Frequently asked questions on the legal issues relating to redundancy
Redundancy can be one of the most distressing events an employee can experience. As such, it requires sensitive handling by the employer to ensure fair treatment of the redundant employee as well as the productivity and morale of the remaining workforce. Redundancy legislation is complex and employers need to understand their obligations, including employees' rights and the correct procedures to follow.
Redundancy should be viewed as a last resort in an organisational restructuring; this factsheet suggests alternative approaches that employers can consider, and provides guidance on managing redundancy when it's unavoidable. It looks at the steps in the redundancy process, such as 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 considers the care and support that should be provided for the employees experiencing redundancy, as well as for the survivors.
The CIPD believes that, even during periods of high demand for labour, it’s unrealistic to suggest that redundancy can always be avoided through a combination of human resource planning and employment flexibility. Certain economic or business events may make workforce reductions necessary and individual redundancies may also occur when a job is no longer needed.
- 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.
We acknowledge that even the most carefully handled redundancies have the potential to damage the psychological contract and organisational culture. It always makes sense to view redundancy as a last resort.
What is redundancy? - the legal position
Redundancy is a special form of dismissal, and happens when an employer needs to reduce the size of its workforce. An employee is dismissed for redundancy if the following conditions are satisfied:
- 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.
If there is a genuine redundancy, employers that follow the correct procedure will be liable for:
- a redundancy payment, and
- notice period payment.
Employers who misunderstand the law or don’t follow the correct procedure may be liable for unfair dismissal claims or protective awards. Redundancy legislation is complex and is covered by statute and case law, with both determining employers’ obligations and employees’ rights. CIPD members can find out much more in our Redundancy law Q&As
In the referendum on 23 June 2016 the UK voted to leave the EU. Our Brexit hub has more on what the implications might be for employment law.
Redundancy can be a very challenging and upsetting situation for affected employees and the wider workforce. Announcing redundancies can have an adverse impact on the morale, motivation and productivity of everyone. The employer needs to handle the redundancy situation in as sensitive way as possible to help mitigate the negative impact on people.
Every employer should have a formal procedure for redundancy. In many organisations a formal agreement may have been agreed between management and trade union or employee representatives.
While the exact procedure will vary according to the timescale and size of the redundancy programme, organisations should go through the following stages as a minimum:
- identifying the pool for selection
- seeking volunteers
- consulting employees
- selection for redundancy
- appeals and dismissals
- suitable alternative employment
- redundancy payment
- counselling and support.
Organisations should always attempt to avoid redundancies and consider adopting a wide range of alternative approaches, including:
- 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 be unable to implement such proposals 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). Acas has issued guidance on managing collective, as well as small-scale, redundancies.
Identifying the pool for selection
The group from which employees will be selected for redundancy (the selection pool) must be carefully identified. 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 do so.
In many redundancy situations, the employer may identify a range of selection pools. If an employer makes redundancies without considering a selection pool correctly, the dismissals will be legally unfair.
Once the employer has identified the need for redundancies and undertaken careful planning, offering a voluntary redundancy package and seeking willing redundancy volunteers could avoid the need for compulsory redundancies altogether.
When 20 or more employees at one establishment are to be made redundant, collective consultations with recognised trade unions or elected representatives must start before a set date. For dismissals of 100 or more employees, this is at least 45 days before the notification of redundancies. For dismissals of 20-99 employees, this is at least 30 days before the notification of redundancies.
If collective consultation is required, it must be completed before notices of dismissal are issued. If there are no recognised trade unions or employee representatives, the employer must facilitate the election, by the employees, of representatives for the consultation. The law requires ‘meaningful’ consultation – it's not enough only to inform. The maximum compensation that an employment tribunal can award if an employer fails to consult is 90 days’ pay.
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. Although there’s no minimum statutory timescale when fewer than 20 employees are made redundant, the individual 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.
Selection for redundancy
After the consultation is complete, 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 an unsatisfactory way of retaining the most competent employees. It's also a risky selection method as those with less service are likely to be younger employees so this approach could result in potential age discrimination claims. 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 the sole method, and the employer must be able to justify its use.
Employment tribunals look favourably on selection procedures based on a points system which scores each employee against the relevant criteria. However, employers must take great care in the choice and application of the criteria to avoid discriminatory factors. 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. Marks from the two assessors should then be added together to give a total score for each employee.
Appeals and dismissals
The employer should notify in writing all individuals who are selected for redundancy that they are ‘at risk’ of redundancy, and invite them to a meeting. 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 argument that the employee puts forward to avoid the redundancy.
Once the individual consultation is complete, the employer must make a decision whether or not the employee is to be made redundant. The employer must give employees notice in writing of their redundancy – statutory notice or contractual notice, whichever is greater. They must also be given an explanation of the redundancy payment they will receive.
An employee should be allowed to appeal against the decision to make them redundant.
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.
In addition, making someone redundant because of their age, sex, sexual orientation, marital status, disability, race or religion or any other protected characteristic will be a breach of the Equality Act 2010.
CIPD members can see more in our Unfair dismissal law Q&As.
Suitable alternative employment
Employers must consider offering suitable alternative work to redundant employees. The law removes entitlement to a statutory redundancy payment if an employee unreasonably refuses suitable alternative work. 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. CIPD members can see more in our Employee status law Q&As.
There's a maximum statutory redundancy payment but our surveys find many employers pay more than the law requires. Current levels of payments are on our Statutory rates page and also on the GOV.UK website.
Counselling and support
Giving notice is a difficult task and managers should be trained to handle redundancies with sympathy and clarity. 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.
The cost to employers of redundancy
There are a number of direct and indirect costs to employers associated with redundancy. We have incorporated these into a simple formula to calculate the real cost of redundancy. The elements of the formula include a number of direct financial costs as well as a number of indirect effects such as higher labour turnover and lost output resulting from the impact of redundancy on the morale and engagement of survivor employees. See the People Management article giving the formula.
In any redundancy situation the immediate priority for the employer should be the fair and sensitive treatment of the 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.
A demoralised workforce, anxious about job security and critical of the handling of the redundancies of their colleagues, is not likely to feel committed and engaged. 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
INCOMES DATA SERVICES. (2016) Redundancy. 2nd ed. Employment law handbook. London: Thomson Reuters.
OWEN, N. and PECK, S. (2013) Redundancy law : a guide to using the law for union reps. LRD Booklets. London: Labour Research Department.
BEVITT, A. (2014) How to manage large-scale redundancies and keep staff onside. Employers' Law. October. pp14-15.
KINDER A. (2014) Supporting redundancy survivors. Occupational Health. Vol 66, No 2, February. p21.
MACDONALD, L., MAYNE, S. and MURTHY, K. (2015) Is there another way? Employers' Law. July/August 2015 pp20-21.
Maternity leave and redundancy selection. (2016) IDS Employment Law Brief HR. Issue 1044, May. pp13-17.
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.
Rachel Suff: Employee Relations Adviser
Rachel joined the CIPD as a policy adviser in 2014 to increase the CIPD’s public policy profile and engage with politicians, civil servants, policy-makers and commentators to champion better work and working lives. An important part of her role is to ensure that the views of the profession inform CIPD policy thinking in ER areas such as health and well-being, employee engagement and employment relations.
As well as developing policy on UK employment issues, she helps guide the CIPD’s thinking in relation to European developments affecting the world of work. Rachel is a qualified HR practitioner and researcher; her prior roles include working as a researcher/editor for XpertHR and as a senior policy adviser at Acas.
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