Learn how to use redundancy as a last resort when all alternative approaches have been considered
Confusion sometimes arises over redundancy because ‘making someone redundant’ is often used as a euphemism to soften the blow for an employee who is being dismissed for some reason other than redundancy.
There is no legal provision against using the expression in this way, for example, to soften the dismissal of an unwanted or underperforming employee. However, if an employer says there is a genuine redundancy and there is not, the employee may be able to show there was not a fair reason to dismiss them at all.
Normally the role must be disappearing for there to be a true redundancy. Redundancies are usually caused by the employer needing to reduce the workforce. Common reasons include:
- new technology or systems reducing the need for employees
- the need to cut costs resulting in a reduction in staff numbers
- the business closing down altogether or moving.
A genuine redundancy only arises if the dismissal is attributable to the fact that the employer requires fewer employees to carry out work of a certain kind or expects that the requirements for employees has reduced.
To dismiss fairly for redundancy an employer must establish that the role is genuinely redundant, follow a fair consultation procedure and consider whether there is suitable alternative employment.
If an employee is dismissed for redundancy, he or she may qualify for redundancy pay, if the requisite conditions are satisfied.
The obligatory redundancy consultation with employees can be either collective or individual and, in many cases, both types of consultation are required (see our Redundancy collective consultation Q&As).
Many aspects of redundancy are misunderstood, for example, selecting individuals for redundancy based on age or length of service should usually be avoided as this may also pose specific discrimination problems for employers (see our Age discrimination and retirement Q&As).
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When a dismissal is a redundancy
Redundancy arises only in three very narrowly defined circumstances – when 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 redundancy consultation is wider than the above and would include, for example, a reorganisation where there is no reduction in the overall numbers (see our ‘Redundancy collective consultation Q&As’).
If redundancies are handled incorrectly employees may be able to claim they were unfairly selected and bring a claim for unfair dismissal. Following the correct redundancy procedure minimises these claims.
Some organisations will have an established redundancy procedure set out in the organisation’s handbook, some will deal with matters informally, others may only start to consider the appropriate procedure for the first time when a redundancy situation arises.
In most cases, an organisation should go through the following stages in order to plan and implement a redundancy situation properly:
- identify the pool for selection
- invite volunteers
- consult – both collectively (in large scale redundancies) and individually (in all cases)
- notify the Department for Business, Energy and Industrial Strategy (large scale redundancies only)
- identify objective selection criteria
- provide advance notice of individual consultation meetings
- permit a colleague to be present at consultation meetings
- allow employees the opportunity to appeal the redundancy decision
- organise statutory or other redundancy payment
- budget for relocation expenses
- help 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 how to manage staff redundancies.
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 (see our Age discrimination and retirement Q&As).
Formal redundancy procedures
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.
But it is good practice to establish a formal procedure on redundancy and make it known to all employees, for example, by including it in the employee handbook. A more formal procedure may have to be negotiated and agreed between management and trade unions or employee representatives. If possible, the agreement should be drawn up 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 its scope (in other words, who the procedure applies to)
- details of consultation arrangements
- an introductory statement of intent towards maintaining job security wherever possible and the measures for minimising compulsory redundancies
- guidance on selection criteria
- details of severance terms, any relocation expenses and appeals procedures
- assistance with job seeking
- severance payments
- appeals against selection for redundancy.
The first stage for employers to consider is whether redundancies are necessary at all. Organisations should identify their reasons for the redundancies as these will need to be explained later. For example, have clients been lost resulting in a decrease in demand? Or are there essential changes to be made to the structure or organisation of the workforce? A redundancy situation is easily recognisable if an employer ceases to carry on part of the business but is more complex where an employer changes the type of business.
A redundancy plan will help employers manage each stage of the process, and staff or trade union representatives may need to be involved in developing it. The planning stage will involve alternatives to compulsory redundancies, including inviting volunteers for redundancy, recruitment freezes, overtime bans or reducing numbers of genuinely self-employed contractors or temporary workers.
If redundancies seem unavoidable, the later stages of the plan will include how consultation, selection, notices and payments will proceed.
In the early stages of the redundancy process an employer can ask for volunteers. If there are insufficient numbers, the employer will proceed with compulsory redundancies.
Information that should be provided at an early stage includes:
- reasons for the redundancy situation
- who is affected (the pool)
- selection method to be used for compulsory redundancies
- number of redundancies anticipated
- how redundancy payment will be calculated.
