Redundancy and Restructures

What is a redundancy?

A redundancy is when an employer needs to dismiss an employee because:

• The employer’s business is closing down completely;
• The particular location where the employee works is closing down; or
• The employer simply needs to employ fewer people with the employee’s skills (for example because of financial pressures or a business restructure).

What is a restructure?

While there’s no legal definition of a restructure, it will involve an employer making changes to its workforce. This could involve making redundancies, but it could also involve making changes to employees’ contracts (including changing salaries, places of work, duties, job titles or line management). Read more about how changes can be made to employment contracts here.

What does a fair redundancy look like?

The key elements of a fair restructuring and redundancy process include:

• A genuine need for a redundancy in the first place (see above under ‘What is a redundancy?’);
• Consulting with each affected employee about their potential redundancy;
• A fair selection process to identify who, from the affected employees, should lose their jobs;
• Consideration given to any alternatives to making a redundancy (e.g. cutting down on agency or temporary workers first);
• A fair redundancy process and proper notice given to any redundant employees.

What does a restructuring and redundancy process involve?

All employees who face the risk of redundancy must be consulted first. A proper consultation process involves holding meetings with employees, and is a chance for the employer to explain the reason behind the redundancy, how they will select individuals for redundancy, and what each employee’s statutory redundancy entitlement is. The consultation process is also a chance for the employees to ask any questions. It’s important that the consultation process happens before any final decisions are made about redundancy. A pre-determined decision will not lead to a fair consultation process, and if the employer gets the process wrong this can lead to Employment Tribunal claims for unfair dismissal.

How should an employer select who to make redundant?

From the group of affected employees (referred to as the “redundancy pool”), an employer will need to use selection criteria and follow a fair procedure to decide who should be made redundant. The selection criteria should be objective, not subjective, meaning it could include things like:

• Level of skills and knowledge;
• Level of experience;
• Qualifications or training;
• Disciplinary record;
• Attendance record.

Sometimes there will be a need to conduct competitive interviews in order to achieve a fair process.

Does an employer need to look for alternatives to making redundancies?

Yes. As part of the restructuring and redundancy process, the employer must consider alternatives, including suitable alternative employment, which might be able to save jobs and avoid the need to make employees redundant. If an employee is on maternity, adoption or shared parental leave then they have priority over others when it comes to offering alternative employment. Sometimes an employee should be offered a trial period if the particular job may not be suitable alternative employment for them.

Can an employer ask employees to volunteer for redundancy?

Yes. Voluntary redundancy schemes can be an effective way of reducing or avoiding the need to make more employees redundant down the line. However, it might not always be suitable, and employers should explain, when inviting volunteers, that they don’t have to automatically accept each volunteer’s application for voluntary redundancy.

Who is entitled to a statutory redundancy payment?

If an employee has been with their employer for 2 years or more, they are usually entitled to redundancy pay if the employer makes their position redundant. Sometimes an employer will have a policy where they pay employees redundancy pay that’s better than the legal minimum (often called “enhanced redundancy pay”). However, where an employer doesn’t have such a policy, the employee will be entitled to the legal minimum redundancy pay (referred to as “statutory redundancy pay”), which is calculated as follows:

• Half a week’s pay for each full year of employment where the employee was under 22*;
• One week’s pay for each full year of employment where the employee was 22 or older, but under 41*;
• One and half week’s pay for each full year of employment where the employee was 41 or older*.

*but subject to a maximum 20 years and a maximum weekly pay set by the Government (currently £571).

Employees are also entitled to a statutory notice period, or a longer notice period under their employment contract, and may also have a holiday pay entitlement.

Can an employee ever lose the right to statutory redundancy pay?

Potentially yes. If an employer makes an employee’s position redundant but offers them another job role with the same employer that’s very similar to the job they’re currently doing (referred to as “suitable alternative employment”) and they reject that role without a good enough reason, they will lose their right to redundancy pay.

Are there any special rules for large-scale redundancies?

Yes. If an employer is making 20 or more redundancies in a 90-day period, special rules apply (referred to as “collective consultation”). A collective redundancy process involves:

• Telling the Government about the planned redundancies;
• Consulting with the employees and their trade union representatives (or where there’s no recognised trade union in place, getting the employees to elect employee representatives among themselves and consulting with those employee representatives about the restructuring process and selection criteria).

What if an employer fails to consult with employee representatives?

Unless there was a very good reason why the employer couldn’t follow these rules on collective consultation, its employees could be entitled to be awarded compensation (called a “protective award”) by the Employment Tribunal. Compensation in collective redundancy cases can be up to 90 days’ full pay per employee.

If you need any advice on discrimination, please contact a member of our employment law team in confidence here or on 02920 829 100 for a free initial call to see how they can help.