Learn how to use redundancy as a last resort when all alternative approaches have been considered
Redundancy arises in only three, very narrowly defined, circumstances – when there has already been, or is going to be, either:
- a business closure, or
- a workplace closure, or
- the employer’s circumstances have changed and there is a reduction or proposed reduction in the need for employees.
If, and only if, one of these situations has arisen will the redundancy be a genuine one. Confusion often arises because ‘making someone redundant’ is often used as a euphemism for dismissals in other situations.
The definition of redundancy for redundancy payment purposes is that ‘an employee is dismissed by reason of redundancy if the dismissal is attributable to the fact that:
- the employer has ceased, or intends to cease, to carry on the business (for the purposes of which the employee was employed), or
- the employer has ceased, or intends to cease, to carry on that business in the place where the employee was employed, or
- the requirements of that business for employees to carry out work of a particular kind in the place where the employee was employed, have ceased or diminished or are expected to cease or diminish.’
The definition used for the purposes of consultation with employees is wider and would include, for example, a reorganisation where there is no reduction in the overall numbers. Selecting roles for redundancy may also pose problems for employers.
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Q: When does a redundancy situation arise?
Redundancy arises only in the three very narrowly defined circumstances summarised below. Confusion often arises because ‘making someone redundant' is often used as an euphemism for saying an employee is being dismissed for some reason other than redundancy.
Redundancy arises when either there has been, or is going to be either:
- the closure of the business
- the closure of the workplace
- a diminution in the need for employees
If, and only if, one of these situations has arisen will the redundancy be a genuine one.
The full definition of redundancy for redundancy payment purposes given in section 139 (1) of the Employment Rights Act 1996 is that 'an employee ... [is] dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to:
a) the fact that his or her employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed by him, or has ceased, or intends to cease, to carry on that business in the place where the employee was so employed
b) the fact that the requirements of that business for employees to carry out work of a particular kind in the place where the employee was employed, have ceased or diminished or are expected to cease or diminish.'
The definition used for the purposes of consultation is wider than the above and would include, for example, a reorganisation where there is no reduction in the overall numbers.
What procedure should be followed in a redundancy situation?
Following the correct procedure can help to avoid claims.
Some organisations will have an established redundancy procedure set out in the organisation’s handbook. Some organisations will deal with matters informally, others may start to consider the appropriate procedure for the first time only when a redundancy situation arises. At the very least, to plan and implement a redundancy situation properly the following stages will be taken into account in most cases:
- identifying the pool for selection
- invitation of volunteers
- consultation – both collective (in large scale redundancies) and individual consultation in all cases
- notification to the Department for Business, Energy and Industrial Strategy in large scale redundancies
- using objective selection criteria
- advance notice of individual consultation meetings
- permitting a colleague to be present at consultation meetings
- allowing employees the opportunity to appeal the redundancy decision
- organising statutory or other redundancy payment
- budgeting for relocation expenses
- helping redundant employees to obtain training or alternative work.
The exact procedure varies according to the timescale and size of the redundancy. Acas has published guidance on redundancy handling.
Redundancy procedures should be based on business needs, so the employee’s age is not a factor. For example, selecting employees for redundancy so that they don’t qualify for age-related pension benefits will constitute age discrimination (London Borough of Tower Hamlets v Wooster (2009)).
Should all employers have a formal redundancy procedure?
As indicated (‘What procedure should be followed in a redundancy situation?’), employers can deal with redundancies by an informal arrangement tailored for each redundancy, or by a more formal policy setting out the approach to be adopted when redundancies arise. A more formal agreement may have been negotiated and agreed between management and trade union or employee representatives.
It is good practice to establish a formal procedure on redundancy which should be made known to all employees, for example by including it in the employee handbook. If possible, the procedure should be drawn up with the involvement of trade union officials, employees and their representatives when redundancies are not imminent, otherwise fears and suspicions may arise.
Depending on the size and nature of the organisation, a formal procedure on redundancy would normally cover at least:
- an indication of scope (who the procedure applies to)
- details of the consultation arrangements
- an introductory statement of intent towards maintaining job security wherever possible and the measures for minimising compulsory redundancies
- guidance on the selection criteria
- details of the severance terms
- details of any relocation expenses
- details of any appeals procedures
- assistance with job seeking
- severance payments
Do employers have to make the same redundancy payments as in previous redundancy exercises because they are now an implied contractual term?
Many employers voluntarily make enhanced redundancy payments. In later redundancies, employees will have an expectation of a similar level of payment. Where an expectation based on past events has been generated, redundant employees can be upset if they are only offered smaller payments or statutory redundancy pay.
Problems can be minimised if employers have an express contractual redundancy scheme so that employees will know what to expect.
Enhanced redundancy payments will either:
- be part of an express contractual redundancy scheme, or
- be genuinely discretionary (ex gratia) and not contractually binding, or may
- become contractually binding through ‘custom and practice.’
For a term or condition to be implied into any contract (not just employment contracts) it may be incorporated by ‘custom and practice’. If a term is implied in this way, it is just as enforceable as a written contractual term. Terms may also be implied if they are necessary to give the contract business efficacy, or if the term is so obvious that the parties must have intended it to be incorporated.
A contractual term can therefore be implied into an employee’s contract of employment if the employer habitually makes those payments. However this will not arise in all cases. The issue concerns basic contractual principles. If the employer’s words and conduct objectively convey to the employees suggest that the employer it intends to be bound, it is then that a contractual obligation may have arisen. What the employer actually intended,intended is less important than how his words or conduct would seem to the reasonable employee.
In considering if the employer has (perhaps inadvertently) created a binding obligation the following criteria are relevant:
- Whether the terms were well known by all concerned.
- The frequency of previous payments. (The more often enhanced redundancy payments have been paid the more likely it is that a contractual obligation has arisen.)
- The period of time over which payments have been made. (The longer the number of years that enhanced redundancy payments have been paid, the more likely it is that a contractual obligation will have arisen.)
- How the employer has publicised the availability of enhanced redundancy benefits. (This will depend on how the employer expresses itself, whether to the whole workforce, to a trade union, or to a large group of employees. The more widespread the knowledge and understanding on the part of employees that they are entitled to enhanced benefits, the more likely it is that the employer has conducted itself so as to create an obligation. Using settlement agreements with strict confidentiality provisions may be useful to keep enhanced redundancy terms confidential, but will not prevent terms becoming implied by custom and practice.)
- If there is a similar pattern of benefits. (If an employer makes enhanced redundancy payments, but varies the amounts or the terms of payment, a legal obligation may not have arisen.)
- An employer may create an obligation to pay a minimum level of redundancy payment, even though there have been some discretionary variations to the redundancy payments.
- If there is a pattern of payments, then a one-off departure from a practice that has already become contractual cannot affect legal rights (Solectron Scotland Ltd v Roper (2003)).
- If an employer clearly and consistently describes enhanced redundancy terms as being ex-gratia or discretionary, then it is less likely that employees could reasonably understand them to be contractual.
- If there was a collective agreement containing those terms with the parent company which been applied on previous occasions, then the enhanced payments may have become contractual.
Enhanced redundancy payments which are consistently been paid out using the same terms for several years will create an implied contractual entitlement for future employees to receive the same enhanced terms, even if there is no written policy granting the enhanced redundancy payments. For employers to try and argue that the redundancy payments are genuinely discretionary, they should vary the method in which enhanced terms are calculated.
If employers have created an implied contractual entitlement it may be necessary to consult with employee representatives (and/or unions) to obtain agreement to the introduction of new redundancy terms, although doing so will reveal concerns about the previous contractual entitlement.
Employers who do not want to create a precedent should clearly state that payments are not contractual and should not make payments consistently over many years.
What is individual consultation?
Employers must meet with all potentially redundant employees individually, even if there is to be collective consultation. Previous case law has shown that dismissals are unfair if a union is consulted but not the individual. The employer should arrange for consultation to start at a formative stage and must ensure that individuals have sufficient time to consider the proposals.
The law does not provide definitive time scales for individual consultation, but requires reasonable consultation in the circumstances. The rules governing consultation depend on whether more or fewer than 20 employees are to be made redundant within a 90-day period.
Fewer than 20 employees to be made redundant
If there are fewer than 20 employees to be made redundant, the employer must consult individually with the employee. (Acas guidance covers redundancy and consultation. Its guidance on disciplinary and grievance procedures and dismissals is entirely separate and does not apply to redundancy dismissals).
