Redundancy can be one of the most distressing events an employee can experience and should be a last resort. It requires sensitive handling by the employer to ensure fair treatment of redundant employees as well as the morale of the remaining workforce. Redundancy legislation and case law is complex, and employers must understand their obligations, including employees' rights and the correct procedures to follow.
This factsheet suggests alternative approaches employers can consider and provides guidance on managing redundancy when it's unavoidable. It looks at the steps in the redundancy process, including identifying the pool for selection, seeking volunteers, selection for redundancy, consulting employees, appeals and dismissals, offering suitable alternative employment and redundancy payments. The factsheet also looks at supporting employees experiencing redundancy as well as the ‘survivors’.
What is redundancy?
Redundancy is a special form of dismissal which happens when an employer needs to reduce the size of its workforce. In the UK, an employee is dismissed for redundancy if:
- The employer has ceased, or intends to cease, continuing the business, or
- The requirements for employees to perform work of a specific type, or to conduct it at the location in which they are employed, has ceased or diminished, or are expected to do so.
If there’s a genuine redundancy, employers must follow a correct procedure and make redundancy and notice period payments.
Our quarterly Labour Market Outlook surveys, produced in partnership with The Adecco Group UK & Ireland, are one of the most authoritative employment indicators in the UK. They include forward-looking labour market data and analysis on employers’ redundancy intentions.
- Take all reasonable steps to avoid redundancies.
- Develop planning and employment strategies to deal with the requirements of short-term labour fluctuations, minimise the risk of enforced redundancies and maximise alternative resourcing opportunities.
- Manage redundancies legally and in a way that minimises the potential adverse impact on both those who lose their jobs and the ‘survivors’.
- Implement a communication strategy to ensure that everyone in the organisation has correct information about any redundancies.
Even the most carefully handled redundancies have the potential to damage the organisation’s culture and employees’ morale. It always makes sense to view redundancy as a last resort.
Redundancy in the time of coronavirus
Despite government intervention to try to avoid redundancies as a result of the COVID-19 pandemic, jobs are still being lost in some organisations. The future economic situation is still uncertain, especially now the ‘furlough’ scheme has ended. Employers who decide there is no alternative to redundancies still must follow normal fair redundancy procedures, using the organisation's own procedure (if any) and all the stages referred to in this factsheet. Proceeding without considering alternatives may encourage employees with over two years’ service to present unfair dismissal claims.
There are logistical challenges in following ordinary principles if employees are not at work or working remotely, especially in communication and consultation. The stages can be undertaken remotely (for example digital election of employee representatives) but this will require careful and innovative planning. All employees affected must have the equipment and skills to participate in a digital process.
There are pre-existing rules where employers can defend inadequate compliance with the minimum 30 or 45-day collective consultation periods if 'special circumstances' apply. These circumstances are hard to establish, and coronavirus alone does not excuse employers’ failure to engage in collective consultation.
Managing redundancy and the UK legal position
Redundancy can be a very challenging and upsetting situation for affected employees and the wider workforce. Announcing redundancies affects staff morale, motivation and productivity. Employers need to handle the situation as sensitively as possible to reduce the negative impact.
UK employers who misunderstand the law or don’t follow correct procedures may be liable for unfair dismissal claims or protective awards. Redundancy legislation is complex, with both statute and case law determining employers’ obligations and employees’ rights. CIPD members can find out much more in our Redundancy law Q&As.
It's automatically unfair to make an employee redundant for a number of reasons, including:
- Trade union membership (or non-membership).
- Part-time status.
- Pregnancy- or maternity-related reasons.
The law currently gives women made redundant while on maternity leave the right to be offered a suitable alternative role in advance of their colleagues. A Bill to extend this protection for six months beyond maternity leave was not passed in the last Parliamentary session. It may be reintroduced.
Making someone redundant because of their age, sex, sexual orientation, marital status, disability, race or religion or any other protected characteristic is unlawful under the Equality Act 2010.
