Employment law – Redundancy
WHAT IS REDUNDANCY?
Redundancy occurs where your dismissal is:
- wholly or mainly attributable to the fact that your employer has ceased or intends to cease to carry on the business for the purposes of which you were employed, or in the place where you were employed; or
- the fact that the requirements of your employer for employees to carry out work of a particular kind, or for employees to carry out of a particular kind in the place where you were employed have ceased or diminished or are expected to cease or diminish.
SO WHAT DOES THIS ACTUALLY MEAN?
The important feature of the definition is not whether the need for the job (“work of a particular kind”) done by the employee has ceased or diminished (or is expected to do so). Instead, the question is whether the requirements for employees to do that type of work has ceased or diminished. In other words, the amount of work needed to be done might remain the same (or may even increase) but if it can be done with less people, then there is a redundancy situation.
So, in deciding whether the dismissal is due to redundancy, there will firstly need to be a dismissal. The question then needs to be asked whether the requirements of the business for employees to carry out work of a particular kind have diminished – in other words was there a redundancy situation? The final question is to ask whether the dismissal is “wholly or mainly” attributable to that redundancy situation.
Classic examples of genuine redundancy situations
Examples of when someone may be genuinely redundant include:
- the work the person does is no longer needed due to a downturn of business, a new line of work which requires a different skill set, or a new process being introduced (see below under “redundancy situations);
- the employee’s job no longer exists because the work is being done by other employees;
- the workplace has closed because the employer has ceased trading or has become insolvent;
- the employer’s business, or the work the person is doing, moves to another location;
- the employer’s business is transferred to a different employer.
Even if there is a genuine redundancy situation, your employer must still follow a correct redundancy process (see below) failing which the redundancy can still be deemed to be an unfair dismissal.
Classic examples of non-genuine redundancy situtations
Employers often claim that there has been a reduction in the work needing to be done, but this is not always the real reason for dismissal. It can be cheaper and less time consuming to label someone “redundant” rather than follow, say a performance process that could take many months. It may be that an employee is simply disliked, with redundancy being used as an excuse to fast track that person’s exit from the company. It is important to look at all the circumstances surrounding the redundancy. The following are examples which may indicate that the redundancy is not genuine:
- if your employer has recently taken on other people, or intends to do so in the near future;
- if you have been criticised about your performance and subsequently face a redundancy situation, this may indicate that your dismissal is more about your poor performance than a genuine redundancy;
- if you are the only person being made redundant, or one of only a few in a large company;
- if you are pregnant, because of your gender, from an ethnic minority, disabled, gay or of a particular religion, this might indicate you have been dismissed because of discrimination rather than because of a general need to reduce the workforce;
- if you have had a poor relationship with your line manager, this might indicate you have been dismissed for a reason other than a genuine redundancy one.
REDUNDANCY SITUATIONS IN MORE DETAIL
The need for the worker has diminished or ceased
A redundancy situation may arise where a business continues to operate but there is no longer a need for the skills for which the employee was taken on. For example, a person employed as a salesman for the south of UK region is made redundant when the employer changes the business to focus on the North only. The employer is still in business, but he no longer needs any sales staff based in the South.
Redundancy may also arise if an employer reorganises the business to improve its efficiency, so that fewer people are needed to do the same amount of work. In each case, it is the need for the work you do which is in your contract which must have been reduced. Even if there is other work available for you to do, the fact that the work you were employed to do is no longer available means that you are in a redundancy situation.
New systems in the workplace
You may be made redundant if a new process or system is introduced which means that your job is unnecessary. The introduction of the new system or technology will not automatically mean that you are redundant. You will be redundant only if the new system is the direct cause of your work no longer needing to be done. Some new systems or technology may just enable the same job to be done, but differently.
The job no longer exists because other workers are doing the work you carried out
You may believe that you should not have been made redundant because the tasks you were doing still need to be done, but have been given to other people to do. The important point to note is whether the work which you were employed to do is still necessary to be carried out by a single person. If it is no longer necessary for the work to be undertaken by a single person, even if it is being disbursed to a number of other people or overseas, then your job no longer exists and you are therefore redundant. The redundancy may still be unfair, however, if you have been unfairly selected or your employer has not followed the correct redundancy process (see below).