Volunteers are usually invited from staff in the likely compulsory redundancy pool. It is quite common for the voluntary process to go on in parallel to the individual or collective process for compulsory redundancies.
The package available for voluntary redundancies will depend on what the employer is prepared to offer or what is provided for in a formal scheme. The employees will be entitled to their contractual or statutory notice period (or payment in lieu) plus a redundancy payment which at least complies with the statutory minimum.
Employers can offer volunteers an enhanced redundancy payment as an incentive, compared to lower statutory or contractual entitlements for compulsory redundancies.
Employers should check to see whether the redundancies will have a disparate impact on a protected group, such as disabled staff, and look for ways to avoid this, otherwise discrimination claims may arise.
Employees should be warned that if they volunteer, and then change their mind, they will still be included in the pool for any subsequent compulsory redundancy selection exercise. Volunteers do have to be included in the calculation for collective consultation purposes (the trigger being 20 or more employees being made redundant within a 90-day period at the same establishment).
Enhanced voluntary redundancy payments must be calculated carefully to avoid age discrimination. Sometimes employers ask voluntarily redundant staff to sign settlement agreements to provide a safeguard against future claims although this is not a legal requirement.
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 concerned.
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 collective consultation depend on whether 20 or more employees, or fewer, are to be made redundant within a 90-day period at the same establishment.
Fewer than 20 employees redundant
If there are fewer than 20 employees to be made redundant, the employer must consult individually with the employee. (Note that 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).
During the consultation process, the employee should be notified they are at risk of redundancy and kept informed of developments. They should 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 ‘Right to be accompanied’ below).
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.
Twenty or more employees 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 (see our Redundancy collective consultancy Q&As).
There is still an obligation to consult individually as well as collectively, so employers must 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).
Consultation must be taken seriously and handled sensitively. The Employment Appeal Tribunal (EAT), in the case Thomas v BNP Paribas Real Estate (2016), suggested that a ‘perfunctory and insensitive’ consultation could mean the redundancy was unfairly handled.
Right to be accompanied to meetings
There will be several meetings with an employee during a redundancy process. Although the precise number of meetings will vary from one redundancy situation to another there will at least be a first meeting (usually with all the potentially redundant employees) to explain the reasons for the potential redundancies, that there do not appear to be any viable alternatives, and how many jobs are at risk.
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 and so on. 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 have a companion at a meeting. An employee does not have an absolute legal right to be accompanied to all 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 are:
- There is a statutory right to be accompanied by a trade union official or fellow worker.
- The 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 EAT decided that the right to be accompanied did not apply to a redundancy meeting (although for technical reasons this decision was outside the EAT’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 that 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.
Determining the selection pool
Employers should be careful when determining the initial selection pool for redundancy. It’s possible to fall down at this early stage by identifying employees who are under-performing and then identifying those employees as constituting the selection pool. This can lead to claims for unfair dismissal.
A 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, the employer should identify at the planning stage 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 and so on. Part of a redundancy consultation may involve asking employees if they would accept a more junior role at a reduced salary.
Key points from case law
The main issue to consider when deciding if an employer has chosen the correct pool for redundancy selection is whether the redundancy dismissal and the selection of the pool is within the range of conduct which a reasonable employer could have adopted (see Williams v Compair Maxam, 1982).
The question of how the pool should be defined is primarily a matter for the employer to determine and they do have some flexibility in this. It is difficult for an employee to challenge it where the organisation can show it has genuinely considered the issue (see Taymech v Ryan, 1994). It is not for an employment tribunal to decide whether it would have been fairer to act in some other way. However, if the number in the pool is the same as the number of employees to be made redundant, it is easier for employees and subsequent employment tribunals to criticise how the pool was constituted.
Some pools may be discriminatory, for example, by focusing on part-timers who are more likely to be women or focusing on 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 do other work as well, the pool should usually include the other employees in the department, and not just those using the equipment (see Hendy Banks City Print v Fairbrother, 2007).
Small selection pools
Problems can arise if the size of the pool is too small. Employers should consult on the size of a redundancy pool as part of a fair redundancy selection.
For example, in one case, an actuary had a diminishing workload and the company decided a selection pool of one was acceptable. The claimant argued there should be a pool of four, comprising the other actuaries in the office where she worked. The employer said 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. The EAT 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 (see Capita Hartshead Ltd v Byard, 2012).
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 (see Zeff v Lewis Day Transport, 2011). However, employers must always must engage in a formal 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.