Employers must be able to demonstrate that the employee has been invited to a meeting and had an opportunity to discuss the reasons for the redundancy, the pool for selection, the criteria and any alternative employment. During the consultation process, the employee will be notified that they are at risk of redundancy and kept informed of developments. They will be able to comment on the proposals and be informed of any redeployment procedure and options available. It is good practice for the discussions and meeting outcomes to be documented. Employers should allow the employee to bring a trade union representative or work colleague to the formal individual consultation meeting in the usual way (see ‘Does an employee have a right to be accompanied by a colleague or a trade union representative?’).
Twenty or more employees to be made redundant
Collective dismissals of 20 or more employees are covered by specific statutory procedures. When an employer wishes to make 20 or more employees ‘at one establishment’ redundant within a 90-day period, the employer is under a statutory obligation to consult representatives of the affected employees anyway.
Employers must also be able to demonstrate that the employee has had an opportunity to discuss in a meeting the reasons for the redundancy, the pool for selection, the criteria, and any alternative employment as described immediately above as there is still an obligation to consult individually as well as collectively.
Consultation must be taken seriously and handled sensitively. Thomas v BNP Paribas Real Estate (2016) suggested that a ‘perfunctory and insensitive’ consultation could mean the redundancy was unfairly handled.
Does an employee have a right to be accompanied by a colleague or a trade union representative?
During the redundancy process there will be several meetings with the employee. Although the precise number of meetings will vary from redundancy to redundancy there will at least be a first meeting (usually with all the potentially redundant employees) to explain the reasons for the potential redundancies and that there do not appear to be any viable alternatives, how many jobs are at risk etc.
As matters progress there will usually be an individual consultation meeting where the employer consults with each potentially redundant employee about their potential redundancy, their scores in the selection process etc. Assuming nothing changes, there may then be a final formal meeting at which the employer confirms to the employee that they are being made redundant. If the employee exercises their right to appeal there may be one further appeal meeting.
Special provisions govern the right to a companion. An employee does not have an absolute legal right to be accompanied to all of the redundancy consultation meetings, but the best advice for employers is to allow the request for a companion for those employees who wish to be accompanied. This is especially the case at the formal meeting at which the employee is informed of their selection for redundancy.
The relevant legal points to take into account are:
- There is a statutory right to be accompanied by a trade union official or a fellow worker.
- This right to be accompanied applies to a ‘disciplinary or grievance’ hearing.
- A ‘disciplinary hearing’ includes hearings that could result in a formal warning or a dismissal.
- It is open to legal debate whether a hearing or meeting simply to inform an employee that they are to be dismissed by reason of redundancy is a ‘disciplinary’ hearing. For example, in Heathmill Multimedia Asp Ltd v Jones and Jones (2003), the Employment Appeal Tribunal decided that the right to be accompanied did not apply to a redundancy meeting (although for technical reasons this decision was outside the Employment Appeal Tribunal’s powers).
The combined effect of the above points is that there are potential legal arguments about when the right to be accompanied applies in a pure redundancy context. An employer who wishes to comply with only the bare minimum necessary may argue that the right to be accompanied does not apply to redundancies at all. However, this is an unattractive argument and the safest option is to allow employees to be accompanied at the formal meeting at which they are informed of their redundancy; it is also fair to allow any requests for a companion at the earlier meetings where the employee is told they are at risk of redundancy.
For more information on the role of the companion and the right to be accompanied in a non-redundancy context, see our Discipline and grievance procedures Q&As.
What are the common selection criteria and how should they be applied?
The key aspect of selection criteria for redundancy is that they must be objective and applied consistently.
Pool for selection
The first stage for an employer in carrying out a redundancy exercise is to identify the ‘pool’ of employees from which the candidates for redundancy will be selected. If the wrong pool is identified it could render any resulting dismissal(s) unfair (see In a redundancy situation how should an employer determine the initial selection pool?).
Where voluntary redundancy or early retirements have not produced suitable volunteers then as the redundancy progresses employers, in consultation with trade union, or employee representatives, should identify the selection criteria to be used.
There may be a collective agreement with a recognised trade union which identifies the selection criteria to be used. All criteria should be completely objective and the overall test is one of reasonableness. Common criteria used in selection for redundancy include:
- skills or experience
- formal appropriate qualifications, advanced skills and other aptitudes
- attendance records (but excluding any absences which were due to pregnancy or disability, to avoid discrimination claims)
- disciplinary records (current offences)
- performance (there should be objective evidence to support selection on this basis, for example by reference to the company’s existing appraisal system)
- once the selection criteria has been identified, consideration needs to be given to a relevant scoring mechanism.
If the score sheet method is being used as the proposed method of selection the employees will therefore be aware of this from an early stage and many employers will enclose a copy of the completed sheet with the notification of selection. It is preferable if the selection process is transparent.
A genuine, adequate, effective consultation in a redundancy exercise will include the provision of adequate information in relation to the criteria used and the scoring system. Employers should consider providing employees with an explanation for their scoring and a meaningful chance to comment on the scores and challenge them.
Length of service (LIFO)
Length of service was previously used as a criterion for selection. However, with the arrival of age discrimination in October 2006, relying on length of service as a sole or main selection criterion runs the risk of being found to be discriminatory on grounds of age and therefore unlawful. In most cases selection for redundancy by applying a LIFO (last in, first out) criteria will lead to the youngest being selected. In 2008 the High Court decided that LIFO as a criterion for redundancy selection can be used in certain circumstances, even though it is age discriminatory. For further information on this issue see the related Q&A Should the 'Last in First out' (LIFO) method or any other criteria related to length of service be used as a criteria for redundancy selection?
Employers will need to take even more care to ensure that their choice of objective criteria for redundancy selection is justifiable. If the criteria chosen mean that employees are selected for redundancy on the basis of their age or in a way that causes a disadvantage to a certain group of young or old employees, this could constitute age discrimination, unless the employer can objectively justify the use of the criteria. The employer can achieve objective justification by showing that the criteria have been chosen to achieve a legitimate business aim and are a proportionate means of achieving that aim. View our Age discrimination and retirement Q&As.
In addition, length of service may give rise to other discrimination claims. The period of continuous employment is normally used to calculate length of service, whether full-time or part-time, because to take account of only full-time service might be indirect sex discrimination.
It is unlawful for an employer to treat a disabled person less favourably because of a reason relating to their disability, without a justifiable reason. Employers are required to make reasonable adjustments to working conditions including during the redundancy selection process where that would help to accommodate a particular disabled person. For example disability-related absences should be disregarded if assessing attendance records as a redundancy selection criteria. Also, behaviour related scores behaviour may need to be adjusted if for example, lack of co-operation is attributable to a mental impairment. To summarise, whatever selection criteria are chosen, care needs to be taken to ensure that they are neither directly nor indirectly discriminatory on grounds of age, sex, marital status, race, disability, sexual orientation, or religion or belief.
Q: Should the 'Last in First out' (LIFO) method or any other criteria related to length of service be used as a criteria for redundancy selection?
The short answer to this question is that 'Last in First out' (LIFO) or any method based exclusively on length of service is probably best avoided. However, if an employer does use a method based on length of service it must not be a sole criterion, but part of a more complex selection matrix and the employer must also be able to justify using that method.
Historically, employers regularly used LIFO as a reliable method of selection, but even before the Employment Equality (Age) Regulations 2006 (Age Regulations) it became unfashionable and has been replaced by the more complex selection matrix approach. See the related Q&A What are the common selection criteria for redundancy and how should they be applied? Indeed, with the arrival of age discrimination LIFO has been seen as highly risky, as to use this approach may give rise to indirect age discrimination claims because younger employees with the least service are likely to be selected.
Under the Equality Act 2010 such selection because of age will be discriminatory unless it can be objectively justified. This means that the employer must show that the use of LIFO is a proportionate means of achieving a legitimate aim, for example to reward loyalty.
An important recent case, Rolls Royce plc v Unite  IRLR 576, CA considered the use of length of service as a selection criterion for redundancy.
In this case the employer and the union had agreed employees would be awarded points based on the following redundancy selection criteria, namely:
- achievement of objectives
- self motivation
- versatility/application of knowledge
- wider personal contribution to the team.
Points were also awarded for each year of continuous service. Employees with the least points were selected for redundancy. The employer applied to the High Court to determine whether using length of service as part of this selection matrix was permissible. The matter eventually reached the Court of Appeal.