The workplace has closed, or is closing down
The most common example of where someone’s work is no longer needed is where the business or part of the business has closed down or is closing down. You will almost certainly be redundant in these circumstances.
The business moves
If the place where you work, or the whole business is moving, a redundancy will arise if your employer has ceased or intends to cease to carry on the business in the specific place where you were employed. Even if there is a clause in your contract which requires you to work anywhere the employer asks you to, you may still be redundant if the business moves. Your employer should consider, however, if it is possible for you to be moved to a new location, and your employer may still have to consider whether the redundancy selection pool should be widened to include the other sites (see below).
The business is transferred to another employer
Where a business is transferred from one employer to another, the transfer does not end the employment relationship. Usually, your contract of employment is carried over into the new business, with your existing terms intact (including your old redundancy terms). If you are made redundant in connection with a transfer, either by your old employer before the transfer takes place, or by the new employer after the transfer has taken place, the employer would have to show that there was a real redundancy and that the transfer was not the only reason (or the main reason) for the dismissal. The rules governing such a situation are found under the commonly known “TUPE Regulations“.
In a correct redundancy process, the following needs to happen:
- there needs to be a redundancy situation;
- relevant employees who are likely to be affected by the redundancy need to be identified;
- your employer should identify which individuals in management will be selecting those who are potentially to be made redundant. That person, or persons should be familiar with the work, skills and qualifications of the employees who could be made redundant;
- a selection criteria for who may be made redundant should be drawn up, together with a selection pool of affected employees carrying out similar work,. The selection criteria needs to be transparent and objective (see examples below);
- once your employer has completed the selection criteria and identified the pool, it should undertake the selection process and invite each employee to an individual meeting to discuss whether or not they have been provisionally selected for redundancy. If you have been provisionally selected for redundancy, you face a real possibility of being made redundant by your employer. This is often the first time that you will have been notified that redundancy could be an option, and that you are “at risk”. You will usually be given confirmation of this in the form of a letter, and employers should make clear that no decision has yet been taken (and that you are therefore not dismissed at that stage).
Note: Your employer is entitled to remove you from the workplace at the same time as notifying you that you are “at risk” of redundancy. They are more likely to do so when you have access to sensitive and confidential data as well as a heavy interaction with clients.
- you should be allowed an appropriate time to reflect and remark on your provisional selection, and you will enter a period of consultation (more detail below).
- your employer should consider whether there is any suitable alternative role for you, and should also consider if “bumping” a more junior member of staff is appropriate so that you can fill his or her role (and that person who is bumped then is made redundant instead). See more details below.
- ultimately, your redundancy will either be confirmed or you will be told that your job is safe. If redundancy is confirmed, you will be informed of your redundancy pay together with other termination payments and arrangements. Normally you are considered a “good leaver” for the purposes of shares, stocks or deferred compensation if you are made redundant. You may be asked to sign a settlement agreement.
There is no statutory right to be able to appeal your redundancy. It is, however, good practice to be offered such a right. If you have a contractual dismissal policy which provides for an appeal, then this should be followed.
Examples of selection criteria which are usually adopted by employers include:
- attendance record (you should ensure this is fully accurate and that reasons for and extent of absence are known);
- disciplinary record (you should ensure this is fully accurate);
- skills or experience;
- standard of work performance;
- aptitude for work.
Formal qualifications and advance skills should be considered, but not in isolation.
It is unlawful to have redundancy selection criteria and/or a redundancy procedure which involves discrimination on the basis of disability, sex, race, religion or sexuality. It is also unlawful to have criteria based on whether employees chosen to be made redundant are part-time or pregnant, as this would be sex discrimination. This is the case even if the criteria and/or procedure has been agreed with you beforehand.
If you have been unfairly selected for redundancy, you may be able to claim compensation for unfair dismissal and or discrimination. You do not need any minimum qualifying period to be able to claim compensation for discrimination.
If you are in a unique role, there is no requirement for a selection pool. Similarly, there is no requirement for a selection pool if your employer closes its whole business (although there may be a requirement for a pool where an employer closes just one of its sites).