In another case, an HR manager was absent for three months on sick leave. Shortly after her return, she was informed she was at risk of redundancy. The employer decided 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 while she was off sick, and she was told she was not at risk of redundancy. When the manager was made redundant, she alleged that both she and the other employee should have been at risk of redundancy, and when she was dismissed she 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 (see Fulcrum Pharma v Bonassera, 2010).
However, in another case, the appropriate size of the pool was just one person. 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 (see Halpin v Sandpiper Books, 2012).
A pool should 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.
Selection criteria for redundancy must be objective and applied consistently.
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, any resulting dismissal(s) may be unfair.
Objective, reasonable and transparent
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 due to pregnancy or disability (to avoid discrimination claims)
- disciplinary records (current offences)
- performance (this will require objective evidence drawn, for example, from the company’s existing appraisal system).
Once the selection criteria have been identified, employers need to consider a relevant scoring mechanism.
If a score sheet method is being used for selection, employees will be aware of this from an early stage. Many employers enclose a copy of the completed sheet with the notification of selection as it is preferable for the selection process to be transparent.
To be genuine, adequate and effective, consultation as part of a redundancy exercise should include providing adequate information on the criteria used and the scoring system. Employers should consider giving employees an explanation for their scoring method, and a meaningful chance to comment on the scores and challenge them.
Length of service was used in the past as a criterion for selection, however relying on this as the sole or main selection criterion runs the risk of being discriminatory on the grounds of age and unlawful. In most cases, selecting someone for redundancy by applying a LIFO (last in, first out) criterion 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 more information, see our Age discrimination and retirement Q&As and the Q Should the LIFO method or other criteria related to length of service be used as criteria for redundancy selection? below.)
Employers should ensure their choice of objective criteria for redundancy selection is justifiable. If the criteria disadvantage a group of young or old employees, this could constitute age discrimination unless the employer can objectively justify its use. Objective justification means showing the criteria achieve a legitimate business aim and are a proportionate means of achieving it.
Length of service in itself may give rise to other discrimination claims. The period of continuous employment is normally used to calculate it, whether full-time or part-time, because to take account of only full-time service might be indirect sex discrimination.
Employers are required to make reasonable adjustments to working conditions, including during a redundancy selection process, where they would help accommodate a disabled employee. It is unlawful to treat a disabled person less favourably because of a reason relating to their disability without a justifiable reason. For example, disability-related absences should be disregarded if attendance records are a redundancy selection criterion. Also, behaviour-related scores may need to be adjusted if, for example, a lack of co-operation is attributable to a mental impairment.
Whatever selection criteria are chosen, employers need to ensure they are neither directly or indirectly discriminatory on grounds of age, sex, marital status, race, disability, sexual orientation, or religion or belief.
Appeals against redundancy selection
Employers should ensure employees have the opportunity to challenge decisions to select them for redundancy dismissal, just as it would for any other employee to be dismissed. An appeal procedure can take place at the end of the individual consultation and selection process.
ACAS guidance on how to manage staff redundancies confirms that employers should allow employees who feel selection criteria have been applied unfairly to appeal the decision. Complaints about selection may then be resolved internally and reduce the likelihood of employment tribunal claims.
Suitable alternative jobs
An employer must offer an employee selected for redundancy any suitable alternative job, otherwise the dismissal is likely to be unfair.
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, the employee forfeits the right to a redundancy payment.
The employer should make the offer of an alternative role before the old job ends, together with enough information about what the 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 for this employee?
- Is this employee unreasonable to refuse the offer?
The first point is largely objective, although the position must be suitable for the employee’s skills, aptitude and experience. The second question is based on whether the particular employee has sound reasons for refusing the offer.
(Note that special provisions apply to offering suitable alternatives to employees on maternity leave – see the related Q below).
Is the alternative suitable?
The legal test of what is suitable alternative employment is assessed objectively. Whether it is reasonable for the employee to reject it is assessed subjectively by tribunals, 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.
Employers must give priority to potentially redundant employees for a suitable alternative role, even over external candidates, although they do not have to appoint someone to a post for which they are 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, the employer may be acting unfairly if it fails to offer that alternative role.
Even if an offer of alternative employment is objectively reasonable, the employee can still be reasonable in refusing it if they do so for sound and justifiable reasons. It does not matter if another employee may have accepted the offer.