The High Court and Court of Appeal agreed that using length of service as a selection criterion could be objectively justified under the Age Regulations. The 'legitimate aim' was the advancement of an employment policy which enabled peaceful and fair redundancies. The length of service criterion respected loyalty and experience and protected older employees who would be more vulnerable in the labour market. (In addition to being objectively justified this redundancy selection criterion fell within the length of service exception in the Age regulations. For more information concerning the length of service exemption see the Q&A How does an employer know if their benefits which are based on length of service could be discriminatory on grounds of age? in our Age discrimination and retirement Q&As.
Length of service can therefore be used as a criterion for redundancy selection, but not be a sole criterion. The criteria used by Rolls Royce were only justified on the facts of this particular case. Other employers may not be able to justify its use. It is still a more careful course of action to avoid LIFO altogether rather than being placed in a position of having to justify the method used.
Q: Is a voluntary redundancy a resignation and do volunteers have to be included in the calculation of the number of employees being made redundant?
No, voluntary redundancy is not a resignation. Individuals who volunteer for redundancy are in the same legal position as employees selected compulsorily, for example in relation to their right to receive a statutory redundancy payment. The volunteers have not had their employment terminated by mutual agreement, but have effectively been dismissed.
Volunteers do have to be included in the calculation of the total of more than or fewer than 20 employees being made redundant for the purposes of consultation - Optare Group Ltd. v TGWU  IRLR 93, EAT.
Q: In a redundancy situation how should an employer determine the initial selection pool?
In a redundancy situation an employer should be very careful in determining the initial selection pool. Many employers fall down at this early stage by identifying employees who are under-performing. The employer then identifies those employees as constituting the selection pool - this can lead to claims for unfair dismissal.
A formal redundancy procedure may contain a process for selecting the pool or there may be a customary arrangement for choosing a pool. Obviously if such a method exists the employer must use that method or show objective grounds for not using it.
In the absence of a customary arrangement at the planning stage the employer should identify the group of employees whose work takes place at a particular location or whose work has either ceased or diminished or is expected to do so. This will be the selection pool. The pool should contain all employees who undertake a similar type of work in a particular department or at a relevant location. Employers should consider bringing subordinate employees into the pool by looking at how different the two jobs are, the differences in remuneration etc. Part of a redundancy consultation may involve asking employees if they would accept a more junior role at a reduced salary.
In the current economic times more cases and guidance on selection pools have been emerging.
When considering if the employer has chosen the correct pool for redundancy selection, the following points have emerged:
The key issue is whether the redundancy dismissal and the selection of the pool is within the range of conduct which a reasonable employer could have adopted - Williams v Compair Maxam Limited  IRLR 83.
The question of how the pool should be defined is primarily a matter for the employer to determine. It is difficult for the employee to challenge it where the employer has genuinely applied his mind to the problem - Taymech v Ryan (unreported, EAT/663/94.15 November 1994, EAT).
If an employee complains about the selection pool to an employment tribunal then the main question is, did the employer genuinely apply its mind to who should be in the pool? It is not the function of an employment tribunal to decide whether it would have thought it fairer to act in some other way.
Employers do have flexibility in determining the selection pool and as long as the employer has genuinely applied its mind to a fair pool the decision will not be open to question.
Usually it is only if the employer has failed to genuinely apply its mind to the identification of the pool that the employee may be able to challenge it. However, if the number in the pool is the same as the number of employees to be made redundant, then it is easier for employees and subsequent employment tribunals to criticise how the pool has been constituted.
More recently, in Capita Hartshead Ltd v Byard (unreported,EAT 0445/11 20 February 2012, EAT) the claimant, an actuary at one office, had a diminishing workload. The HR department decided a selection pool of one was acceptable. The claimant argued that there should be a pool of four (comprising the other four actuaries in the office where she worked). The employer argued that there was insufficient work to sustain four actuaries and the clients dealt with by the claimant had been dwindling. An employment tribunal and the Employment Appeal Tribunal (EAT) ruled that the actuary was redundant, but limiting the pool to one was unfair. The risk of clients taking badly to a change of actuary was slight and the four actuaries in that office were doing similar work and should all have been in the pool. In this case the EAT had concluded that the employer had not ’genuinely applied its mind’ to the question and as the pool was only one it was open to the employment tribunal to criticise this.
Some pools may be discriminatory, for example focusing on part-timers who are more likely to be women or focusing upon a certain age group. In some circumstances employees in other departments may need to be included in a wide pool. For example, if a group of employees uses specific equipment which is being replaced and those employees do other work in their department as well, the pool should usually include the other employees in the department and not just those using the specific equipment - see Hendy Banks City Print Ltd v Fairbrother and Others (unreported, EAT/0691/04/TM 21 December 2007, EAT).
Small selection pools
Problems can arise if the size of the pool is too small. Employers should consider the size of a redundancy pool and consult on the pool as part of a fair redundancy selection.
If only one employee genuinely falls within the pool then there is no requirement to go through a selection procedure within the pool. Similarly, if all members of the pool are to be made redundant then the selection process may be unnecessary - Zeff v Lewis Day Transport Plc (unreported, EAT/0418/10 17 May 2011, EAT). However, employers must always must engage in a formal redundancy selection process if there is a pool of potentially redundant employees from which to choose the redundancies.
If the choice of selection pool is biased in the first place then the employee who is selected may have an unfair dismissal claim.
Helpful lessons can be learnt from the following two cases:
In Fulcrum Pharma (Europe) Ltd v Bonassera and another (unreported, UKEAT/0198/10, EAT) an HR Manager employed was absent for some three months on sick leave. Shortly after her return she was informed that she was at risk of redundancy. The employer decided that her role was redundant and the pool was therefore limited to one person. No such notification was given to the HR executive who assisted her and had covered for her whilst she was off sick. When the manager was made redundant she alleged that both she and the other employee should have been at risk of redundancy, but the other employee was told she was not at risk. The manager was still dismissed and brought a claim of unfair dismissal. The EAT decided that the manager was unfairly selected. The employer was mistaken in automatically determining that her role was redundant and the pool consisted of one person. There should have been meaningful consultation as to the size of the pool.
However, in Halpin v Sandpiper Books Ltd (unreported, EAT/ 0171/11 6 February 2012, EAT) the appropriate size of the pool was just one person. An employee was recruited by a book distribution company to explore the prospect of selling books to China. He was the only employee based in China, but the company decided that using locally known and trusted Chinese agents would give a better foothold in the Chinese market.
The employer decided that the role was redundant and the pool was limited to one person. After extensive consultation and discussions of alternative solutions the employee was dismissed by reason of redundancy. The employee argued that no reasonable employer would automatically limit the pool to one worker, excluding those with interchangeable skills.
It was held by the EAT that there was a potentially fair reason for dismissal, namely redundancy and a proper process had been followed. The pool could clearly consist of only one where the individual concerned was the only person doing the job.
A pool should therefore include all employees who carry out work of the kind which the employer no longer needs, including subordinate employees and those whose jobs are similar to the employees for whom there is a reduced need. However, if there is genuinely only one similarly qualified target for redundancy then the pool may properly consist of only one person.
See also the related Q&A What are the common selection criteria for redundancy and how should they be applied?
Q: Can an employer implement redundancies by ‘bumping’, that is by dismissing someone else so that their job can be given to the redundant employee?
The short answer to this question is yes, an employer can implement redundancies by using bumping, provided all the proper redundancy procedures are followed.
The easiest way to illustrate this is by an example. A supermarket employs several staff in a café in the supermarket. It needs fewer employees to work in the café. Instead of just dismissing those working in the café, the employer dismisses some of the general supermarket staff. The café staff are then redeployed to do the work of the general supermarket staff. Have those dismissed general employees had been dismissed by reason of redundancy, as the need for their work has not reduced?
The law says such employees would be dismissed by reason of redundancy. The reduction in work which caused the dismissal, does not have to be the work actually done by the dismissed employee. So by bumping someone else out, that is by dismissing someone else so that their job can be given to the redundant employee, can be a redundancy - Murray and another v Foyle Meats Ltd 1999 ICR 827, HL.
The employer must still consider if an alternative role can be found for an employee who is being bumped out. However, the definition of redundancy will be satisfied if one of the three main redundancy situations arises and one of these situations has ultimately caused the dismissal. See the related FAQ When does a redundancy situation arise? for details of the three main redundancy situations.