An employer must “genuinely apply its mind to the issue of who should be in the redundancy selection pool”. It is difficult, but not impossible, for an employee to challenge an employer’s decision. For example, a pool of one employee has been held to be unfair where other employees are doing the same role.
The following factors are considered reasonable (and in some cases expected),when an employer is determining a selection pool:
- Employees in the pool should undertake the same or similar roles, but they do not have to be identical. Those employees carrying out similar roles should only be excluded if there is good reason to do so. For example, an employer that is making redundancies from its secretarial staff may act unreasonably by excluding other administrative staff from the selection pool where the duties of those job roles are similar or overlap.
- Employees should be included in the pool where they undertake the same or similar roles in different parts of the business or on different shifts, unless there is good reason to exclude them.
- Consideration should be given to whether or not there are employees who undertake the same or similar roles at other sites. If there are other sites in close proximity, then employees from both sites should be included unless there is good reason not to do so.
- Is the work that employees are carrying out interchangeable? The pool does not need to be limited to employees doing the same or similar work. If an employee can easily carry out the duties of a different role (or perhaps has done so in the past),then the selection pool could be held to be too restricted if it does not include those interchangeable roles.
Selection pool with regard to contractors and agency staff
Only employees have redundancy rights, therefore non-employees, such as contractors and agency staff, should not usually be included in the selection pool, unless they have been working for a long period of time and have gained “employee status”.
If your employer fails to consider if the number of redundancies can be reduced by terminating contractors and agency workers, it does raise the question of whether or not the redundancies are genuine or necessary. This may render any subsequent redundancy dismissals unfair unless there are good business reasons for retaining their services (for example where they have a special skill that cannot be undertaken by permanent employees, or the agency staff/contractors are used for a particular short term project).
If a redundancy situation exists, your employer must consult all employees who are at risk of redundancy as soon as possible, informing them of the situation and discussing with them any alternatives and the implementation of the redundancy situation. Failure to properly consult may lead to a finding of unfair dismissal by an employment tribunal.
There is no maximum period of consultation, but there are minimum periods employers are required to follow depending on the number of proposed redundancies, namely:-
- 20-99 proposed redundancies – 30 days minimum consultation.
- 100 or more proposed redundancies -45 days minimum consultation.
Where an employer is making 20 or more employees at a workplace establishment redundant within 90 days or less, this is called a ‘collective redundancy’. An employer making a collective redundancy must consult with a recognised trade union where there is one. If there is no recognized trade union, an employer must consult with employee representatives before issuing redundancy notices. There must also be standard individual consultation. Please click here to go to the collective redundancies page.
Suitable alternative role
If your employer intends to make you redundant, there is a legal duty for it to consider whether there are other roles available which would be suitable for you. If such roles are available, then they should be offered to you. If they are not offered, this can amount to failure to follow due process, and therefore an unfair dismissal. Whether an alternative job offered is suitable will depend on the terms of the job offered and your skills, abilities and circumstances. Factors such as pay, status, hours and location are relevant when deciding if the new role is a suitable alternative.
The role does not need to exactly mirror your old position, or even be based in the same location. The offer of alternative employment must be made before your current job ends. It can be made in writing or can be verbal. It must give you enough details about the new job so you know what the difference is between your existing job and the new job.
You must also be offered a trial period in the new role of 4 weeks during which you can still reject the position and claim the original redundancy if it is reasonable for you to do so.Your employer may offer you a number of alternative jobs. Each offer must give sufficient detail and you are entitled to a trial period in each, if you wish.
If you unreasonably refuse a new role, or you unreasonably terminate your employment contract during the trial period, then you may not be entitled to claim a statutory redundancy payment. Whether or not it is reasonable for you to refuse the new role is subjective- in other words, whether there was something specific to you to reject the role, which in turn made it justifiable. For example, extra travelling time meant you could not look after an elderly relative, or where the working environment was particularly distressing to you in some way.
If there is a dispute with your employer who terminates your employment because you refuse the new role, then you may be able to claim unfair dismissal.
Applying for your own job in the redundancy process
Whilst interviewing for your own job in a redundancy situation may seem unfair, it is a generally acceptable process.
Normally, the situation would occur when employers are trying to reduce head count or restructure the business, so that they simply don’t need the same number of people carrying out specific roles. The application process may involve both internal and external candidates.
