Redundancies
It is never an easy decision to have to make redundancies in any business. Employees at risk of redundancy are likely to feel stressed and worried and employers having to reduce the number of employees also face difficult conversations. However, it is important that employers follow their legal obligations under employment law to ensure that the process is handled correctly. Doing so will ensure that the process is no more difficult than it has to be.Â
The Legal Framework for Redundancies
Before initiating a redundancy process, employers must understand their legal obligations under employment law. The key legislation governing redundancies in the UK includes:
- Employment Rights Act 1996 – Defines redundancy and employee rights.
- Trade Union and Labour Relations (Consolidation) Act 1992 – Covers collective consultation obligations.
- Equality Act 2010 – Aims to ensure redundancy decisions do not discriminate against employees with protected characteristics (e.g. pregnancy and maternity, disability and age).
Redundancies must be based on genuine business needs, such as:
- Closure of the business or a specific workplace.
- Reduction in work or changes in business processes.
- Introduction of technology that reduces the need for human labour.
Employers should document the rationale behind the redundancy decision to justify their actions if challenged.
Individual vs. Collective Redundancy
- If fewer than 20 employees are affected within a 90-day period, individual consultation is required.
- If 20 or more employees are affected, collective consultation rules apply, including notifying the Redundancy Payments Service (RPS). Collective consultation requires allowing employees to elect representatives, and prescribed minimum consultation periods – it needs careful thought and planning.
If an employer is looking to reduce the number of employees carrying out the same role, it must apply a fair selection process. Selection criteria must be objective, transparent, and non-discriminatory. Employers should use fair criteria such as:
- Skills, qualifications, and experience.
- Performance records.
- Attendance (excluding disability- or maternity-related absences).
- Disciplinary history.
Avoid using discriminatory factors such as age, gender, or disability.
In all cases, it is important that the employer hold meaningful consultations with affected employees and explain the reasons for redundancy and explore alternatives (e.g., redeployment, part-time working). Employers must make reasonable efforts to offer suitable alternative employment within the organisation. During the consultation process, the employees should have an opportunity to ask questions and provide feedback. Failing to conduct proper consultation can lead to unfair dismissal claims and other legal risks.
Redundancy Pay and Notice Periods
Employees with at least two years’ continuous service are entitled to statutory redundancy pay Calculate your statutory redundancy pay - GOV.UK, calculated based on:
- Age.
- Length of service.
- Weekly earnings (capped at the statutory limit).
Employers may enhance the redundancy pay if they wish, or if their redundancy policy requires this.
Employers must also provide the correct notice period, either statutory or as specified in the employment contract. Alternatively, in some circumstances employers can pay employees in lieu of their notice period. Accrued but untaken holidays must also be paid out if there are outstanding holidays at the termination date.
Employers offering enhanced redundancy payments may offer employees settlement agreements under which the employees waive their employment rights in exchange for higher redundancy payments. This option affords the employer peace of mind that the employee will not make a claim against them.
