representative on your selection decisions. This is done via a collective consultation and must be completed before any notices of dismissal are issued.

Failure to consult employee representatives may lead to a claim for a protective award to a tribunal.

When is a redundancy not genuine?

You should never use redundancy as an excuse when it isn't the real reason for dismissal.

Some employers may feel that redundancy is a cheaper and less time-consuming way to terminate employment. This is compared to the performance process route - which can typically take months.

More examples of when redundancies aren't genuine are:

• If you have taken on new employees or plans to in the future
• If you raise performance concerns but then put an employee up for redundancy. This may seem like the dismissal is performance-based rather than a genuine redundancy.
• If the employee is pregnant, from a particular This may indicate discrimination rather than a need to trim the workforce.

If your reasons aren't genuine, you may face claims of unfair dismissal in the future. So, you must get it right.

How to avoid redundancies

As an employer, making redundancies in your company should be the last resort. So, there are many things you can do to hopefully avoid making difficult decisions. Such as:

• Reducing working hours.
• Salary reductions.
• Pay freezes.
• Reorganising job roles.
• Freezing training budgets.
• Withdraw job offers. 
• Introducing flexible working.
• Introducing temporary short time working, or temporary lay off.

Another option to take is to offer suitable alternative employment to employees who are at risk of redundancy. However, this is typically done further one in the process after employees have been selected. 

What makes alternative employment "suitable"?

If you intend to make redundancies in your company, then you must follow a fair process. If claims are raised, the tribunal will expect you to look at whether there are any suitable alternative vacancies and offer a trial. Not doing so may be unfair dismissal.

As an employer, you'll have an idea of which employees match certain roles. But, you should consider eligible employees based on:

• Relevant work experience, skills, or expertise.
• Previous position held within the company.
• Training needed for new roles or responsibilities.

Not attempting to source alternative employment can lead to the dismissal being unfair. You should try and avoid redundancies where possible.

Who is entitled to alternative employment?

It's good practice to consider anyone being made redundant for alternative employment. This is especially important for employees who have worked for you for over two years - as this could result in an unfair dismissal claim.

Any employees on maternity leave are automatically entitled to be offered alternative employment (only if it’s available). However it needs to be made clear they have the right to be offered it above all other employees.

Do you need to offer the same job?

No, suitable alternative employment doesn't need to be the same as the previous role. You should never make assumptions about what the employees may accept.

Any offer you make must be made before their current role ends, either made in writing or verbally. You must make clear the difference between the current and new role, and ensure honesty at all times.

Provide the employee with a four-week trial period in their new job. If the employment contract is terminated unreasonably by the employee they lose their right to statutory redundancy pay.

Can employees refuse alternative employment?

Yes, employees are entitled to refuse an offer of alternative employment and accept redundancy. This could be for a range of reasons, such as family life, health issues, or a decrease in salary.

It’s advisable for employees to make it clear in writing their reasons for declining the offer.

Notice periods for redundancy

As an employer, you must provide the correct notice to any employees that are being made redundant. This is a legal requirement, and not doing so can lead to claims being raised against you.

So, it's vital you understand how much you need to provide.

What are the notice periods when making someone redundant?

When making people redundant, how much notice is required depends on the amount of time they've worked for you.

You must provide the following:

• If employed for longer than one month but less than two years: one week's notice.
• If employed for two years or more: one week's notice for every year employed (up to 12 years).
• If employed for 12 or more years: 12 weeks' notice.

Above is what you're legally bound to provide. You should never give less but you’re entitled to give more. However the length of notice must be decided at the start of employment.  

When does a redundancy notice period start?

An employee's redundancy notice period starts as soon as you inform them that they are to be dismissed by way of redundancy. This must include the end date of their employment.

Although there's no legal requirement for you to provide a written notice, it's strongly advised to set this out in writing so there’s minimal confusion regarding dates.

You may not require your employees to work during their notice period, you can either place them on garden leave or provide However, it’s only lawful to pay PILON if it’s stated in their employment contract.

What happens if I don't provide a redundancy notice period?

Not providing notice period is a breach of contract. This could lead to a claim being raised against you to a tribunal.

What happens if an employee is on sick leave during a redundancy notice period?

Being on sick leave can affect their notice pay. However this is a difficult of law so advice should be sought.

Can an employer withdraw their notice of redundancy?

Yes, you can withdraw the notice of redundancy after you’ve made the decision. This may be the case after some last-minute funding was found to help the company.

Are employees entitled to time off to look for work during the redundancy process?

Not all employees are entitled to time off to look for work during the redundancy process. Only employees who have a minimum of two years of service can take paid time off to look for a new job after being given notice of redundancy.

It's important to note that this time counts up to the date of the expiry of their notice. With you only having to provide 40% of one week’s pay to the employee.

Can an employee appeal your decision to make them redundant?

As an employer, there's no legal obligation to offer your employees the chance to appeal against redundancy dismissals.

However, you should offer the chance to appeal during the redundancy process – otherwise it could affect the fairness of your decision. You should make it clear to your employees how they should appeal if they feel unfairly treated.

Rehiring after redundancy

As an employer, you may wonder if you can rehire following redundancy, and if so, when you should start the process.

So, let's discuss if you can and what rules you should abide by.

Can you rehire after redundancy?

Yes, as an employer you can rehire an employee after redundancy. This can be done as and when you choose. It's important to remember that if you hire them for the same role they previously held, the original dismissal could be unfair.

However, there may be circumstances where you rehire them for the same job. For example, you may secure a large contract the week after redundancy - improving your financial position. This could mean that the same role is available again for the employee.