CIPD members can see more in our Unfair dismissal law Q&As.
Our Brexit hub has more on what the implications of leaving the EU might be for UK employment law.
Every employer should consider having a formal redundancy procedure. In many organisations a formal agreement may exist between management and trade union or employee representatives.
Exact procedures will vary according to the timescale and size of the redundancy programme, but organisations should follow these stages as a minimum:
- Identifying the pool for selection.
- Seeking volunteers.
- Consulting employees.
- Selection for redundancy.
- Suitable alternative employment.
- Appeals and dismissals.
- Redundancy payment.
- Counselling and support.
Organisations should always try to avoid redundancies and consider alternative approaches, such as:
- Natural wastage.
- Recruitment freezes.
- Stopping or reducing overtime.
- Offering early retirement to volunteers (subject to complying with age discrimination law).
- Retraining or redeployment.
- Offering existing employees sabbaticals and secondments.
- Pay freezes.
- Short-time working.
- Other ‘alternatives to redundancy’ schemes where employees do not work for their employer for a specified period and are free to seek new work whilst receiving an allowance.
However, employers may not be able to adopt these without breaking their employees’ contracts, so they need to take care when considering alternative approaches.
If the redundancy involves more than 20 employees, the employer must inform the Redundancy Payments Service acting on behalf of the Department for Business, Energy & Industrial Strategy (BEIS).
Identifying the pool for selection
The group from which employees will be selected for redundancy (the selection pool) must be identified carefully. It will usually consist of at least one of:
- Those who undertake a similar type of work.
- Those who work in a particular department.
- Those who work at a relevant location.
- Those whose work has ceased or been reduced or is expected to be.
In many redundancy situations, the employer may identify a range of selection pools. If an employer fails to consult and consider a selection pool correctly, the dismissals will be legally unfair.
After the careful planning stage, offering a voluntary redundancy package and seeking volunteers may avoid compulsory redundancies.
Employers are required to consult individual employees and give them reasonable warning of impending redundancy.
Although there’s no minimum statutory timescale when fewer than 20 employees are made redundant, the consultation must be meaningful and may also be covered by contractual terms or policies. An employee is entitled to be accompanied at all individual consultation meetings by a trade union representative or colleague.
If 20 or more employees at one establishment are to be made redundant, collective consultations with recognised trade unions or elected representatives must start within minimum time scales:
- At least 30 days before the notification of redundancies for dismissals of 20-99 employees.
- At least 45 days before the notification of redundancies for dismissals of 100 or more.
Collective consultation must be completed before notices of dismissal are issued. If there are no recognised trade unions or employee representatives, the employer must facilitate an election, by the employees, of representatives for the consultation. The law requires ‘meaningful’ consultation – it’s not enough only to inform employees of a decision that has already been made. For example, employees are entitled to be consulted on the proposed selection process and scoring system. If employers fail to collectively consult the maximum extra compensation payable, known as a protective award, is 90 days’ pay per employee.
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.
Selection for redundancy
When the consultation is finished, the employer may need to choose individuals from within the selection pool if there are not enough volunteers for redundancy. These choices must be based on objective criteria such as:
- 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 a risky selection method as those with less service are likely to be younger which could result in potential age discrimination claims. LIFO may be relevant as part of a wider range of selection criteria, but mustn’t be used as the sole method, and the employer must be able to justify its use. It can also be an unsatisfactory way of keeping the most competent employees.
Employment tribunals look favourably on selection procedures based on a points system which scores each employee against relevant criteria. Employers must take great care in choosing and applying the criteria to avoid discrimination. For example, selecting 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. Marks from the two assessors should be added together to give a total score for each employee.
Suitable alternative employment
Employers must consider offering suitable alternative work to redundant employees. If employees unreasonably refuse suitable alternative work they may lose their entitlement to a statutory redundancy payment. Employees can have 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.
Dismissal and appeals
The employer should give written notice to those selected for redundancy that they are ‘at risk’ of redundancy and invite them to individual meetings. At least one further consultation meeting should be held, with the actual number of meetings depending on what the employee has to say. The employer must consider any points that the employee puts forward.
