Redundancy Fact Sheet
What is redundancy?
A genuine redundancy arises only when either there has been or there is going to be:
- a cessation of business
- a cessation of business at the employee’s site
- a reduction or cessation of work.
Redundancy is one of the most traumatic events an employee may experience. Announcement of redundancies will have an adverse impact on morale, motivation and productivity. The negative effects can be reduced by sensitive handling of redundant employees and those remaining.
The legal position
The main legislation governing redundancy includes:
- The Trade Union and Labour Relations (Consolidation) Act 1992
- The Collective Redundancies and Transfer of Undertakings (Protection of Employment) Regulations 1995 (SI 1995/2587)
- The Employment Rights Act 1996
- The Collective Redundancies and the Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 1999 (SI 1999/1925)
- The Collective Redundancies (Amendment) Regulations 2006 (SI 2006/2387)
- The Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 (SI 2014/16).
It is preferable for an organisation to establish a formal procedure on redundancy. In many organisations a formal agreement may have been agreed between management and trade union or employee representatives.
At the very least, in order to plan and implement a redundancy situation properly the following stages will be followed in most redundancies:
- identifying the pool for selection
- seeking volunteers
- consulting employees
- appeals and dismissals
- suitable alternative employment
- redundancy payment
- counselling and support.
Of course the exact procedure varies according to the timescale and size of the redundancy. The core points concerning these stages are summarised below.
Organisations should always attempt to avoid redundancies. Ways of doing this include:
- natural wastage
- recruitment freezes
- stopping or reducing overtime
- offering early retirement to volunteers (subject to age discrimination issues)
- retraining or redeployment
- offering existing employees sabbaticals and secondments
- pay freezes
- short-time working
- pay cuts in return for taking time off work
- ‘alternatives to redundancy’ (ATR) schemes (also possibly including ’sabbaticals’) in which employees do not work for their employer for a specified period and are free to seek new work whilst receiving an ATR allowance.
During the recent recession many employers have adopted a wide range of alternatives to redundancy.
However, employers may be unable to implement such proposals without breaking their employees’ contracts, so care needs to be taken before attempting to implement such steps.
If the redundancy involves more than 20 employees the employer is required to complete form HR1 and send it to the Department of Business Innovation and Skills (BIS).
Identifying the pool for selection
The group from which employees will be selected for redundancy (the selection pool) must be very carefully identified. It will usually consist of those who undertake a similar type of work, those in a particular department, those who work at a relevant location, or those whose work has ceased or diminished or is expected to do so. In many redundancies, a range of different selection pools may be identified. If an employer makes redundancies without considering a selection pool correctly, the dismissals will be unfair.
As part of the overall procedure, once the need for redundancies has been identified and careful planning has taken place, offering a voluntary redundancy package and then seeking willing redundancy volunteers may avoid compulsory redundancies altogether.
Collective consultations with recognised trade unions or elected representatives must currently start at least 45 days (reduced from 90 days from 6 April 2013) beforehand for proposed redundancy dismissals of 100 or more employees, and at least 30 days before notification of redundancies for 20-99 employees. However, the 20 or more employees rule is currently the subject of litigation which may affect when the consultation provisions apply in future.
If collective consultation is required, it must be completed before notice of dismissal is given to any of the employees. The law requires meaningful consultation – it is not enough only to inform. The maximum compensation that can be awarded if an employer fails to consult is 90 days’ pay. If there are no recognised trade unions or employee representatives, the employer must facilitate the election of representatives by the employees for the redundancy consultation. Acas have issued guidance on managing collective redundancies.
At the start of the consultation process the employer is legally obliged to give the following information to the representatives:
- the reason for the redundancy dismissals
- the number of proposed redundancies and their job types
- the total number of employees affected
- the proposed methods of selection
- the procedure to be followed in dealing with the redundancies
- the method of calculating redundancy payment.
Employers are also required to consult individual employees and give them reasonable warning of impending redundancy.
When the approach to selection has been agreed and consultation over relevant issues is complete, individuals must be selected from within the wider pool. Where there is a choice between employees, selection must be based on objective criteria which may include:
- length of service (only as one of a number of criteria)
- attendance records
- disciplinary records
- skills, competencies and qualifications
- work experience
- performance records.