In some cases it may fair to consider bumping out a more junior employee as long as age is not the only reason (as this would be age discrimination). It is not necessary for the more senior employee to have said they would accept demotion. The extent of an obligation to consider bumping out a more junior employee depends on if there is a vacancy, how different the two jobs are, the difference in remuneration between the two jobs, the length of service of the two employees, the risk of an age discrimination claim and the qualifications of the employee at risk of redundancy. (See North v Lionel Leventhal Ltd  All ER (D) 82.)
The case of Contract Bottling Ltd v Cave and McNaughton (unreported, UKEAT/0100/14 18 July 2014, EAT) is a recent example of bumping. An employer needed to make cuts as it was in financial difficulties and needed to reduce its staffing costs. It put all the administrative, accounting and warehouse staff into a single pool and compared them all in an unusual pool with a generic scoring matrix. The employer’s idea was to dismiss the four lowest scoring employees and keep the others, even retraining a warehouse manager to perform an accounting role if necessary. The employer did not engage in any meaningful consultation and the person applying the matrix had little knowledge of the employees and could not explain the marking system used.
Following completion of the selection exercise the accounts manager and the accounts administration supervisor were dismissed and both brought claims of unfair dismissal.
The Employment Appeal Tribunal held that the reason for the dismissals was redundancy, but that the inadequate method used to select the employees, the lack of consultation and the failure to consider alternatives meant the dismisslas were unfair. There was redundancy however because there was:
- a diminution in the employer’s requirements for employees to carry out work of a particular, and
- the dismissals were attributable to that diminution.
The unsatisfactory nature of the pool did not stop there being a genuine redundancy. The case had to go back to the tribunal to consider a 'Polkey' reduction compensation because even if the procedure had been fairer the redundancies would have happened anyway as there was clear evidence of a need for a reduction in staff.
Bumping is always hard to understand, but an employee can be dismissed for redundancy where the employee's own job remains, but the needs of the business for different employees reduces. Whether it is fair for an employer to consider bumping will depend on the facts of each case.
For an example of another case in which bumping a junior employee may have been appropriate, see the case of Fulcrum Pharma (Europe) Ltd v Bonassera and another in the related Q&A In a redundancy situation how should an employer determine the initial selection pool?
Q: Once employees have been selected for redundancy can they appeal?
Yes, an appeal procedure should be offered to all employees who have been selected for redundancy.
Although there is no statutory obligation on the employer to offer the right to appeal, the employer should ensure that the employee has the opportunity to challenge the decision to select them for redundancy dismissal as it would for any other employee to be dismissed.The appeal can take place at the end of the individual consultation and selection process.
The Acas guidance on redundancies confirms that employers should allow employees who feel that the selection criteria have been applied unfairly to appeal the decision.
The advantage of such a procedure is that complaints about selection for redundancy may be resolved internally and thus reduce the likelihood of complaints to employment tribunals.
Q: What reasons must not be used as a basis for redundancy selection?
The risks of using discriminatory factors, including age, as a basis for redundancy selection are explained in the related Q&A What are the common selection criteria for redundancy and how should they be applied? In addition, an employee dismissed for reasons of redundancy will be found to have been unfairly dismissed if the principal reason for selection is one of the following:
- trade union related membership or activities
- for carrying out duties as an employee representative for consultation on redundancies or business transfers
- health and safety representative activities
- for taking part in consultation on specified health and safety matters
- for performing the duties of a occupational pension scheme trustee
- for performing or proposing to perform the duties of a workforce representative for the purposes of the Transnational Information and Consultation of Employees Regulations 1999
- for taking lawfully organised industrial action lasting eight weeks or less
- for asserting a statutory employment right
- on maternity-related grounds
- by reason of his or her refusal or proposal to refuse to do shop work or betting work on Sundays (England and Wales only)
- for a reason relating to rights under the Working Time Regulations 1998
- for a reason relating to rights under the National Minimum Wage Act 1998
- for a reason relating to rights under the Maternity and Parental Leave etc Regulations 1999
- for making a protected disclosure (whistleblowing)
- for a reason relating to the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000
- for a reason relating to the Fixed-term Workers (Prevention of Less Favourable Treatment) Regulations 2002
- for a reason relating to the Tax Credits Act 2002
- for exercising or seeking to exercise the right to be accompanied at a disciplinary or grievance hearing
- for requesting flexible working arrangements
- where the employer has failed to comply with the elements of the 'duty to consider working beyond retirement procedure - see our Age discrimination and retirement Q&As.
If the reason for selection for redundancy were based on any of these, a subsequent dismissal will be automatically unfair. However, it is for the dismissed employee to establish that one of the above reasons was the reason for dismissal rather than that put forward by the employer.
It is worth emphasising that in addition to an unfair dismissal claim a redundancy dismissal may also be found to be discriminatory where selection was on grounds of age, sex, marital status, race, disability, sexual orientation, religion or belief. Particular care should be taken to ensure that selection criteria are not indirectly discriminatory. For example, selecting part-timers for redundancy may amount to indirect discrimination against women. Selection of women for redundancy on the grounds of pregnancy will also be considered unfair.
Q: Can an employee who is pregnant or on maternity or paternity leave be placed in the pool for selection for redundancy in the same way as other employees?
The basic position is that a pregnant employee or one on maternity or paternity leave can initially be treated the same as other employees in the pool for selection for redundancy. However, if employees on maternity or paternity leave are selected, special provisions concerning offering alternative employment apply to protect them.
(In the remainder of this question it is assumed that the person being made redundant is female and therefore questions of pregnancy or maternity leave arise. However, similar protections apply to parents taking paternity or adoption leave).
As long as a fair selection process is applied across the pool for selection it is possible that a pregnant employee or one on maternity leave may be selected for dismissal by reason of redundancy. Obviously pregnancy (or absence on maternity leave) must not be used as a selection criterion for redundancy. However, if absence is one of the criteria to be used then any absences that relate directly to the pregnancy or to time off for dependents should be disregarded in the scoring to avoid any inference of sex discrimination.
As employers risk the threat of claims for sex or maternity discrimination and automatically unfair dismissal if they select an employee who is pregnant or on maternity leave for redundancy, many try to leave these employees out of the pool for selection. However, employees who are pregnant or on maternity leave can be notified of the redundancy process, invited to redundancy consultation meetings, included in the pool and considered for redeployment in the usual way.
However, if employees who have actually commenced their maternity leave are selected for redundancy then special provisions apply to them. They must be given first refusal on any available suitable alternative employment. It is very important that employers understand the importance of offering suitable alternative employment.
The complexities of when an employer is obliged to offer a suitable alternative vacancy to a potentially redundant employee on maternity leave is illustrated by the case of Sefton Borough Council v Wainwright (unreported, UKEAT/0168/14 13 October 2014, EAT). The claimant was on maternity leave. The Council decided that the claimant’s existing job and another role would be replaced by a single combined role. The claimant and the male manager in the other role were interviewed for the new combined job which the other manager got. The claimant claimed automatically unfair dismissal under the Employment Rights Act and maternity discrimination because the employer had failed to comply with its duty to offer her a suitable vacancy (that is the newly created job).
The Employment Appeal Tribunal (EAT) held that the claimant should have been offered the post without having to compete for it, regardless of whether her colleague was the better candidate. There was some dispute about at what point in the redundancy process the right arose, but the EAT accepted that as soon as the employer decided that the claimant’s existing job would be removed she had the right to be offered a suitable available vacancy.
Although the claim of automatically unfair dismissal succeeded, the EAT overturned the employment tribunal’s decision that there was also maternity discrimination. Failing to offer the new post to the claimant did not automatically mean there was maternity discrimination under Section 18 of the Equality Act 2010 because this depended on the reason why the claimant was not offered the alternative job. If the reason was that the other candidate was better qualified than the claimant then this may not be discrimination. The matter was remitted to the employment tribunal for reconsideration of the discrimination part of the claim, although there was unfair dismissal.
For further information on suitable alternative employment and examples, see the Q&A What happens if an employee's position becomes redundant during the maternity leave period? in our Maternity, paternity, shared parental and adoption leave and pay Q&As.
Some other matters for employers to consider in redundancy selection are possible discrimination against other employees and notice periods, which are dealt with under separate headings below.
Discrimination against other employees
Pregnancy (or absence on maternity leave) must therefore not be used as a selection criterion for redundancy. However, if the criteria used by employers leans too far in favour of the woman, then sex discrimination claims can arise from the men selected instead of the woman on maternity leave.