You are not obliged to apply for your own job, but if you do not, this may put your redundancy payment at risk if your employer tries to argue that you may not have been redundant had you applied for the role. If this happens, they may try to justify a dismissal on the basis of what is known as ‘some other substantial reason’ (SOSR) which is one the fair reasons for dismissal. The “SOSR” ground covers a wide variety of reasons for dismissal including a need for restructuring, a refusal to accept new terms and conditions, or failing to apply for your job in a redundancy process.
Before you decide not to apply for your own job role, it is therefore prudent to request clarification from your employer on whether they are prepared to still make a redundancy payment, or are prepared to treat you as applying for voluntary redundancy (and therefore still receiving a payment).
If you do not feel that there is a genuine redundancy situation or your employer has not treated you fairly for whatever reason within this process, you could consider raising a grievance to your line manager or HR against the behaviour, and you may have a claim for unfair dismissal. Such steps would usually be taken without your applying for your job role, however you may also decide to apply “under protest” at the same time as lodging a grievance. You may think twice taking this step if there is a good chance you will get the role, but you really don’t want it!
If you do apply for your own job but are unsuccessful, you should be entitled to redundancy pay in the usual way.
Your employer’s obligation when considering what suitable alternative roles are available, may extend to considering roles that are not actually vacant (because someone else is working in this role). This is known as “bumping”. A bumping redundancy occurs when an employee whose role is not at risk of redundancy is nevertheless dismissed and the vacancy left is filled by an employee whose role was redundant. The dismissal in this scenario is still considered to be by reason of redundancy.
An employer may wish to consider a bumping redundancy as a way to retain more skilled and experienced employees, and in certain cases may be obliged to consider bumping to ensure a fair dismissal. Indeed, the tribunals have held that it may be unfair in some cases not to consider bumping a more junior employee even where the dismissed employee has not indicated that he or she would accept a subordinate position.
The tribunals have held that whether or not there is an obligation to consider bumping in a particular case depends on number of factors including how different the two roles are (including in relation to pay),the relative length of service of the two employees, the qualifications of the employee at risk of redundancy, and whether or not the other employee would take voluntary redundancy.
Although there are no fixed rules about whether employers do, or do not have to consider bumping, if you think bumping might be an option, it is a good idea to bring this up with your employer during your consultation meetings.
In considering whether or not bumping is appropriate, your employer should not automatically assume that you would not take a lower status role, even if it comes with a reduced salary.
Redundancy and mobility clauses
Your employer can rely on an express contractual mobility clause to move you to a different location, rather than making you redundant. If you refuse to relocate, you could find that you are not only in breach of contract, but also forgo any redundancy pay.
It can, however, still be unfair for your employer to dismiss you if your refusal to move is considered to be “reasonable”. This may be due to your personal circumstances which impacts heavily on the move, or the where your travelling time is significantly increased (for example, 20-30 hours increased commute a week has been held to be unreasonable by an employer).
If your employer only relies on your “unreasonable refusal” to move under a mobility clause as a reason to dismiss you, then you are likely to be assessed as being dismissed by reason of “misconduct” and not redundancy. This could make it easier for you to make a claim. For such a misconduct dismissal to be fair, the tribunals have ruled that:
1. the instruction to relocate had to be lawful (i.e. was your employer entitled to rely on the mobility clause?);
2. your employer had to have acted reasonably in giving that instruction; and
3. you had to have acted unreasonably in refusing to comply with the relocation instruction.
Your employer may also come unstuck if the mobility clause is drafted to widely, such as a requirement that you move to any office in the UK or overseas. This may mean that your employer could not rely on the mobility clause to defeat a redundancy entitlement.
What happens when your employer advertises your role abroad?
If your employer makes you redundant on the basis that your role no longer exists but they then advertise the same (or a similar) role in a different country, you could have a claim for unfair dismissal, because your role has not disappeared. You may also be able to argue that this is a “suitable alternative role” and therefore one for which you should have been considered.
However, if your employer could demonstrate a genuine belief that the role was not suitable for you, they could argue that it was not something which they were required to offer to you. For example, if your employer advertised your role in Germany, there could be a requirement that you need to be able to speak German to perform this role. If you could not speak German, this would not be a suitable alternative role. Your employer may also be able to use relocation costs and potential jurisdictional issues as a reason not to offer you this role.
