What is redundancy?

The law relating to redundancy is generally found in the Employment Rights Act 1996 (ERA) as amended and the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).

Redundancy (as defined in section 139 of the ERA) occurs when an employee is dismissed because of:

• the actual or intended closure of the whole business
• the actual or intended closure of the workplace
• a reduction in the workforce.

The definition of business is very broad.  It includes any trade or profession, or any activity carried on by a body of persons.  The activity may or may not be a commercial activity (eg charities, schools and colleges).

The most common redundancy situation arises where an employer reduces the workforce due to a downturn in business or rationalisation (eg technological advancement).

The test is not whether an employer needs fewer employees but whether an employer needs fewer employees to do work of a particular kind and that this is attributable to the state of affairs of the business.

Difficulties arise when the employer reorganises the way work is done (eg the introduction of a new shift pattern).  Although the work remains the same, if an employee is dismissed because of a reorganisation this may not necessarily be due to redundancy and the employer will have to justify the dismissal as being for some other substantial reason.

When is a redundancy an unfair dismissal?

Redundancy is a potentially fair reason for dismissal. However, the dismissal itself (and the procedure leading up to it) must still be fair and reasonable in all the circumstances. This means an employer must show that:

• the employee has been given as much warning as is practicable about redundancy
• the employee has been consulted with about redundancy
• the selection for redundancy has been made against a set of fair and (wherever possible) objective criteria
• alternative employment has been offered as an alternative to redundancy where possible
• volunteers for redundancy have been released where possible.

A dismissal for redundancy may be unfair because:

• there was no genuine redundancy situation
• the employer failed to consult (ie meaningfully, properly and genuinely)
• the employee was unfairly selected
• the employer failed to consider and/or offer alternative employment.

A dismissal for redundancy will be automatically unfair if an employee is selected because:

• of pregnancy or childbirth
• of raising health and safety issues
• you are a shop worker or betting worker who refuse Sunday work
• you are a trustee of an occupational pension scheme
• of your union membership or activities
• of asserting a statutory right
• you act or have acted as an employee representative under TUPE or collective redundancy legislation
• you took time off to care for dependants
• you asserted flexible working rights
• you asserted working time rights
• you act or have acted as a companion in a disciplinary/grievance hearing
• you made a public interest disclosure (whistleblowing)
• you asserted national minimum wage rights.

If an employer cannot show that the reason or principal reason for dismissal was wholly, or mainly, attributable to a redundancy situation it will be unfair.

When is consultation required?

Statutory consultation is required:

• if between 20 and 99 redundancies take place within a 90-day period at least 30 days before the first dismissal (section 188(1) of the TULRA)
• if 100 or more redundancies take place within a 90-day period at least 45 days before the first dismissal (section 188(1A) of the TULRA)

When calculating the number of employees at the time of compulsory redundancies this will include those employees that have been offered and accepted voluntary redundancy (Optare Group Ltd v TGWU).

There is no minimum statutory consultation period when making less than 20 employees redundant. However, employees have a right to be genuinely consulted about redundancy proposals.

When should consultation take place?

Consultation should begin as soon as reasonably practicable and before the final decision to dismiss those identified for redundancy.  At all stages of the consultation process, it should be fair and genuine, and employees should have the opportunity to express their views and put forward proposals for avoiding redundancies and/or dismissal.

What should consultation be about?

Once it becomes clear that redundancies may be necessary, the consultation process begins and requires an employer to consider ways of avoiding dismissals, to identify the number of employees to be dismissed and to reduce the consequences of dismissals, including:

• reducing overtime
• altering shift patterns
• lay-off and short time working
• alternative employment
• volunteers.

What is the selection process?

When facing the possibility of redundancies, your employer should analyse which employees are performing work of a particular kind that has either ceased or diminished. This is known as the selection pool.

Your employer needs to be able to show that the system for choosing the pool is fair. If it cannot, then any redundancy could lead to an employment tribunal claim for unfair dismissal.

If there is a customary arrangement or procedure for choosing a selection pool, then this should be used unless your employer can show objective grounds for not using it.

If there is no customary arrangement or procedure, then your employer simply needs to show that they have considered the pool carefully and acted with genuine motives.

Who should be in the selection pool?

The pool should contain all employees who perform the same or similar type of work in a particular department or at a relevant location.

Certain groups of employees can be included in the pool even though the redundancy exercise does not on the face of it affect them as the targeted roles occur elsewhere within the company (eg if the roles in the pool are interchangeable).

If only 1 employee is identified within the pool, performing a particular role, they will be in a unique position and there is no requirement to go through a selection procedure. However, if the selection pool is flawed and the employee is dismissed by reason of redundancy, they may have a claim for unfair dismissal.

How should an employer select employees for redundancy?

The selection criteria, which will normally form part of a selection matrix, must be systematic, consistent, justifiable and objective (as possible), and applied fairly. A points-scoring method is commonly used. The selection matrix will normally include such factors as:

• length of service
• attendance
• timekeeping
• absence
• disciplinary record
• adaptability
• an employer’s future needs.

The lengths to which an employment tribunal expects an employer to go in drawing up and applying criteria will depend on the employer’s size and administrative resources. Therefore, less is expected of a smaller employer. However, even small employers must show that they used a fair selection method.

What redundancy payments are employees entitled to receive?

An employee will be entitled to a statutory redundancy payment if they have been working for an employer continuously for 2 years.

A statutory redundancy payment is calculated with reference to age, length of service and statutory weekly maximum.

The maximum number of years to be taken into account for length of service is 20 years and based on a sliding scale dependent on each completed year of continuous service and age:

• below the age of 22, an employee will receive half a week’s pay
• below the age of 41 but not below 22, an employee will receive one week’s pay
• not below the age of 41, an employee will receive one and a half weeks’ pay.

The statutory limit for weekly pay is currently £700*, which increases annually from 6 April. The maximum statutory redundancy payment is currently £21,000* and increases annually. *figures for 2024-2025

Some employers pay enhanced redundancy payment (eg 1 week’s full pay for each year of service). Such payments may be inclusive or exclusive of an employee’s entitlement to a statutory redundancy payment. 

Enhanced redundancy payments are normally discretionary. However, if an employer has always made an enhanced redundancy payment this may be an implied term of an employee’s contract of employment. If the employer decides to stop making enhanced redundancy payments, the employee may be able to bring a claim for breach of contract.

The material contained in this web page is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.