Forfeiting a redundancy payment
In the case Readman v Devon Primary Care Trust (2013), a senior nurse who had been involved in community nursing for over 20 years was told she was at risk of redundancy because of a reorganisation of leadership structure. The nurse worked for a statutory trial period (see below, ‘Statutory trial periods’) in a lower grade position of community nursing team manager but did not think this role was suitable. She was offered a role as a modern matron but rejected this as she did not want to work in a hospital. She had also been offered a job abroad before she terminated the trial period. The question for the tribunal and appeal courts was whether she was entitled to a statutory redundancy payment.
Were the job offers suitable alternative employment?
The position must be suitable for this particular employee, bearing in mind their 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?
The court had to decide whether the employee had sound and justifiable reasons for refusing the job offer. Her core reason given for refusing the modern matron 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 the original tribunal had erred in not properly considering whether the employee’s wish 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.
The case had to go back to a different tribunal to consider whether, 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.
The 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 they have sound and justifiable reasons. It does not matter that the employer or the tribunal thinks a reasonable employee would have accepted the offer.
Is the alternative salary suitable?
The court will take into account the similarity of the salary for the alternative position when assessing its suitability. The employer failing to provide salary information on the alternative employment will make it difficult for the employee to assess its suitability and could make it reasonable for them to refuse it. However, the employee should indicate an interest in a particular position offered them and request salary information. If they do not, and subsequently make a successful claim for unfair dismissal, the basic and compensatory award may be reduced on the grounds of contributory fault (see Fisher v Hoopoe Finance, 2005).
Is the selection for the alternative position objective or subjective?
It is for an employer to assess the suitability of an otherwise redundant employee for an alternative position. The interview process must be objective overall, but it is inevitable that an employer’s assessment of which candidate will perform best in a new role will involve a substantial element of judgment. The employer must establish, and follow, fair procedures when making an appointment. If a selection is made out of favouritism, or on personal grounds, it will be unfair.
In Samsung Electronics v Monte-D’Cruz (2012), the employer decided four senior roles would be merged into a new, single position. The claimant, who had one of the senior roles, applied for the new position. He was assessed on a presentation and scored on 10 competencies. He was unsuccessful and applied for another post and was unsuccessful in that too. The senior job went to an external consultant. He claimed the redundancy dismissal was unfair because of inadequate consultation and because the criteria for selection for the new roles were too ’subjective’. The EAT decided that the selection was fair.
Is refusing the alternative job offer unreasonable?
An employee who unreasonably refuses an offer of 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 of that particular employee 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 example, see Hudson v George Harrison Ltd (2003). In this case, the employee in question was at risk of redundancy due to a relocation of the employer's premises. 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 legal test is subjective and can, therefore, take into account the personal circumstances of the employee.
Is refusing an offer of the original job back unreasonable?
Employers must continue to look for 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 they have 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, 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.
Statutory trial periods
In a redundancy, employees have the right to a four-week trial period in an alternative role to decide whether the post is suitable, without prejudicing their eligibility for redundancy pay. This right applies where the terms and conditions of the new contract differ wholly, or in part, from the original contract.
The trial period will normally be four weeks but can be longer if the employee needs retraining. Any agreement for a longer trial period must be made in writing before the employee starts work under the new or renewed contract. The terms of the extended trial period 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, the employee will then lose the right to a redundancy payment.
- Decide the new job isn't suitable and give notice to terminate the employment during the trial period. This will preserve the employee's right to a statutory redundancy payment (see Optical Express v Williams, 2007).
If the employer offers a suitable alternative job and the employee unreasonably refuses it, the employee may lose the right to statutory redundancy pay (see above ‘Suitable alternative jobs’).
Bumping is dismissing someone else in order to give their job to the employee who would otherwise be redundant. Employers can carry out redundancies by using bumping, provided all the proper redundancy procedures, including consultation, are followed.
The easiest way to illustrate this is by an example. A supermarket employs several staff in a café within 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.
The question is whether the dismissed general employees have been dismissed for 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 bumping someone else out can be a redundancy (see Murray v Foyle Meats, 1999).
Employers must still consider if an alternative role can be found for an employee who is being bumped. 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 above ‘When a dismissal is a redundancy’).
In some cases, it may be fair to consider bumping out a more junior employee provided 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 whether this creates a vacancy, how different the two jobs are, the difference in remuneration, 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, 2005)
The case of Contract Bottling v Cave (2014) provides an example of bumping. An employer needed to reduce its staffing costs. It put all the administrative, accounting and warehouse staff into a single pool and compared them 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 EAT 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 dismissals were unfair. This was redundancy because there was:
- diminution in the employer’s requirements for employees to carry out work of a particular kind
- 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 reduction to compensation for the employees (known in legal circles as a ‘Polkey reduction’) 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 their 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.
