What Does an Employer Need to Know About Redundancy in England?

Unfortunately, as a business owner, you may need to take steps to protect your business at the expense of your employees. This may include evaluating the merits of undertaking a redundancy process, which will enable you to lawfully terminate certain employee positions. You should only consider redundancy as a last resort and must carry out the process properly, otherwise, you may be liable for an employment tribunal claim. Where possible, you should strive to take cost-cutting action elsewhere. But if you determine it is necessary, this article will explain what you need to know about redundancy in England. 

What is Redundancy?

Redundancy is where you end your employee’s employment contract and dismiss them from their role on the basis that your business no longer has any use for the position. The law recognises three legitimate reasons for redundancy: 

Types of Redundancy

The law recognises redundancies in two forms: 

Selection Criteria

The law requires you to ensure the selection criteria you use to determine the affected employees is fair. In particular, you must be sure not to unlawfully discriminate, such as by only selecting older employees. 

Fair selection criteria include evaluating employees based on their:

• skills and ability;
• qualifications;
• performance and standard of work;
• attendance records; and
• disciplinary history.

You can also include the length of service as long as doing so does not cause direct or indirect discrimination. 

Redundancy Action Plan

If you find yourself in a position where you may need to make your staff redundant, you should take specific actions. The law obligates you to carry out certain steps below. Therefore, you may wish to consult with a solicitor before you start the process. 

Avoiding Redundancies

Compulsory redundancies should be a last resort. The law expects you to take reasonable measures to avoid the outcome. In practice, this might mean:

• voluntarily renegotiating employment contracts with relevant employees, for instance, flexible work in exchange for lower pay; 
• terminating service contracts and reducing the number of self-employed people your business uses; 
• limiting overtime; 
• ceasing any ongoing recruitment processes; and
• offering a voluntary redundancy programme or early retirement scheme.

What is reasonable and practical depends on the nature of your business and the difficulties it faces. 

In some cases, you may require certain employees to adopt short-time working schedules. This reduces your employee’s in exchange for paying them less. Alternatively, you may implement targeted layoffs, which is where employees are not obligated to work in exchange for not being paid. These measures require the consent of the employees unless the practice is common in your line of business (e.g. agricultural work). 

Redundancy Consultations

Where you determine you may have to implement a redundancy programme, you may wish to undertake a consultation period with affected employees. The law encourages consultation periods because it opens up communication between employees and employers to try and work towards a voluntary solution. It also gives employees notice that their position is at risk. 

Consultations are not a legal requirement if you intend to make 20 or more employees redundant. That said, having a redundancy consultation for any proposed redundancy will limit the ability of an employee to make an unfair redundancy claim at an employment tribunal. 

Where you propose to make 20 or more employees redundant, you must follow the Collective Consultations rules, which set out the process for the consultation period. 

You should note where your consultation does not result in an agreement towards redundancies, provided you intended it to and made efforts to avoid or reduce redundancy from occurring, you can still go ahead and make redundancies.

Notice Period and Pay

If after the consultation period you determine you will undertake the redundancy, the law requires you to notify your staff. You must provide them with their notice period under the redundancy. The length of each affected employee’s notice period depends on their length of service. You must give them the minimum notice period the law requires, or else offer some form of compensation to leave earlier. 

Your staff are also entitled to notice pay or payment in lieu of notice. You do not have to give them notice where their employment contracts state that you can provide them with payment in lieu of notice. Notice pay rate is based on your employee’s average weekly earnings for the 12 weeks before the beginning of the notice period. 

Redundancy Pay

When you make employees redundant, they may be eligible for statutory redundancy pay. If they are and you fail to pay it, you could face an employment tribunal. Your employees may be entitled to redundancy pay where they:

• are an employee with an employment contract;
• have worked for you continuously for at least two years; and 
• did not choose early retirement as an alternative.

Further Considerations

Below are some additional points you may find helpful to know about redundancy:

1. Once you have selected a staff member for redundancy, you can still offer them alternative work that starts at least four weeks from their current job ending, although this must meet specific criteria.
2. If you have financial difficulties paying your staff their statutory redundancy pay, meaning your business will become insolvent, you may be able to get help from the Insolvency Services’ Redundancy Payments Service (RPS).
3. Tax and National Insurance can be due on some forms of ‘termination payment’ given when your staff are made redundant, but where the payment is statutory redundancy pay, the first £30,000 is tax-free.

Key Takeaways

If you are in a position where you need to make staff redundant, you must ensure you follow a fair process, regardless of if you undertake a compulsory or non-compulsory process. Where you do proceed with the redundancy, you should consult your staff. Where you intend to make 20 or more employees redundant, you have additional obligations you must follow. You must also give the correct notice and notice pay when carrying out redundancies.

If you need help understanding redundancy in England, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.