Once the individual consultation is complete, the employer must decide whether the employee is to be made redundant and give a written redundancy notice. This will be either the statutory minimum notice or the contractual notice, whichever is the greater. The employer must also explain the redundancy payment calculation.
Employees should be allowed to appeal against the redundancy decision.
The costs of redundancy and redundancy payments
There are various direct and indirect costs to employers associated with redundancy. Direct costs include contractual or statutory redundancy payments: dismissed employees with two or more years' service are entitled to a minimum statutory redundancy payment based on a formula similar to the basic award for unfair dismissal. Current levels of statutory payments are on our Statutory rates page and also on the GOV.UK website.
Although there's a maximum statutory redundancy payment, our surveys find many employers pay more than the law requires.
The potential indirect costs of redundancy include management time, higher labour turnover and lost output resulting from the reduced morale and engagement of ‘survivor’ employees.
Protecting people’s health and wellbeing with compassion
It’s important to approach a redundancy process with compassion and treat everyone with dignity, respect and kindness. Handling redundancy sensitively can make a significant difference to how people cope.
Take time to explain the reasons for the redundancy and why it’s a hard business decision, as well as the actions that were taken to avoid redundancy and facilitate redeployment. Make sure that everyone knows their contribution to the business was valued and that redundancy selection is in no way a reflection on them personally. Giving notice is a difficult task, and managers should be trained to handle redundancies with sympathy and clarity.
Counselling and suppport
Being selected for redundancy can have a significant detrimental impact on someone’s mental health, regardless of their previous health history and personal resilience. Immediate and ongoing support should be available to the individual to safeguard their health and wellbeing. This should include access to occupational health assessment where requested or needed, as well as counselling and other services via an employee assistance programme (EAP) if this is available. Some EAPs provide continued support for employees who have been redundant for up to three months after employment has ceased, so try to make this available and that people know how to access it.
Employees may 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 leaving employees to maintain their morale and help them find alternative employment. This is a way of providing practical support, for example by giving people the opportunity to refresh their interview skills, redraft CVs, use social media and other channels for job seeking and make effective applications.
Redundancy also has an impact on other employees who can be affected by the unsettling experience of seeing their colleagues being laid off and feeling their own jobs are at risk. The organisation’s ongoing effectiveness is largely dependent on the morale of the survivors.
Senior managers’ primary objectives in looking after the workforce should be to:
- Give all staff a full explanation of the situation, including the redundancy procedure being used.
- Explain the need for the changes.
- Handle redundancies in a responsible, fair and effective way.
- Give an overview of any further reorganisation and/or changes in working arrangements.
- Provide a forward-looking, positive attitude for the future and show survivors the value of their role in that future.
- Carry out individual discussions with remaining key workers, where necessary, 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.
Useful contacts and further reading
Books and reports
INCOMES DATA SERVICES. (2016) Redundancy. 2nd ed. Employment law handbook. London: Thomson Reuters.
CHURCHILL, F. (2020) Is any sector safe from Covid-related redundancies? People Management (online). 20 August.
COY, J. (2017) Choosing the right employees for redundancy pools. People Management (online). 6 December.
McLACHLAN, C., MacKENZIE, R. and GREENWOOD, I. (2020) Victims, survivors and the emergence of ‘endurers’ as a reflection of shifting goals in the management of redeployment. Human Resource Management Journal. 10 August. Reviewed in In a Nutshell, issue 100.
PETZER, M. (2020) How to limit ‘the sinking ship syndrome’ during redundancies. CIPD Lab. 18 December.
PUGH, J. (2019) Managing the impact of redundancies. People Management (online). 30 August.
CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR.
Members and People Management subscribers can see articles on the People Management website.
This factsheet was last updated by Lisa Ayling, solicitor and employment law specialist, and by Rachel Suff.
Rachel Suff: Senior Employee Relations Adviser
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