Statutory redundancy payments
To claim a statutory redundancy payment, an employee must have been employed for a continuous period of two years and been dismissed by reason of redundancy.
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, so the maximum statutory redundancy payment at any one time is based on multiples of this sum (see our Unfair dismissal Q&As for further details, and our Statutory rates page for current limits on a week’s pay).
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 government’s website.
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.
Time off to seek alternative employment
An employee who is under notice of dismissal because of redundancy is entitled 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.
Once an employee has been issued with a written notice of redundancy, they could obtain an alternative position with a new employer that wishes 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’. This is the statutory minimum notice, or contractual notice period, counted backwards from the termination date within which the employee can serve a counter notice (see Section 136(3) of the Employment Rights Act 1996).
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.
Short-time working or lay-offs as an alternative to redundancies
Complex rules govern layoffs and short-time working.
An employee is laid off if an employer doesn’t give them work for a week and gets no pay for that week. Employers can tell employees not to turn up for work, but there is no general right not to pay them because work is not available.
However, lay-offs can be useful when an employer doesn’t have enough business to employ all or part of its workforce for a temporary period.
This occurs when employees’ working hours are reduced by more than 50%. An employer and its trade unions may agree to short-time working to save money as an alternative to redundancies. Employees may be laid off for a number of contractual days each week, or a number of hours each day. The employer must have the employees' agreement to reduce the amount of pay lawfully.
Lay-offs or short-time working can only be imposed if:
- the employment contract allows for this
- a collective agreement with a trade union exists which allows for it
- a precedent has been created through previous lay-offs and periods of short-time working.
If the contract allows for lay-offs or short-time working, or the employee agrees to a lay-off or short-time working (in other words, a change to their employment contract), they may be entitled to:
- a statutory guarantee payment, or
- a redundancy payment.
If an employee is put on short-time working for four consecutive weeks or more, or for six weeks in a period of 13 weeks, the employee can give the employer written notice that they intend to claim a redundancy payment.
If there is no express or implied agreement to short-time working or lay-offs, the employer will have committed:
- a constructive unfair dismissal; and
- an unlawful deduction of wages (Part II, Employment Rights Act 1996).
The employee must meet the qualifying criteria and raise a grievance internally before making a claim to an employment tribunal.
Employers should start thinking about redundancies early and put in place sufficient planning to reduce the consequences. Often employers make the mistake of pushing redundancies through too rapidly. Organisations are open to several claims if redundancy dismissals are not carried out fairly, including:
A claim for a protective award (see our Redundancy collective consultation Q&As).
Unfair dismissal, from qualifying employees with two years’ continuous service (one year for employees who joined before 6 April 2012). There are also certain categories of automatically unfair dismissal which do not require one/two years’ continuous service (see our 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 or one of the other protected characteristics under the Equality Act 2010.
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 those who joined as employee shareholders, may not qualify to claim unfair dismissal or a statutory redundancy payment.
Automatically unfair reasons for redundancy selection
An employee dismissed for redundancy will be automatically unfairly dismissed if the principal reason for selecting them is one of the following:
- carrying out trade union-related duties, redundancy or business transfer consultation employee representative duties, or health and safety representative activities
- taking part in consultation on specified health and safety matters
- performing occupational pension scheme trustee duties
- performing, or proposing to perform, workforce representative duties for the purposes of the Transnational Information and Consultation of Employees Regulations 1999
- taking lawfully organised industrial action lasting eight weeks or less
- asserting a statutory employment right, or rights under the Working Time Regulations 1998, National Minimum Wage Act 1998, Maternity and Parental Leave etc Regulations 1999, Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000, Fixed-term Workers (Prevention of Less Favourable Treatment) Regulations 2002, Tax Credits Act 2002
- maternity-related reasons
- refusing, or proposing to refuse, to carry out shop work or betting work on Sundays (England and Wales only)
- making a protected disclosure (whistleblowing)
- seeking to exercise the right to be accompanied at a disciplinary or grievance hearing
- making a flexible working request.
If the reason for selection for redundancy was 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 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 for redundancy was on the grounds of age, sex, marital status, race, disability, sexual orientation, religion or belief.
Organisations should take particular care to ensure that selection criteria are not indirectly discriminatory. For example, selecting part-timers for redundancy may amount to indirect discrimination against women, because more women work part time than men. Selecting women for redundancy on the grounds of pregnancy will also be discriminatory and unfair.