In De Belin v Eversheds Legal Services Ltd (unreported, ET/1804069/09) a male employee and a female employee were the only employees in pool for selection for redundancy at a law firm. The five redundancy criteria included financial performance. This criterion measured the time between the solicitor undertaking their work and the firm being paid for it (known as ‘lock up’). The male employee was given an actual score based upon his real figures, but his colleague who was on maternity leave was given an artificially inflated score of the maximum points available. (Her real ‘lock up’ figures were not used as her clients had taken longer to pay their bills and she would then have scored less and been selected for redundancy). The male employee won his sex discrimination and unfair dismissal case. The employer should either not have used the 'lock-up' figures at all, or the employer should have taken the figures over a different reference period. By giving the woman a notional score because of her maternity leave this made the man the likeliest candidate for redundancy rather than her which was unfair.
If an employee is made redundant while on maternity leave she is entitled to her notice payment in the normal way. Rights to statutory maternity pay continue even if the employee is made redundant whilst on maternity leave.
For more information on maternity pay see the Q&A What statutory maternity pay must an employer pay? in our Maternity, paternity, shared parental and adoption leave and pay Q&As.
All employees who are made redundant while absent on maternity leave are entitled to written reasons for their dismissal whether this has been requested or not.
Q: Should a redundant employee be offered a suitable alternative job?
Yes, for a dismissal to be fair, an employer must offer any suitable alternative job to the employee to avoid their redundancy. Whether a position is suitable depends on:
- the terms of the job being offered
- the employee’s skills, abilities and circumstances
- the pay (including benefits), status, hours and location of the job.
If an employer makes an offer of suitable alternative employment and the employee unreasonably rejects that offer they forfeit the right to a redundancy payment.
The employer should make the offer of an alternative before the old job ends together with enough information about what the alternative position involves so the employee can understand how the two roles differ.
To help understand the issues that can arise with offering suitable alternative employment it is best to ask two questions:
- Is the job a suitable alternative and
- is this employee unreasonable to refuse the offer.
The first point is largely objective, albeit that the position must be suitable bearing in mind skills, aptitude and experience. The second question is based on whether the particular employee had sound reasons for refusing the offer.These points are dealt with below.
Special provisions apply to offering suitable alternatives to employees on maternity leave. For more information see the related Q&A Can an employee who is pregnant or on maternity or paternity leave be placed in the pool for selection for redundancy in the same way as other employees?
Is the alternative suitable?
The test of what is suitable alternative employment is assessed objectively. Whether it is reasonable for the employee to reject it is assessed subjectively (considering the individual's personal circumstances). Factors to be taken into consideration include pay, loss of status, loss of fringe benefits, place of work, general terms and conditions, job prospects, wages, hours and location and job content. It would also be prudent to consider opportunities within other associated companies if there is more than one within the group. The following points are relevant to alternative roles:
- An employer must give priority to potentially redundant employees for a suitable alternative role even over external candidates although an employer does not have to appoint someone to a post for which someone is not suitable.
- Loss of status will make it reasonable for an employee to reject alternative employment; however if the employee is prepared to accept a subordinate position and makes that clear to the employer, the employer may act unfairly if they fail to offer that lower alternative.
Even if an offer of alternative employment is objectively reasonable, the employee can still be reasonable for refusing it provided they do so for sound and justifiable reasons. It does not matter if another employee may have accepted the offer.
In Readman v Devon Primary Care Trust (unreported,  EWCA Civ 1110 6 February 2013, CA) an employee involved in community nursing for over 20 years was told that she was at risk of redundancy because of a reorganisation of leadership structure. The employee worked for a statutory trial period in a lower grade position of community nursing team manager. The employee did not think that it was suitable. She was offered a role back at her original grade as modern matron but rejected this job offer as she did not want to work in a hospital setting. She had also been offered a job abroad before she terminated the trial period. Was she therefore entitled to a statutory redundancy payment?
The employment tribunal and the appeal courts had to consider:
Was the offer of employment a suitable alternative?
The question is largely objective. The position must be suitable in relation to the particular employee, bearing in mind skills, aptitude and experience. The position of modern matron was in a small community hospital where the employee already had an office. It was largely similar to her previous job, and only differed in that it was not community based. The Court of Appeal (CA) appeared to agree that the position was suitable alternative employment.
Had the employee unreasonably refused that offer?
This is based on whether or not the particular employee had sound and justifiable reasons for refusing the offer. The core reason given by the employee for refusing the job, was that her career path and qualifications were in community nursing and she had no desire to work in a hospital setting. The CA agreed that original tribunal had erred by not properly considering if the employee’s desire not to work in a hospital setting was a sound and justifiable reason for refusing the job. Furthermore, the relevance of the employee's emigration plans required further analysis.
Accordingly the matter should not have been decided by the EAT, but had to go back to a different tribunal to consider if in all the circumstances the employee's refusal to work in a hospital setting had been reasonable or unreasonable and if the employee was entitled to receive a redundancy payment.
Although a further decision is awaited, this case shows that just because an offer of alternative employment is objectively reasonable, the employee may still be acting reasonably if they refuse it, provided that they have their own sound and justifiable reasons. It does not matter that the employer or the tribunal thinks a reasonable employee would have accepted the offer.
Suitable alternative position - salary
The similarity of the salary of the alternative position will be taken into account to assess its suitability. A failure by the employer to provide salary information will make it very difficult for the employee to assess the suitability of the alternative employment and will presumably make it reasonable for the employee to refuse the offer. However, the employee should indicate an interest in a particular position offered to them and request salary information. If they do not, then the basic and compensatory award (for any resulting finding of unfair dismissal bassed upon selection for redundancy) may be reduced on grounds of contributory fault - seeFisher v Hoopoe Finance Ltd (unreported, EAT/0043/05 13 April 2005, EAT).
Suitable alternative position - objective or subjective selection?
It is for an employer to assess the suitability of alternative positions and whether an otherwise redundant employee is suitable for that alternative post. The interview process must overall be objective, but it is inevitable that an employer’s assessment of which candidate will best perform in a new role is likely to involve a substantial element of judgment. The employer must establish and follow through fair procedures when making an appointment. If a selection is made out of favouritism or on personal grounds then it will be unfair.
In Samsung Electronics (UK) Ltd v Monte-D’Cruz (unreported, EAT 0039/11 1 March 2012, EAT) the employer decided four senior roles would be abolished and merged into a new, single position. The claimant who had one of the senior roles applied for the new Head of Sales position. He was assessed on a presentation and scored according to ten competencies. He was unsuccessful and applied for another post and was unsuccessful in that too and the job went to an external consultant. The claimant lost his claim that the redundancy dismissal was unfair because of inadequate consultation and because the criteria for selection for the new roles were too ’subjective’.
The Employment Appeal Tribunal (EAT) said that the selection was fair. Although subjectivity in redundancy cases is often seen as a ’dirty word’ and employers should try to be as objective as possible, if a post has disappeared and the employer was selecting for a new role, some subjectivity was inevitable. The tribunal should bear in mind the views of the EAT in Morgan v Welsh Rugby Union  IRLR 376, EAT that ‘an employer's assessment of which candidate will best perform in a new role is likely to involve a substantial element of judgment’.
An employee who unreasonably refuses the offer of a suitable alternative may forfeit their right to a statutory redundancy payment. Whether or not an employee's refusal of a suitable job was reasonable depends on the subjective reasons that the particular employee had for rejecting it. This will include factors relating to the employee's personal circumstances, such as their health, as well as their personal commitments.
It is important to keep issues of job suitability and the reasonableness of the employee's refusal of an offer separate. An employee can reasonably refuse an offer of employment that a tribunal concludes was a suitable offer. The employee will be acting reasonably for refusing an offer provided they have good reasons.
For examples see Readman v Devon Primary Care Trust above and the earlier case of Hudson v George Harrison Ltd (reported in the Times 15 January 2003). In this case, due to a relocation of the employer's premises, the employee in question was at risk of redundancy. She was offered the same job at the new site and the employer agreed to provide free transport for the journey to work, but she refused the offer as she would be required to commute. The employer alleged that the employee had forfeited the right to a redundancy payment by unreasonably refusing an offer of suitable alternative employment. The employee brought a claim for the payment and won as her personal reasons for not wanting to commute were reasonable. In assessing the right to refuse the test is subjective and can therefore take into account the personal circumstances of the employee.