How to advertise for jobs after making redundancies

You should act with caution when advertising for jobs after making redundancies. Although there is no time limit to when you can start hiring, you should be aware of the time in between.

For example, if a former employee sees the advertisement they may wonder if their circumstance was a genuine redundancy. So, it's worth bearing this in mind.

Redundancy whilst on sick leave

You can make an employee redundant whilst they're on sick leave. But like with any dismissal, you need to follow a fair process. If their sickness relates to a disability, you need to be mindful to not discriminate.

Employers need to be able to explain that the redundany was genuine and made on a legitimate basis. Failure to do so can lead to claims being raised against you in the future.

Do you need to consult with an employee who is on sick leave about redundancy?

Yes, you need to consult with any employees who are on sick leave that they're at risk of redundancy.

You should meet them in person to explain the process and the fact they're at risk. This should be done at the same time as their colleagues are being made aware of the developments.

Can you force someone to take redundancy?

Yes, this is known as compulsory redundancy.

When making each employee redundant, you should take it on a case-by-case basis and do all you can to keep them within the business. This includes attempting to source suitable alternative employment.

Making apprentices redundant

You can make an apprentice redundant as they're technically employees of your company. However, it isn't always as easy as reducing other members of your workforce.

Apprentices in England and Wales are managed under an apprenticeship agreement, meaning they can be made redundant.

In Scotland, apprentices are employed under common law. So they can't be made redundant through the usual procedure or dismissed unless of business closure or a fundamental change in character.

Should you consider laying apprentices off before redundancy?

off. You should also consider short-time working as an option. However, these can only be included if there’s a clause in their contract.

These are both options to cut costs and hopefully avoid more redundancies throughout your company.

Redundancy whilst on maternity leave

You can make someone redundant whilst on maternity or parental leave. However, the reason must be genuine and not because the employee is pregnant or on maternity leave. You should treat them the same as all other employees.

How does redundancy during maternity leave work?

The redundancy process for employees on maternity leave is the same as for other employees. You should follow the same consultation and process, as well as finding suitable alternative employment.

Alternative vacancies can only be offer if there are some available, you don’t have to offer one. Failure to do so may lead to the dismissal being deemed unfair.

It's against employment law to select someone for redundancy due to the fact they're pregnant or on maternity leave. This is discrimination and must be avoided at all costs.

Are employees on maternity leave entitled to redundancy pay?

Your employees on maternity, pregnancy or parental leave will be entitled to redundancy pay they’ve worked for you for at least two years.

The period of maternity leave counts toward the two years of employment.

Statutory redundancy pay entitlement whilst on maternity leave

The statutory redundancy pay entitlement for employees on maternity, pregnancy, or parental leave is the same as for other employees. You have a legal requirement to provide them with the correct amount of pay (if eligible).

When calculating redundancy pay for these employees, it should be calculated using their normal weekly pay before the leave starts. You shouldn't base it on the time they're on leave.

TUPE regulations and redundancy

Sometimes businesses change hands, and what happens to the current employees is vitally important.

The new owner may be left with the difficult decision of potentially having to make them redundant. So, you need to know if this is allowed or not.

Can you make someone redundant following a business transfer?

Employees may be made redundant before or after a business transfer. However, as with every type of redundancy - you must follow a fair process.

Failure to do so can lead to claims being raised against you, which is the last thing you need following a business transfer.

Zero-hours contracts and redundancy

You may have staff on zero-hours contracts in your business, so you need to be aware of their entitlements if they are being made redundant.

Are zero-hours contracts entitled to redundancy?

Someone on a zero-hours contract may be entitled to redundancy. It all depends on their employment status, meaning whether they’re a worker or employee. Employees are tied into an employment contract, meaning only zero-hours employees are entitled to redundancy rights.

So, you must provide them with redundancy pay, protection from unfair dismissal, and the correct notice period.

Can you be taken to an employment tribunal over redundancies?

Yes, you can be taken to an employment tribunal over redundancies for several reasons. For example if the employer fails to hold a meaningful consultation process or have a fair redundancy selection, they may be deemed legally unfair.

So, let's discuss why you may get taken to a tribunal:

Unfair dismissal

Under employment law, employees with two or more years of service are protected against unfair dismissal.

To avoid these claims, you need to show that the redundancy was the real reason for the dismissal and not covering up another reason.

Discrimination

If you choose someone for redundancy solely down to a protected characteristic - this is discrimination.

Acting this way is against employment law and will lead to financial and reputational damages.

Failure to inform and consult

If you're making 20 or more employees redundant, you have a legal requirement to hold a consultation. Failure to do so can lead to a protective award for the employees.

Failure to provide statutory redundancy pay

Failure to provide your employees with how much statutory redundancy payment they're entitled to is against employment law.

You may be taken to a tribunal for failure to provide previously agreed contractual redundancy pay.

What is the time limit for tribunal claims?

Employees have up to three months to bring claims of unfair dismissal and discrimination against you. Unless it's ruled that it wasn't reasonably practical to do so.

The claim for failure to inform and consult must be made three months after the dismissals. Claims for redundancy pay must be made within six months.

Get expert advice on redundancy from Peninsula

When running a business, you may have to make redundancies. This could be due to many reasons, but it's notoriously a difficult and stressful issue for both employer and employee.

Don't face this difficult period alone, get advice on the legal obligations and requirements that you must follow when making employees redundant. Avoid claims of unfair dismissal and discrimination by contacting Peninsula. You can also download our redundancy letter template to make the process as stress-free as possible.

We offer expert guidance on making redundancies in the workplace. Our 24/7 HR advice is available 365 days a year to answer any questions you have to make the process as easy as possible.

Want to find out more? Contact us on 0800 028 2420 and book a free consultation with an HR consultant today.