Q: Should redundancy and notice pay be based on normal pay if an employee was previously furloughed?
Redundancy pay should be based on an employees’ full salary prior to the pandemic. The position is more complex with respect to notice pay. Most employers will have agreed that employees received 80% salary while on furlough, but statutory notice pay is payable at the rate of the employee's full contractual normal salary.
Notice pay is generally based on either the contractual, or statutory minimum, notice period, whichever is longest. Statutory minimum notice is basically one week’s pay for the first two years of employment, followed by one week’s notice for every year worked up to a maximum 12 weeks.
From 1 December 2020 onwards, employers could not claim furlough for any day when an employee was serving statutory or contractual notice.. The cost of notice pay after 1 December 2020 was not covered by the furlough scheme and employers had to pay notice themselves at the rate of the employee's full contractual normal salary. Employers should have ended furlough when employees started their notice period, and this should have been paid at pre-furlough salary levels.
An employee entitled to statutory minimum notice should, therefore, be given full notice pay based on normal salary. Employers should have topped-up pay for previously furloughed employees who worked out their notice during the pandemic. The Coronavirus job retention scheme guidance confirmed that redundancy rights should not be affected by furlough.
Both redundancy pay and notice and payments in lieu of notice should have been calculated using full, pre-furlough salary. The formula for calculating redundancy pay is explained above under ‘Statutory redundancy payments’.
Q: Are employers vulnerable to claims if they started a redundancy process when someone was furloughed?
Some employers will be vulnerable to such claims. However, there was no obligation on employers to end furlough before making redundancies. It was always possible to make staff redundant during or after furlough. For some employers, the long-term effect of the pandemic on their business has been inevitable closure or rationalisation. After the end of the furlough scheme, employers could implement redundancy dismissals provided that the normal redundancy definitions were met, and a proper process was followed, including consideration of alternatives to redundancy.
Given that the furlough scheme was designed to minimise redundancies, furlough should at least have been considered as an alternative to redundancy. A complete failure to consider alternatives or defective procedures are common reasons for triggering unfair dismissal claims. Similarly, if there was any possibility of employees resuming at least partial employment from October 2021 onwards, employers should have considered retaining those staff part-time. This would need employee s’ agreement or taking the risks of a fire and rehire approach.
Employers faced with such claims will need to consider whether they applied the redundancy selection and consultation processes properly despite furlough and, if they did not, they may need to take specific advice and budget for a possible settlement agreement.
Employers should bear the following in mind:
- A redundancy is not unfair just because the redundancy process started during furlough.
- A furlough period did not have to end for a redundancy process to begin. The UK Government’s guidance warned employees that they could be made redundant during or after furlough.
- The furlough guidance also reminded employers that furlough grants could not be used for redundancy payments, payments in lieu of notice or untaken annual leave. The Treasury guidance confirmed that employers could not claim furlough for any day when an employee was on statutory or contractual notice from 1 December 2020 onwards, so employers had to pay the cost of notice pay in full.
Q: Could employers previously claim the furlough grant for furloughed employees serving contractual or statutory notice periods as part of a redundancy process?
Some employers implemented a redundancy process at various stages in the approach to the end of furlough in September 2021. The timing of the process may have been affected by the reduction in the UK Government's 80% wage contribution during July and August 2021.
Prior to December 2020, employers could claim the furlough grant for furloughed employees serving contractual or statutory notice periods. The position then changed so that employers could not claim furlough for any day when an employee was serving statutory or contractual notice. The cost of notice pay after 1 December 2020 was therefore not covered by the scheme and employers had to pay this themselves in full.
Employers dismissing for redundancy towards the end of the scheme had to pay any redundancy and notice pay in full rather than allocating a portion of the furlough grant towards the notice payments.
In any redundancy decision-making process employers should evaluate the likelihood of employees challenging the fairness of selection for redundancy if furlough was not considered as an alternative.
Should length of service be used for redundancy selection criteria?
The 'Last in, first out' (LIFO) approach, 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 the 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 age discrimination legislation, it became out-of-date and was replaced by the matrix approach. Latterly LIFO has been seen as highly risky, as using 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.
In the case Rolls Royce plc v Unite (2009), the Court of Appeal considered the use of length of service as a selection criterion for redundancy. Here the employer and the trade union had agreed employees would be awarded points based on certain redundancy selection criteria, namely:
- achievement of objectives
- versatility/application of knowledge
- personal contribution to the team.
Points were also awarded for each year of continuous service. Employees with the least points were selected for redundancy and claims resulted.