This can be a grey area, and will turn on the individual facts of each case.
Is your employer obliged to offer voluntary redundancy, and what process do they need to follow?
Before the consultation process begins, employers can consider offering voluntary redundancies, although there is no obligation to do so.
When employers request applications for voluntary redundancy, it is standard practice to reserve the right not to accept all applications, particularly if applications for voluntary redundancy outweigh the number of proposed redundancies. This is the case even if there is no rationale for accepting one person and not the other.
Indeed, it is often the case that employers do not want to lose certain valuable employees. It may be the case that you are a valuable employee and your employer does not want to lose you. It may also be the case that one or more of your colleagues has made it clear that he/she would not want to remain with the business in any event.
Normally an employer faced with more volunteers than required will consider who the poorer performing employees are and offer them voluntary redundancy while retaining the better performing individuals. It is however important to bear in mind that discrimination law applies to the selection from a group of volunteers for voluntary redundancy. For example, if a ‘last in first out’ policy were adopted as the main criteria, this could amount to age discrimination. Your non-selection for voluntary redundancy could also amount to discrimination on the basis of sex, race, age, disability, sexual orientation, religion etc.
If your application for voluntary redundancy has not been accepted, your employer should not treat you any differently when your employment continues and should not be used as a reason to later to dismiss you by reason of a compulsory redundancy. This could otherwise give rise to a claim for unfair dismissal.
Why is a voluntary redundancy in effect a “dismissal”?
Any employees who apply for voluntary redundancy are actually agreeing to be “dismissed” rather than agreeing to resign. This means that it could, in some cases, amount to unfair dismissal- for example if you later found out that a genuine redundancy situation never existed in the first place. However, employees who accept voluntary redundancy usually sign settlement agreements, thus waiving any potential claims they may have.
Does my employer have to give me an opportunity to apply for a new role first, before advertising it externally?
There is no statutory obligation for your employer to advertise a new role internally first, although it is good practice to do so.
Is there such a thing as ‘industry norm’ for redundancy payments which I can hold my employer to?
Whilst there may be certain industry norms in certain sectors, it is down to individual employers to determine whether it is possible or desirable to offer an enhanced redundancy payment. if so, they may choose to do so as a contractual term or policy, or simply as a matter of discretion in each case. You are not entitled to insist that your employer makes a redundancy payment to take into account any perceived ‘industry norm’.
Can I force my employer to make me redundant and pay me off?
Your role at work may have changed beyond all recognition or even disappeared altogether. It may also be that you work has dried up. In any of these scenarios, your employer may simply refuse to make you redundant. In many cases, this is for financial reasons- a long serving employee may otherwise be entitled to many thousands of pounds (especially where there is an enhanced redundancy scheme).
Contrary to what many believe, there is no easy path to insist that your employer makes your redundant, especially as you have no general duty to be provided with work (save for some exceptions such as to maintain your professional skills or public profile). There are also difficulties where you have a flexibility and/or mobility clause in your contract of employment, which would give your employer the right to change your employment terms.
So what could you do? Well, if your employer does not have the contractual right to change your role to a material extent without your consent, then you may be in a position to resign and claim constructive dismissal. This does not mean though that you would automatically receive your full redundancy pay. If you win a claim, you would be awarded a basic award by the Employment Tribunal, which happens to be the equivalent to statutory redundancy pay. You may also be entitled to compensation for loss of earnings, but this would not necessarily include the enhanced redundancy pay. This would only be awarded as compensation if the Tribunal was convinced that you would have properly been made redundant had your employer not been in breach of contract (for example, by changing your role). This is not always an easy argument to win.
There is also the possibility of raising a further argument to claim an enhanced redundancy payment. You may be able to argue that by changing your role unilaterally, your employer has actually dismissed you as a matter of law (even if you have continued on the payroll for a short period). This would then allow you to argue that you have been dismissed for reason of redundancy, and if this is accepted, then you would be contractually entitled to your enhanced redundancy pay. You could then seek an order from the Employment Tribunal for the redundancy payment forcing your employer to make this payment to you. These are very tricky legal arguments, but ones worth properly exploring.