Statutory trial periods
Where the terms and conditions of the new contract differ wholly or in part from the original contract, the employee is entitled to a statutory trial period of four weeks. Any agreement for a longer trial period so as to facilitate retraining must be made before the employee starts work under the new or renewed contract. For more information see the related FAQ How do statutory trial periods operate in a redundancy situation?
Offering the original job back - withdrawal of redundancy
Employers must continue to seek work for an employee until the date their employment terminates. A suitable alternative may arise at the last minute if economic circumstances change and the employee could have their original job back. This will need the employee's consent if the employee has already been given notice. The correct approach is for the employer to seek the employee’s consent to a withdrawal of the notice of redundancy.
If the employee unreasonably refuses their original job back, then they lose the right to a statutory redundancy payment. The test of whether the refusal is reasonable is subjective. If, for example, they have already secured alternative employment elsewhere their refusal may be reasonable.
Q: How do statutory trial periods operate in a redundancy situation?
In a redundancy situation employees have the right to a four-week trial period in a new job to decide if the alternative post offered is suitable without prejudicing their eligibility for redundancy pay.
The trial period will normally be four weeks but can be longer if the employee needs retraining. If there is to be an extended trial period certain agreed conditions must be strictly observed for the employee to remain entitled to statutory redundancy pay.
After the trial period the employee can either:
- Decide the new job is suitable and remain in the position beyond the end of the trial date. If there is no express agreement to extend that trial then the employee will lose his right to a redundancy payment.
- Decide the new job isn't suitable and give notice during the trial period. This will preserve the employee's right to a statutory redundancy payment.
The employee must terminate the trial employment within the statutory four weeks to preserve any entitlement to statutory redundancy pay – see Optical Express Limited v Williams (unreported, UKEAT/0036/07 12 July 2007, EAT).
If the employer offers a suitable alternative job and the employee unreasonably refuses it, the employee may lose the right to statutory redundancy pay. For further information on the suitability of alternatives see the related Q&A Should a redundant employee be offered a suitable alternative?.
Q: Can part-time employees be dismissed by reason of redundancy if they cannot work full-time and the employer wants a full-time employee?
In this situation there is no reduction in the need for employees to carry out work of a particular kind: on the contrary, there is an increase in demand for work of that type. Accordingly, this does not appear to fall within the statutory definition of redundancy.
It is necessary to discuss the change with the current employee to see if they can change their hours. It may also be necessary to consider whether the work can be done by two part-time workers on a job-share basis. If the reason for the part-time working is childcare related, any dismissal could give rise to a claim of indirect sex discrimination in which case the employer would need to demonstrate objective justification for the requirement that this post be done on a full-time basis.
For more information on part-time working see our Part-time work Q&As.
Q: Can an employer consult about a variation of contract, such as a reduction in hours and if the employees do not agree dismiss them and then re-engage on new terms instead of making redundancies?
If there is a reduction in number of employees required to perform the work due to a reduced demand for products, this is a redundancy situation.
As part of the consultation process, measures to avoid or mitigate the numbers of redundancies should be discussed. This could include consideration of a proposed variation of contract.
However, if employees are not willing to agree to the variation, then to dismiss them (under the 'some other substantial reason' unfair dismissal category) and offer re-engagement on the new terms may result in an unfair dismissal claim and also a claim for failure to pay statutory redundancy pay.
If there is a provision in the contract entitling the employer to provide short-time working, where there is a reduction in work of the kind that the employee is employed to do, then this provision may be invoked as a temporary alternative, though not a long-term solution. See the related Q&A What is short-time working as an alternatives to redundancies?
Q: What is short-time working as an alternative to redundancies?
An employer and the unions may agree to short-time working as an alternative to redundancies. This means that employees are laid off for a number of contractual days each week, or for a number of hours during a working day. The employer must have the employees' agreement to lawfully to reduce the amount of pay.
A lay off happens when the employer can't supply employees with paid work for a temporary period. Short-time working occurs where the employee's pay amounts to less than half a week's pay.
If there is no express or implied agreement to short-time working the employer will have committed a constructive unfair dismissal and an unlawful deduction of wages under Part II of the Employment Rights Act 1996.
If an employee is put on short-time working for:
- four consecutive weeks or more, or
- for six weeks in a period of thirteen weeks
then the employee can give the employer written notice that they intend to claim a redundancy payment.
Q: What are the consequences if the redundancy dismissal is not carried out fairly?
It is crucial that employers start thinking about redundancies early and implement sufficient planning to reduce the consequences. Often employers make the mistake of pushing redundancies through too rapidly. The employer is open to several claims if the redundancy dismissal is not carried out fairly including:
- a claim for a protective award (see the related Q&A What are the consequences of failure to collectively consult over redundancies?)
- unfair dismissal for qualifying employees with one year's (two years) continuous service. There are also certain categories of automatically unfair dismissal which do not require one year's (two years) continuous service (see Unfair dismissal Q&As)
- discrimination - if the selection procedure has been tainted by discrimination, an employee may also claim discrimination on grounds of sex, marital status, race, disability, sexual orientation, or religion or belief
- breach of the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 or the Fixed-term Workers (Prevention of Less Favourable Treatment) Regulations 2002.
Some employees such as employee shareholders may not qualify to claim unfair dismissal or a statutory redundancy payment. For more information see the related Q&A Should employee shareholders be included in a redundancy consultation?.
Q: Can an employee resign once they are served with a redundancy notice and if they do so will they lose the right to statutory redundancy pay?
An employee may submit their resignation during the notice period by serving written notice to their employer (counter-notice) that they intend their employment to end on a date earlier than the date on which the employer's notice expires.
To retain the right to a redundancy payment, a counter-notice must be submitted within:
- the period ending on the date the employer's notice is due to expire, that is equal in length to the statutory period of notice under section 86 of the Employment Rights Act 1996 or
- the contractual notice period, whichever is the longer.
Employees will lose their entitlement to a redundancy payment if their counter notice expires before the end of the above period.
Q: How does an employee qualify for a statutory redundancy payment and how is it calculated?
To claim a statutory redundancy payment, an employee must have been employed for a continuous period of two years, have been dismissed by reason of redundancy and not be an 'employee shareholder' - see below.
Currently, the amount of a statutory redundancy payment depends on the employee's age, length of service and gross week's pay. Only a maximum of 20 years' service may be taken into consideration. The maximum gross week's pay that an employer has to take into consideration is set each year, usually in April from April 2014 onwards, so the maximum statutory redundancy payment at any one time is therefore based on multiples of this sum - see our Unfair dismissal Q&As for further details). For the current amount of a week's pay, see our Statutory rates and compensation limits page.
The formula for calculating redundancy pay is:
- half a week's pay for each complete year in which the employee was under 22 years old
- one week's pay for each complete year in which the employee was less than 41 but not less than 22 years old
- one and a half weeks' pay for each complete year of employment in which the employee was 41 years old or more.
The employer must give the employee a written statement showing how the redundancy payment was calculated. An employer who does not do this may be fined for committing a criminal offence (see the Employment Rights Act 1996 Section 165).
An online calculator to assess an employee's statutory redundancy pay is available on the GOV.UK website.
Although historically millions of employees have been entitled to statutory redundancy payments, the law is expected to change in September 2013 with the introduction of a new 'employee shareholder' status. Employee shareholders will agree to relinquish some of their rights including their rights to unfair dismissal protection and redundancy payments, in return for shares. For further information on how this will affect redundancy matters, see the related Q&A Should employee shareholders be included in a redundancy consultation?. For more on this new employment status generally, see our Employee status Q&As.
Q: What is the 'obligatory period' and what is its impact on entitlement to redundancy pay?
Once an employee has been issued with written notice of redundancy they could obtain an alternative position with a new employer who wants them to start before their notice period expires. If the employee leaves early they may lose their entitlement to a redundancy payment.
To try and preserve their entitlement to a redundancy payment the employee can give what is called a counter notice that they wish to terminate their employment before the date set by the employer. The written counter notice must be given within ’the obligatory period’ (see Section 136(3) of the Employment Rights Act 1996).
The obligatory period therefore is the statutory minimum notice or contractual notice period counted backwards from the termination date within which the employee can serve his counter notice.
If the employer accepts the counter notice there is no problem and the employee can leave early and receive the payment. If the employer does not accept it then the employee can apply to an employment tribunal which will determine whether it is just and equitable that the employee receive the appropriate payment.
Q: How are employers' own enhanced redundancy payments affected by age discrimination legislation?