When the matter reached the Court of Appeal, the court agreed with the High Court that using length of service as a selection criterion could be objectively justified under the Age Regulations, the predecessor of the Equality Act 2010. The 'legitimate aim' required for this defence 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. It was also part of a collective agreement between the employer and the trade union.
Length of service can, therefore, be used as a criterion for redundancy selection, but must not be a sole criterion. The criteria were only justified on the facts of this particular case. Other employers may not be able to justify its use. A more careful course of action would be to avoid LIFO altogether rather than being placed in a position of having to justify the method used.
Can enhanced redundancy payments become a contractual term?
Many employers voluntarily make enhanced redundancy payments. In later redundancies, employees may expect a similar level of payment and may 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 employment contract if the employer habitually makes those payments. However, this will not arise in all cases. If the employer’s words and conduct suggest to the employees that it intends to be bound by a term, it is then that a contractual obligation may have arisen. What the organisation actually intended is less important than how its 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:
- 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).
- Whether the terms were well known by all concerned.
- How the employer has publicised the availability of enhanced redundancy benefits.
The last point 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 created 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.
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.
Can the selection pool include employees who are pregnant, or on maternity or family leave?
Pregnant employees, or those on maternity, paternity, adoption or parental leave, can initially be treated the same as other employees in the pool for selection for redundancy. However, if employees in this position are selected, special provisions concerning offering alternative employment apply to protect them.
Provided a fair selection process is applied across the pool for selection, it is possible that a pregnant employee, or one on maternity or other forms of family leave, may be selected for dismissal by reason of redundancy. Obviously pregnancy (or absence on maternity etc leave) must not be used as a selection criterion for redundancy and, if absence is one of the criteria used, any absences that relate directly to pregnancy or time off for dependents should be disregarded in the scoring, to avoid any inference of sex discrimination.
As employers know they risk 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/family leave are selected for redundancy, 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.
Suitable alternative vacancies
The complexities of when the obligation to offer a suitable alternative vacancy arises was illustrated by the case Sefton Borough Council v Wainwright (2014). The Employment Appeal Tribunal (EAT) held that the claimant should have been offered a post without having to compete for it, regardless of whether her colleague was the better candidate. As soon as the employer decided that the employee on maternity leave’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.
For further information on suitable alternative employment and examples, see our Maternity, paternity, shared parental and adoption leave and pay Q&As.
Discrimination against other employees
Although pregnancy (or absence on maternity/family leave) must not be used as a selection criterion for redundancy, if the criteria leans too far in favour of women on maternity leave, for example, sex discrimination claims can arise from the men selected instead.
In De Belin v Eversheds Legal Services (2011), a male employee won his sex discrimination and unfair dismissal case because his employer had used five redundancy criteria, including financial performance, to choose between a male and female employee for redundancy. The woman, who was on maternity leave, was given an artificially inflated score of the maximum points available. This made the man the likeliest candidate for redundancy rather than her which was unfair. The EAT said the employer should either not have used those figures at all, or should have taken the figures over a different reference period.
If an employee is made redundant while on maternity leave they are entitled to a notice payment in the normal way. Rights to statutory pay continue even if the employee is made redundant whilst on leave.
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.
Can a part-time employee be made redundant if 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.
Employers should 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 is done on a full-time basis.
For more information on part-time working see our Part-time work Q&As.
To avoid redundancies, can an employer dismiss employees who do not agree to new terms?
If there is a reduction in the number of employees required to perform 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 considering proposed contractual variations, such as reduced hours.
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.
Can redundant employees resign without losing statutory redundancy pay?
An employee may resign during the redundancy notice period by giving their employer written notice (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.
How does age discrimination legislation affect employers' enhanced redundancy pay schemes?
Whether an employer’s own enhanced redundancy payment scheme will be affected by age discrimination depends on the nature of the scheme and whether the employer’s scheme is calculated in a way which mirrors the statutory scheme or not.
Schemes based on the statutory scheme
Employers can make enhanced redundancy payments, based on age and length of service as contained in the statutory redundancy payment multipliers, to employees who:
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 on a week's pay see our Statutory rates page.)
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 for employee B £5,850, a permitted enhancement would be to take both these totals and double them giving one 6,750 and the other £11,700.
Schemes 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 this 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 was 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 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.
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 expensive to incur the legal fees of defending a tribunal claim to prove this and, as there is an exemption for schemes that emulate the statutory scheme, it is safer to adopt such an approach.
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.