What happens if I face redundancy during maternity leave?
If you have been employed with your present employer for a minimum of 2 years, you are entitled at the very least to a minimum statutory redundancy payment from your employer. You may be entitled to a larger amount of compensation because your employer has a contractual redundancy scheme, or there is custom and practice of them providing enhanced payments. Please click here to access the Landau Law redundancy payments calculator.
How much is a statutory redundancy payment?
The amount of a statutory redundancy payment is calculated using a formula based on:
- how long you have worked for your employer (see below); and
- your age (see below); and
- your weekly pay (see below)
Statutory redundancy pay is worked out as follows:
- 1½ week’s pay for each complete year of employment when you were aged between 41-64 inclusive
- 1 week’s pay for each complete year of employment when you were aged between 22-40 inclusive
- ½ week’s pay for each complete year of employment when you were aged between 18-21 inclusive. Employment before the age of 18 is ignored when working out statutory redundancy pay.
The weekly pay which will be used to work out the redundancy payment will usually be your normal weekly gross pay at the time you were made redundant up to the maximum limit which is £538.00 as from 6th April 2020.A week’s pay does not usually include overtime pay. Where earnings vary each week, an average of the 12 week period leading up to the redundancy will be used. If commission is paid regularly, this should be included in a week’s pay. An average should be calculated, for example, an amount that could be expected in a year, divided by the number of weeks worked in a year. The maximum statutory redundancy payment you could receive is £16,140. This is correct as at 2020.
Check what statutory redundancy payment you would be entitled to by clicking here to access the Landau Law Redundancy Calculator
Losing the right to a statutory redundancy payment
Even if you are entitled to redundancy pay, there are reasons you may not be entitled to receive a payment, for example:
- if your employer claims to have offered suitable alternative employment
- if you want to leave before the date your employment is due to end, for example, you have found another job.
I am being made redundant while I am on maternity leave, how should my redundancy pay be calculated?
Your redundancy pay (statutory or contractual) should be based on your normal weekly pay before you started your maternity leave. It should not be based on your statutory maternity pay or your contractual maternity pay. This is the case even if you have used all 39 weeks of your statutory maternity pay (see Maternity Pay & Leave for more information). If you have contractual redundancy pay, then your employer should also base this on your normal pay before you went on maternity leave. Otherwise this could be pregnancy discrimination.
Statutory redundancy pay while you are on maternity leave
If you are on maternity leave when you are made redundant then your statutory redundancy pay should be based on your normal weekly pay before you started your maternity leave. It should not be based on your statutory maternity pay or your contractual maternity pay. This is the case even if you have used all 39 weeks of your statutory maternity pay (see Maternity Pay & Leave for more information). If you have contractual redundancy pay, then your employer should also base this on your normal pay before you went on maternity leave. Otherwise this could be pregnancy discrimination.
Claiming redundancy pay if your employer has ceased trading
If your employer is insolvent and a receiver or liquidator has been appointed to deal with the company’s affairs, you should claim your redundancy payment from the National Insurance Fund. You can contact the fund on 0845 145 0004. If your employer has ceased trading but is not insolvent, you should write to your employer claiming the redundancy payment. If the employer does not pay the statutory redundancy pay, you must apply to an employment tribunal within six months of your dismissal. You will need to raise a written grievance with your employer first.
Right to notice of redundancy
Because redundancy is a form of dismissal, you will still be entitled to your statutory or contractual period of notice of dismissal, if your employer plans to make you redundant.
Time off to look for work
If you have been given notice of redundancy, you are entitled to be paid for time off to look for a new job provided that you have a minimum of two years service (this time can count up to the date of expiry of your notice). The following employees are not entitled to paid time off to look for work:
- employees who have worked for their employers for less than two years
- overseas employees
- merchant seamen
- members of the armed forces
- police service employees.
Your employer has to give you reasonable time off. There is no definition of what is reasonable, but common sense usually prevails, for example, you may require further travel time depending on where you are located and your personal circumstances.
Right to have the redundancy payment free of tax
Your redundancy payment, whether statutory or otherwise, can usually be made without deduction of tax or NI up if it is below the threshold of £30,000. It will then attract tax at the appropriate rate. F