Orr Litchfield

Solicitors and Business Lawyers

Redundancy

What is Redundancy?

The statutory definition of "redundancy" is contained in the Employment Rights Act 1996. There are 3 types of redundancy situation. These are:

(a) a business closure,

(b) a workplace closure, and

(c) a reduction in the workforce.

An employee will be considered as having been dismissed by reason of redundancy if the dismissal is "wholly or mainly attributable to" the employer:

(a) ceasing or intending to cease to carry on (i) the business for the purposes of which the employee was employed by it (a business closure), or (ii) that business in the place where the employee was so employed (a workplace closure), or

(b) having a reduced requirement for employees to carry out work of a particular kind or to do so at the place where the employee was employed to work (a reduction in the workforce).

Redundancy and Unfair Dismissal

An employee who has sufficient qualifying service has a right not to be unfairly dismissed. Redundancy is a potentially fair reason for dismissal. However, in order to determine whether a dismissal on grounds of redundancy is fair, a general test of fairness is used – did the employer act reasonably in dismissing the employee in all the circumstances?

In order to ensure that a dismissal on the grounds of redundancy is fair, an employer will need to take a number of steps including:

(a) identifying an appropriate pool of employees for selection,

(b) consulting with individuals in the relevant pool of employees,

(c) applying objective selection criteria to those employees in the relevant pool, and

(d) considering any suitable alternative employment for the relevant employees, where appropriate, subject to a trial period.

Redundancy payments

An employee who is made redundant may be entitled to a statutory redundancy payment and, in some cases, to an enhanced contractual redundancy payment.

In order to qualify for a statutory redundancy payment, an employee must have at least two years' continuous employment at the relevant date. Statutory redundancy pay is calculated according to a formula, which is based on age, length of service and pay. Length of service is subject to a maximum of 20 years and pay is subject to the statutory upper limit on a week's pay for the purposes of the redundancy formula.

Where an employer fails to make a statutory redundancy payment because it is insolvent or refuses to do so, the redundant employee may apply to the Secretary of State for payment out of the National Insurance Fund.

An employee’s entitlement to an enhanced contractual redundancy payment may be either express or implied. For example, a redundancy policy may be set out in the employee's contract of employment or in a collective agreement.

Collective consultations

In certain circumstances, an employer has a duty to inform and consult appropriate employee representatives and notify the Secretary of State about the redundancies. A failure to do so may lead to:

(a) an additional protective award of up to 90 days' pay per employee if it fails to inform and consult, and

(b) a fine if it fails to notify the Secretary of State.

Where an employer proposes to make more than 20 but less than 100 employees redundant within a period of 90 days or less, then the employer has a duty to:

(a) notify the appropriate employee representatives and commence the consultation period at least 30 days before the first dismissal, and

(b) notify the Secretary of State at least 30 days before the first dismissal.

Where an employer proposes to make more than 100 employees redundant within a period of 90 days or less, then the relevant periods are increased from 30 to 45 days.

Contact us

If you would like more information about the redundancy process or redundancy payments or would like to discuss a potential or existing redundancy situation, please email us at enquiries@orrlitchfield.com, complete an Enquiry Form or call us.