‘Last in, first out’ (LIFO) is an unsatisfactory way of retaining the most competent and, owing to age discrimination legislation, is a risky selection method, as those with less service are likely to be younger employees. Case law has held that LIFO may still be relevant as part of a wider range of selection criteria, but it must not be used as a sole method of selection, and the employer must be able to justify its use.
Tribunals look favourably on selection procedures based on a points system which scores each employee against the relevant criteria. However, great care must be taken in the choice and application of the criteria to avoid factors which may be discriminatory on any grounds. For example, selection of part-timers could be discriminatory if a high proportion of women are affected.
Scoring should, if possible, be carried out independently by at least two managers who know all employees in the selection pool. The marks from the two assessors should then be added together to give a total score for each employee.
Appeals and dismissals
Once the selection and consultation is complete individuals selected for redundancy should be notified in writing that they are ‘at risk’ of redundancy. They should be invited to a meeting to discuss this, which is the first part of the individual consultation.
This should be followed by at least one further consultation meeting. The actual number of meetings will depend on what the employee has to say. The employer must be seen to consider any argument that the employee puts forward.
Once the individual consultation has been completed a decision has to be made on whether or not the employee is to be made redundant. If they are, then they must be informed in writing and be given an explanation of the redundancy payment that they will receive.
An employee should be allowed to appeal against the decision to make them redundant.
An employee is entitled to be accompanied at all individual consultation meetings by a trade union representative or colleague.
It is automatically unfair to select employees for redundancy for a number of reasons, including:
- trade union membership (or non-membership)
- part-time status
- pregnancy or maternity-related reasons
In addition, selection for redundancy because of an employee’s age, sex, sexual orientation, marital status, disability, race or religion or any other protected characteristic will constitute a breach of the Equality Act 2010.
Employees must be given notice of their redundancy, statutory notice or contractual notice, whichever is greater.
Suitable alternative employment
Employers must consider offering suitable alternative work and are expected to look for alternatives throughout the organisation. The law removes entitlement to a statutory redundancy payment if an employee unreasonably refuses a suitable alternative. An employee is entitled to a four week trial period in a new role. If the employer and employee then agree that the role is not a suitable alternative, the employee reverts to being redundant.
The law requires employees who have at least two years’ service to be given paid time off to look for work during the final notice period.
Dismissed employees with two or more years’ service are entitled to a minimum redundancy payment based on a formula similar to the basic award for unfair dismissal. However, employers do not have to make statutory redundancy payments to employees who have ‘employee shareholder’ status.
Counselling and support
Giving notice is unpleasant and can be badly handled. Managers should be trained to handle redundancies with sympathy and clarity. Employees can be badly affected by redundancy and need support to accept reality and mount an effective job search. A well-designed redundancy programme should enable employees to refresh their interview skills, redraft CVs and reply effectively to job advertisements.
Where possible, outplacement advice should be offered to employees leaving the organisation to maintain their morale and help them find alternative employment.
The cost to employers of redundancy
There are a number of direct and indirect costs to employers associated with redundancy. These have been incorporated by into a simple formula to calculate the real cost of redundancy. The elements of the formula include a number of direct financial costs and a number of indirect effects experienced in the form of higher labour turnover and lost output resulting from the impact of redundancy on the morale and engagement of survivor employees.
In any redundancy situation the immediate priority is the fair and sensitive treatment of employees who are losing their jobs. Once this has been achieved the organisation’s ongoing effectiveness is largely dependent on the morale of the survivors. Clumsy redundancy handling is bad for the employer’s business and long-term reputation.
A demoralised workforce, anxious about job security and critical of the handling of the redundancies of colleagues, is not likely to display commitment, enthusiasm and initiative. Therefore the primary objectives of management should be to:
give all the workforce a full explanation of the situation and explain to those made redundant the policies and practices adopted
demonstrate the necessity for change
give an appraisal of future employment prospects and details of changes in working arrangements
handle redundancies in a responsible, fair and effective way
provide a forward-looking, positive attitude for the future and show survivors the value of their role in that future
conduct, where necessary, individual discussions with remaining key workers to reassure them of their importance and employment prospects
ensure that managers have, or develop, the necessary personal skills and attitude to operate effectively during periods of traumatic change.