Case law examples
In Galt v National Starch and Chemical (2008) a tribunal 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 and 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 (2008).
For more information on this and other relevant case law, examples see our Age discrimination and retirement Q&As.
Can a redundant employee be placed on garden leave during their notice period?
Once the redundancy process has been completed, and an employee has been given notice of dismissal, they may be asked to work their notice period, or be offered a payment in lieu of notice 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 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 our Terms and conditions of employment Q&As.
Should employees with less than two years’ service be included in a redundancy consultation?
In a redundancy context, 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 in England, Wales and Scotland 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. (Northern Ireland has retained the one year service requirement for unfair dismissal.)
Employers who are facing the prospect of complex redundancies may think that an easier option is 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. Both employees with less than one year's and with 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 make an unfair dismissal claim 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
- 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.
Organisations should carry out a proper redundancy consultation including all employees in an appropriate pool to avoid any subsequent claims.
See our Unfair dismissal Q&As for further information.
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 has to decide where employees are employed. The employer should:
- look at the contractual provision regarding place of work including any mobility clauses
- 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 our Terms and conditions of employment Q&As.)
Contracts without mobility clauses
Where employees have no mobility clause in their contracts and the 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, they will probably have a right to redundancy pay provided 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.
Contracts with mobility clauses
Where employers have mobility clauses in individual employees’ contracts then:
- the employer may enforce the clause to try and avoid redundancies before being required to follow redundancy procedures.
- the possibility of redundancy may still arise after the employer has considered using the mobility 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. 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, 1989).
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, provided the process is handled fairly.
This was illustrated in Home Office v Evans (2008). Immigration officers at Waterloo Station were required by their employer to relocate to Heathrow Airport rather than be treated as redundant, when the immigration service at the railway station closed down.
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 can be difficult and there are relatively few cases on this area of redundancy law.
In EXOL Lubricants Ltd v Birch (2014) 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 made 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 the case, say, of a delivery driver with no fixed place where they carried 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 similar. 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.
Recent case law
Ugradar v Lancashire Care NHS Foundation Trust |Employment Appeal Tribunal | June 2019 UKEAT/0301/18/BA
The claimant had a contractual redundancy entitlement of £43,949.04. The NHS Trust refused to pay, claiming she had turned down suitable alternative employment. The claims were for contractual and statutory redundancy payments. The issue was whether statutory redundancy pay counts towards the £25,000 cap for a breach of contract claim in the tribunal. The statutory redundancy pay in this case was £5,868.00 and the contractual redundancy pay under the NHS package was £38,071.04.
The tribunal initially said it could only award £25,000, which is the cap on breach of contract claims in the tribunal system, and said this cap also applied to statutory redundancy pay.
The EAT said that the claimant won £25,000 for non-payment of the contractual redundancy pay plus £5,868.00 for her statutory redundancy pay. Employers have two obligations towards employees – one in the contract and one in legislation. Here, the financial cap only applied to a breach of contract claim and not the statutory claim.
Implications for employers
Employers with contractual redundancy schemes should be aware that the cap of £25,000 only applies to contractual redundancy pay and does not extend to the amount owed to employees under statute. The EAT commented that the £25,000 cap on contractual claims, unchanged since 1994, was unjust and out of step with the powers of tribunals generally.
The government issued a consultation on extending maternity redundancy protection following the publication of Good work: the Taylor review of modern working practices. The consultation found that up to 54,000 women a year said they had to leave their jobs due to pregnancy or maternity discrimination.
The current law provides that women on maternity leave who are selected for redundancy must be given priority over other redundant employees when the employer considers suitable alternative employment (regulation 10 of the Maternity and Parental Leave etc Regulations 1999). In addition, the Equality Act 2010 sets out a ‘protected period’ during which women who are pregnant or have recently given birth are explicitly protected from discrimination.
In July 2019 the government finally announced that pregnant women and new mothers could receive up to two years of further legal protection against redundancy, with the protections applying for an additional six months after the woman’s return to work, not just those who are currently on maternity leave.
The new protections will:
- Provide a redundancy protection period that applies from the point the employee informs the employer that she is pregnant.
- Extend the redundancy protection period to six months from the mother’s return to work.
- Extend redundancy protection into a period of return to work for those taking adoption and shared parental leave.
Further guidance on this will be issued in due course. Draft legislation has yet to be produced.
The government also announced a new taskforce, made up of employer and family groups, to develop an action plan and make recommendations on what further steps government and other organisations can take to make it easier for pregnant women and new mothers to stay in work.
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