General
An Employer must give a lump sum redundancy payment to individuals who are made redundant, who have at least two years’ continuous service and who meet certain other conditions. Employees qualify for redundancy payments if they work under a contract of employment.
The employment must be terminated, in order for redundancy rights to apply. This means that the employee must not have resigned. Where a fixed contract ends without being renewed, this may count as a termination of employment for the purpose of redundancy legislation.
If the identity of the employer changes due to the transfer of the business, the employment contract rights are transferred automatically to the new employer. There is a right not to be transferred, but this is treated as a resignation with no entitlement to redundancy.
Definition
An employee is dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to
- the fact that the employer has ceased or intends to carry on the business for the purposes of which the employee was employed by him or to carry on the business in the place where the employee was so employed or
- the fact that the requirements of the business for employees to carry out work of a particular kind or for employees to carry out work of a particular kind in the place with the employee was employed by the employer has ceased or diminished or are expected to cease or diminished.
Redundancy arises mainly when the employer needs to reduce the work force. This may happen because a workplace is closing down or because fewer employees are expected to be needed. Generally the job must have disappeared. If an employer was to immediately re-employ another as a direct replacement, this could not be redundancy and is likely to be an unfair dismissal.
If employment is terminated due to a need to reduce the workforce and remaining employees move into the job, this may count as a redundancy as long as no vacancy exists in the area where the substituted employee worked.
There is a statutory presumption in a redundancy claim that the dismissal was by reason of redundancy. The onus is on the employer to disprove redundancy.
An Employment Tribunal does not generally scrutinise the businesses decision taken by the employer even if it disagrees with it and believes another course should have been taken. This is a matter for management.
Selection and Fairness
The two elements in a redundancy defence to unfair dismissal are that the circumstances of redundancy exist, and the dismissal is because of redundancy, whether wholly or mainly.
In considering the fairness of a dismissal for redundancy, regard will be had to
- whether the employees or the representatives were warned and consulted as to the best means to be adopted and with minimum hardship
- whether the selection criteria were objective and applied fairly
- did the employer investigate alternatives
There is no obligation as such in a single or non-collective redundancy (as defined) to consult with the employees. However, the failure to do so, may be relevant to the issues in an unfair dismissal claim.
Where persons undertake similar roles and have similar skills and experiences the employer will have to determine the criteria for which redundancy selection is undertaken. Complex issues may arise in selection. Redundancy commonly arises in the context of a reorganisation with knock-on effect. There may be a pool of employees who have similar skills. Difficult forward-looking assessments of the ability to fulfil a new role may be involved.
The Tribunal will consider objectively whether the selection system applied is within the range of fairness and reason, regardless of what it would have done itself. The Tribunal will not scrutinise the specific evidence relied on provided that the approach is reasonable.
Alternatives
The employer must take reasonable steps to notify the employee of any vacancies it has suitable for them and the opportunity to apply for such alternative employment. Failure to do so may render a dismissal unfair.
There may be no entitlement to a redundancy payment if the employer offers a new job with the same employer or an associated employer or with an employer taking over the business. If the new job is not a suitable alternative to the old one, because of differences in capacity, location or terms and is turned down before the end of the trial of the four week period, there is deemed to be redundancy from the date of termination of the original employment.
Employees may undertake a trial period to decide whether to take alternative employment This may last for a period of four weeks. This may be longer if a period of retraining is agreed in accordance with the legislation. An unreasonable refusal to allow a trial period may render the dismissal unfair.
An employee who unreasonably refuses a suitable alternative employment is ineligible for a redundancy payment. The tribunal considers the reasonableness of the employer’s refusal.
Redundancy Payment
If redundancy is the ground for dismissal, then there is no unfair dismissal. However, a redundancy payment may be payable. In the case of employees who commenced employment after 1 April 2012 a two-year time limit is also required for unfair dismissal.
The entitlement to a lump sum redundancy payments depends on the amount of continuous service with the employer and weekly pay up to a limit. There is a half week’s pay for each full year of service under the age of 22, a full week’s pay for each full year service between 22 and 41 and 1.5 weeks’ pay for each full year of service over 41 years of age. The maximum number of consecutive years of service that count for statutory redundancy is 20. Absence through sickness, pregnancy, temporary shortage of work count towards continuous service.
A weeks pay is calculated on the basis of final pay. There is a limit in the amount of pay that can be taken in to account. As of 6 April 2018, weekly pay is capped at £508 and the maximum statutory redundancy is £15,240.
If an employer is insolvent it is possible to apply to a Government Department who will make the payment and reclaim it from the business.
Other Issues
The Redundancy legislation also has implications where there are lay offs i.e. where employees are not paid wages or put on short time for four weeks in a row or six weeks out of thirteen weeks. Where this occurs, redundancy payments are also required.
Disputes regarding entitlement to or amounts of redundancy payment are referred to the Employment Tribunals.
An employee who is given notice of dismissal because of redundancy is entitled to reasonable time off with pay, to look for another job or arrangements for training in future employment. This applies even if they have less than two years’ continuous employment.
There is separate legislation on collective redundancies. It applies where the employer proposes to dismiss 20 or more employees within a 90-day period in an establishment by reason of redundancy.
Collective Redundacies
Where 20 or more people are to be dismissed for redundancy the employer must consult with employee representatives. Failure to do so may make individual dismissals unfair. The duty to consult applies where the employer takes a strategic commercial decision or there are changes in activity that necessitate redundancies. It applies when the redundancies are contemplated.
The consultation should take place between your employer and a representative. This will either be:
- a trade union rep (if you’re represented by a trade union)
- an elected employee rep (if you’re not represented by a trade union, or if your employer doesn’t recognise your trade union)
Collective consultations must cover:
- ways to avoid redundancies
- the reasons for redundancies
- how to keep the number of dismissals to a minimum
- how to limit the effects for employees involved, for example by offering retraining
Your employer must also meet certain legal requirements for collective consultations.
There’s no time limit for how long the period of consultation should be, but the minimum is:
- 20 to 99 redundancies – the consultation must start at least 30 days before any dismissals take effect
- 100 or more redundancies – the consultation must start at least 45 days before any dismissals take effect
An employee affected by the proposed redundancies can:
- stand for election as an employee rep
- vote for other reps
Where a claim is the employment tribunal that the employer has not consulted, it may make a declaration and a collective award. The maximum protective award is 45 days.
An employer who proposes to make more than 20 employees redundant must notify the Department for Business Innovation and Skills. 30 days notice is required. A longer notice is required were more than hundred persons have to be made redundant.