Whether an employer’s own enhanced redundancy payment scheme will be affected by the Employment Equality (Age) Regulations 2006 depends upon the nature of the scheme. The approach taken by the law depends on whether the employer’s scheme is calculated in a way which mirrors the statutory scheme or not. In addition to the information given below, some useful guidance is given in our case law examples in the Q&A How can an employer objectively justify age discrimination? in our Age discrimination and retirement Q&As. Some of these cases deal with employers' attempts to justify their own redundancy schemes.
Enhanced redundancy schemes based on the statutory scheme
By Regulation 33 of the Regulations some enhanced redundancy payments are specifically exempt from the Regulations so employers will still be permitted to make enhanced redundancy payments based on age and length of service as contained in the statutory redundancy payment multipliers.
Enhanced redundancy payments can be made to employees who are:
entitled to receive a statutory redundancy payment (SRP), or
excluded from receiving an SRP by virtue of having less than two years' continuous service, or
have agreed to the termination of their employment in circumstances where, had they been dismissed, the dismissal would have been by reason of redundancy.
Under Regulation 33 an employer may enhance the amount offered by doing any or all of the following:
Ignoring the limit on a week’s pay applied to SRP.
Ignoring the amount allowed for each year of employment.
Multiplying the total amounts of the payment.
For details of the latest changes to a week's pay see also our Statutory rates and compensation limits page.
Such payments must be calculated using the same multipliers as are used to calculate statutory redundancy payments (as set out in Section 162(1) to 162(3) of the Employment Rights Act 1996). However, enhanced redundancy payments will not be subject to the maximum statutory cap.
For example, if a statutory redundancy payment for employee A would amount to £3,375 and employee B £5,850 a permitted enhancement would be to take both these totals and double them giving employee £6,750 and the other £11,700.
Enhanced redundancy schemes which are not based on the statutory scheme
Enhanced redundancy payments based on a different method of enhancement, for example those based on length of service irrespective of age, or using different age bands, will not fall within the Regulation 33 exception. Therefore a contractual redundancy payment scheme which allows for a different enhancement will be discriminatory unless the employer can objectively justify it. This may be difficult, if length of service alone were used an employer would need to show that policy was objectively justified for that employment.
Although the Government has justified the age bands and length of service for the statutory redundancy scheme by showing that greater financial assistance is required for older redundant workers, an employer would have to prove that applied to their employment as well.
For example, an employer who operates a scheme whereby all employees regardless of age receive redundancy packages calculated on three weeks' salary per year of service would have to objectively justify the scheme by arguing that it is a 'proportionate means of achieving a legitimate aim'.
Even a scheme just linked to the 'last in, first out' (LIFO) method or length of service could indirectly discriminate against younger employees who are more likely to have less service with the company than older employees and would be statistically more likely to be disadvantaged by the scheme whereas the statutory redundancy scheme increases with age. The Acas guidance on age discrimination recommends that employers avoid using LIFO although it may still be permissible in certain circumstances. For further consideration of this issue go to the related Q&A Should a redundant employee be offered a suitable alternative?
Some employers will inevitably be forced into a position of having to objectively justify their schemes by arguing, for example, they are rewarding loyalty. However, it will be very expensive to incur the legal fees of a battle to prove this and as there is an exemption for schemes that emulate the statutory scheme it is safer to adopt such an approach until further guidance on the provisions emerges.
Of course from a practical point of view many employers will decide to retain their existing schemes and run the risk of any claims. Most employees will be content with redundancy payments under an enhanced generous scheme and may also not appreciate there is a potential age discrimination argument at all.
(Note that the Regulation 32 exemption for benefits based on length of service does not apply in a redundancy context because this regulation does not cover benefits awarded to employees on termination of employment).
Case law examples
Some guidance can be taken from Galt and others v National Starch and Chemical Ltd (unreported, ET/2101804/07 20 February 2008, ET) which held that an employer had failed to justify its use of enhanced redundancy payments which were calculated on the basis of age and length of service, but did not mirror the statutory redundancy payment scheme. The employer did not therefore fall within the exemption contained in Regulation 33 and so its redundancy scheme was unlawful.
Another case which demonstrates the problems of age discrimination when implementing a redundancy policy is MacCulloch v Imperial Chemical Industries plc  IRLR 846 EAT. For more information on this case and other relevant examples see the question on justifying age discrimination in our Age discrimination and retirement Q&As.
Q: Is a redundant employee entitled to a period of notice as well as a redundancy payment and can they be placed on garden leave during any notice period?
An employee is entitled to a period of notice as well as a redundancy payment. An employee must therefore be given either statutory minimum notice under section 86 of the Employment Rights Act 1996 or contractual notice, whichever is the greater.
Once the redundancy process has been completed and the employee has been given notice of dismissal then the employee may be asked to work the notice period, or be offered a payment in lieu of the notice period or be placed on garden leave. The fact that there is a redundancy makes no difference to the legal position. Either the employer is entitled to impose a garden leave period or they are not, depending on the the terms of the contract. Many contracts do contain a provision which expressly allows the employee to be placed on garden leave during the notice period. It is not unusual for a redundancy package to encompass a garden leave period.
Obviously garden leave should not usually be used until the employee has been properly selected for redundancy and given notice. (In some circumstances, where the contract contains the express power to send the employee home at any time during the employment contract, employees may be sent home before they have been given notice. However, this is high risk strategy as it suggests that the employee has already been unfairly selected for redundancy before the process has been followed).
For more information see the Q&A What is garden leave? in our Terms and conditions of employment Q&As.
Q: Are employees entitled to time off to seek alternative employment during their notice period following a dismissal by reason of redundancy?
Yes. An employee who is under notice of dismissal by reason of redundancy is entitled to be permitted to take reasonable paid time off during their normal working hours to seek alternative employment, or make arrangements for training necessary for future employment. To qualify for this entitlement the employee must have two years' continuous employment at the date on which the notice period expires.
Q: Should employees with less than two years’ continuity of employment be included in a redundancy consultation?
In a redundancy context the period of two years’ continuity of employment is significant for two main reasons:
- In order to qualify for a statutory redundancy payment, an employee must have at least two years’ continuous service with the employer, and
- Employees employed on or after 6 April 2012 require continuous service for at least two years in order to be able to claim unfair dismissal (except in specified circumstances). Applies to Great Britain.
Employers who are facing the prospect of complex redundancies may therefore think that an easier option may be to dismiss employees with less than two years' continuity of employment so that the redundancy consultation processes can be shortened or avoided.
Of course, as with many aspects of employment law the solution is not so simple. Employees both with less than one year's and two years' service should be included in the consultation process.
Employers must remember that the increase in the qualifying period from one year to two years' continuity of employment was not made retrospectively. This means that all employees who joined an employer before 6 April 2012 remain subject to a one year qualifying period. Therefore the number of employees who only have a two year qualifying period before they attract unfair dismissal rights will be relatively small.
However, if an employer is relying on the statutory redundancy payment scheme, then only employees with two years' continuity of employment will actually qualify for a redundancy payment at the end of the process.
Similarly in order to qualify to complain that they have been unfairly dismissed as a result of the redundancy process employees:
- who joined the employer before 6 April 2012 will still need one year’s continuous service,
- who joined on or after 6 April 2012 will need two years’ continuous service, or
- they must show they fall within one of the exceptions to the one year (or two year) rule (for example dismissals related to the Working Time regulations, trade union membership, flexible working requests, maternity or protected disclosure grounds).
Some employers may still think that employees with less than one year (or two years’) service cannot claim unfair dismissal and include them in the redundancy consultation process and then just choose those employees for redundancy. However, this is not prudent or best practice. Employees with genuine talent may be lost in this way. There can also be a risk of discrimination claims if, for example, the employees with less than the requisite period of service are either young, old, part-time, women, pregnant or on maternity leave. There may also be a risk of automatically unfair dismissal claims which do not require the one year (or two years’) year qualifying period. Best practice is to carry out a proper redundancy consultation including all employees in an appropriate pool to avoid any subsequent claims.
Selecting employees with less than one year (or two years') service involves similar legal issues to using 'Last in-first out' (LIFO) as a selection method .See the related Q&A What are the common selection criteria for redundancy and how should they be applied?
See also our Unfair dismissal Q&As for further information.
Q: Should employee shareholders be included in a redundancy consultation?
In September 2013 the government introduced the a new employee shareholder status whereby employees can relinquish certain employment rights, including rights to claim unfair dismissal and statutory redundancy payments, in return for between £2,000 and £50,000 of shares in the employer’s company. The proposals are contained within the Growth and Infrastructure Act 2013.
Even though employee shareholders have no rights to redundancy pay and cannot claim unfair dismissal, they do still have a right to be included in collective redundancy consultation.
Some employers may think that as employee shareholders cannot claim unfair dismissal they can be included in the redundancy consultation process and chosen for redundancy. In theory at least it seems that employee shareholders may be at greater redundancy risk. However, there will still be a risk of contractual, discrimination or automatically unfair dismissal claims if an employee feels unfairly selected. It is safer to carry out a proper redundancy consultation, including all employees in an appropriate pool to avoid any subsequent claims.
As the status is new there will be emerging disputes and case law to explain how it will interact with redundancy rights. The following key points should be noted:
- Employee shareholders are not entitled to claim statutory redundancy pay (or unfair dismissal), but should be included in redundancy consultation.
- Employee shareholders will not be entitled to contractual redundancy pay if that is what the employer has agreed with them. However problems such as discrimination may arise if other employees have a pre-existing entitlement to contractual redundancy packages.
- If the selection for redundancy is for an automatically unfair or discriminatory reason, then an employee shareholder can still claim unfair dismissal and redundancy rights. An example would be if the selection was for any reason relating to maternity leave, birth or pregnancy or any other family leave. Alternatively if the selection was for a discriminatory reason or because of union membership, whistleblowing or any of the other automatically unfair reasons, then the employee shareholders employment rights still apply.
- If the shares were not worth £2,000 at the time of issue, the employee can still make a complaint to an employment tribunal (for instance for statutory redundancy pay or for unfair dismissal.
For more general information on employee shareholder status see our Employee status Q&As.
Q: Can an employer make employees redundant if they refuse to move locations?
Whether an employer can make employees redundant if they refuse to move locations depends on the terms of the employment contract. A mobility clause means that employers can normally force employees to move to places allowed by the clause, unless this is completely unreasonable.
Before implementing any redundancies an employer therefore has to decide where employees are employed. The employer should:
- look at the contractual provision regarding place of work including any mobility clauses and then
- look at the facts and any connection the employee has with the place of work where redundancies are predicted.
For further information on the reasonableness of mobility clauses see the Q&A Can employers include mobility clauses in employment contracts to force employees to relocate? in our Terms and conditions of employment Q&As.
Employees without mobility clauses in their contracts
Where employers have no mobility clauses in individual employees’ contracts then:
- If workplace is shut down the statutory redundancy provisions (and any contractual redundancy procedure) apply and a redundancy situation arises.
- The employees can normally choose whether or not to move.
- If they decide not to move, employees will probably have a right to redundancy pay as long as they haven’t ‘unreasonably’ refused an offer of suitable alternative work. If the new location is nearby or easily accessible on public transport then it will probably be reasonable to move. It may be unreasonable to move if the relocation involves a difficult journey or affects personal matters such as dropping children off at school.
Employees with mobility clauses in their contracts
Where employers have mobility clauses in individual employees’ contracts then:
- Employer may enforce a mobility clause to try and avoid redundancies before being required to follow redundancy procedures.
- A possibility of redundancy may still arise after the employer has considered using the mobilty clause.
- If the employer uses the mobility clause to require the employee to move, it is under an implied duty to be reasonable in its use of such a clause. This involves both reasonableness in the location of the job and the time allowed to consider the move. For example it has been held that it was unreasonable not to allow an employee with a mobility clause three months to relocate himself and his family from Leeds to Birmingham. This amounted to a repudiatory breach of contract entitling him to resign and claim constructive unfair dismissal. See United Bank v Akhtar  IRLR 507 EAT.
- The employee can still consider if the job is ‘suitable alternative employment’ as would be required in a redundancy situation.
Avoiding a redundancy payment
If an employee unreasonably refuses to move, this is not a redundancy dismissal, but a dismissal for ‘some other substantial reason’ which can justify the dismissal without the need for a redundancy payment at all, as long as the process is handled fairly.
This can be illustrated by a case law example. In Home Office v Evans and another  IRLR 59, CA immigration officers at Waterloo Station were required by their employer, when the immigration service at the station closed down, to relocate to Heathrow rather than be treated as redundant.
In the employment contracts a mobility clause stated that immigration officers ‘ can be required to transfer anywhere in the UK or abroad'.
The Court of Appeal said that it was not unfair dismissal when the Home Office invoked the mobility clause to require the employees to move. The employer may choose to avoid a redundancy situation altogether as in this case.
What amounts to the place of work for employees who are mobile anyway can be difficult and there are relatively few cases on this area of redundancy law.
In EXOL Lubricants Ltd v Birch and another (unreported, UKEAT/0219/14 13 November 2014, EAT) two tanker drivers were dismissed for refusing to accept a change to their terms and conditions concerning where they parked their lorries overnight. The drivers both lived in Stockport, but the depot where they loaded up was in Wednesbury and their contracts said their place of employment was Wednesbury. The employer had agreed to provide secure parking available for their HGVs in Stockport. The employees would drive from Stockport to Wednesbury every day as part of their working time. The employer decided it wanted to stop paying for the secure parking in Stockport and all of the other HGVs were parked at the depot in Wednesbury anyway. The claimants were eventually dismissed for refusing to travel to and from Wednesbury under new arrangements. Initially, the employer said the reason for the dismissal was some other substantial reason justifying dismissal (SOSR), but then changed this to a redundancy, on the basis that Stockport was the claimants' place of work. The two claimants brought claims for unfair dismissal and breach of contract. The key issue was whether they had been dismissed by reason of redundancy.
The Employment Appeal Tribunal held that in cases of someone like a delivery driver who has no fixed place where he carries out their duties the employer should have regard to the contractual provision stating where the employee was employed and any connection with a depot or head office or something like that. The claimants had the closest connection with the Wednesbury depot and so there was no redundancy situation since there was no diminution in the employer's requirements for delivery drivers at the Wednesbury depot. The Stockport parking facility was not their place of work and so there had been no workplace closure and therefore no redundancy situation. As the employer advanced no other potentially fair reason for dismissal, the employees won their unfair dismissal claim.
The judge implied that if the employer had sought to justify the dismissals by reason of SOSR rather than redundancy then there would have been a better chance of showing a fair dismissal.
Q: Are there any future developments expected in the area of redundancy?
Redundancies are likely to continue due to the current economic situation.
Future changes affecting redundancy legislation are summarised under the headings below.
Public sector redundancy payments
Currently, redundancy payments vary across the public sector. For example five years ago the public service union FDA reached an agreement on new redundancy terms with then Cabinet Office minister Francis Maude.
Following a Spending Review and consultation in 2015 plans to modernise the public sector workforce included the introduction of a £95,000 cap on redundancy payments. More information on the consultation and draft Regulations is available on the GOV.UK website.
On 5 February 2016 the government launched a consultation on proposals to further restrict public sector redundancy payments by harmonising the rules for calculating payoffs across the civil service, the NHS and local government. The proposals include:
- setting a maximum tariff to calculate exit payments at three weeks’ pay per year of service
- capping the period that can be used to calculate redundancy payments
- tapering lump sum redundancy payments the closer people got to retirement
- setting an £80,000 salary cap for calculating exit payments.
The government also published guidance on public sector payment and terms as a reminder of the rules that are in place and the government's expectations on public sector employers. This includes the need for approval of pay packages above £142,500, limits on the use of confidentiality clauses and restrictions on private health insurance.
The proposals and guidance and changes could mean more contentious redundancies and exit processes in the public sector and will inevitably see an increase in case law involving those in the public sector. More information on the proposals and guidance is available on GOV.UK website.
Age discrimination and redundancy
Future legal issues which are likely to arise in a redundancy context may concern the interpretation of the Employment Equality (Age) Regulations 2006 which have been in force only since 1 October 2006. Cases are likely to continue to appear before the tribunals and providing guidance on the way in which the legislation will operate. Some of these cases may involve selection for redundancy involving potential age discrimination.
For more information on age discrimination see our Age discrimination and retirement Q&As.
In a referendum on 23 June 2016 the UK voted to leave the EU. For information on what Brexit will possibly mean for employment law read the blog by our Public Policy Advisor (Employer Relations).
We have also set up a resource hub on our website where relevant resources and details of our ‘Brexit’ activities will be published.
Explore our related content
Frequently asked questions around the process of collective consultation
Selected cases on issues related to redundancy, including collective consultation, selection pools, suitable alternative employment, and payments