All about Redundancy

The Office for National Statistics (ONS) figures show that following a spike in the UK redundancy numbers in the last quarter of 2020 of 14.5 redundancies per 1,000 employees, that is 402,000 people, there has been a significant drop in those numbers in the latest figures. The latest published figures for the first quarter of 2022 show a drop in redundancy numbers to 2 per 1,000 employees, that is 56,000 people.

Although the 2020 spike in redundancy numbers can be attributed to the COVID-19 pandemic, it should be noted that the latest figures are almost 50% lower than the quarters prior to the COVID-19 pandemic; nevertheless, it is still an unsettling experience for those losing their jobs.

Information gathered by the ONS shows that the age ranges of those being made redundant are predominately in the 35 years plus age groups; in the latest quarter reported, 24,000 people were in the age group 35–49 and 23,000 in the age group 50+.

The gender split figures show that of the 56,000 people made redundant in the first quarter of 2022, 31,000 were men and 25,000 were women.

The Charted Institute for Personnel Development (CIPD) carries out a quarterly Labour Market Outlook survey, one of the most authoritative employment indicators in the UK that provides forward-looking labour market data and analysis on employers’ recruitment, redundancy and pay intentions. Their Labour Market Outlook for Spring 2022 states that “Redundancy intentions have been low for five consecutive quarters now after peaking during the pandemic.

Only 13% of employers are planning to make redundancies in the three months to June 2022. This is further evidence that in a tight labour market, employers are focusing on keeping their existing staff as much as on recruiting new staff”.

The number of UK job vacancies from March to May 2022 rose to a new record of 1,300,000.

What is redundancy?

Redundancy is when an employer reduces their workforce because a job or jobs are no longer needed. Redundancy is a form of dismissal under the Employment Rights Act 1996.

In the UK an employee is dismissed for redundancy if:

• The employer has ceased, or intends to cease, continuing the business; or
• The requirements for employees to perform work of a specific type, or to conduct it at the location in which they are employed, have ceased or diminished, or are expected to do so.

Redundancy, however, is not the same as being dismissed for any capability or disciplinary reasons; redundancy refers to the process when employers have to let go of one or more employees due to circumstances unrelated to job performance or behaviour. When redundancies happen, it is the role that is made redundant. It is, however, the people who have been performing those roles that are most affected.

When does redundancy happen?

When an organisation needs to reduce its workforce, it terminates jobs, and the people doing those jobs are made redundant. A key consideration is that for redundancy to be genuine and legal, it must be demonstrated that the employee’s job will no longer exist after being removed. Generally, an organisation should not recruit into a role that they have made redundant for a minimum of six months after the termination date of the employee.

Redundancy can happen for a number of different reasons; the most commonplace of these are:

• The need for the role has diminished or ceased.
• A redundancy situation may arise where a business continues to operate, but there is no longer a need for the skills for which the employee was taken on.
• New systems or technology in the workplace. If a new process or system is introduced which has caused a role to be unnecessary, this can result in redundancy. However, it will not automatically mean that the role is redundant if a new technology is introduced; that will depend upon whether a significant part of the role has diminished as a consequence of the new technology.
• The role no longer exists because other workers are doing the work such as in a restructuring situation.
• The workplace has closed or is closing down.
• The organisation relocates. If the whole organisation is relocating, redundancy will arise if the employer has ceased or intends to cease to carry on the business in the specific area where the employee(s) was employed.
• The business is transferred to another employer. When a business is transferred from one employer to another, the transfer does not end the employment relationship. Usually, the contract(s) of employment is carried over into the new business. This is known as a Transfer of Undertakings Protection of Employment (TUPE). However, there may be circumstances, such as when there is role duplication with the new employer, that redundancy will occur for one of the duplicate roles.

Before considering making redundancies, employers should:

• Take all reasonable steps to avoid redundancies.
• Develop planning and employment strategies to deal with the requirements of short-term labour fluctuations, minimise the risk of enforced redundancies and maximise alternative resourcing opportunities.
• Ensure that they are managing the redundancy process legally.
• Manage redundancies in a way that minimises the potential adverse impact on both those who lose their jobs and the “survivors” left behind after redundancies.
• Implement a communication strategy to ensure that everyone in the organisation has the correct information about any redundancies and is not receiving misinformation and rumour.

What are the stages of redundancy?

Every employer should consider having a formal redundancy policy and procedure. In many organisations a formal agreement may exist between management and trade union or employee representatives.

Exact procedures will vary according to the timescale and size of the redundancy programme, but organisations should follow these stages as a minimum:

• Planning.
• Identifying the pool for selection.
• Seeking volunteers.
• Consulting employees.
• Selection for redundancy.
• Suitable alternative employment.
• Appeals and dismissals.
• Redundancy payment.
• Counselling and support.

Employers who misinterpret the law or who don’t follow the correct procedures may be liable for unfair dismissal claims or protective awards. Let’s look at these stages in the redundancy process in more detail.

How does redundancy work?

Planning

When considering making redundancies, the first stage should be to check:

• Why do you think redundancies are necessary? It is essential to have a solid business reason for making anyone redundant. It is also important to know that an employee who has worked for you for more than two years has the right to make a claim for unfair dismissal if a fair redundancy process is not followed.
• What are the issues that you are trying to solve with redundancy? The key is to focus on the role, rather than the individual employee. Valid reasons for making a position redundant could be that the business needs to cut costs or that the role is no longer required as a result of changing processes or new technology.
• What other options might be available rather than redundancy? Before starting a redundancy process, consider all options to reduce or even avoid redundancies, for example:
  – Offering voluntary redundancy.
  – Offering voluntary early retirement.
  – Changing working hours.
  – Moving employees into other roles.
  – Removing temporary and/or contract workers.
  – Limiting or stopping overtime.
  – Freezing all new recruitment.

Employers need to take into consideration whether selecting any of the above options to avoid redundancies might entail breaking their employees’ contracts, so care needs to be taken when considering alternative options.

During this first planning stage, employers also need to consider the number of people whose roles they are needing to make redundant, as the process and timescales differ depending upon the number of redundancies being made.

Stage 2 involves creating a redundancy plan. Employers should be referring to and following their redundancy policy, and, if they have a collective agreement with a trade union, refer to and follow the details contained in this. Employers should create a redundancy plan irrespective of the number of redundancies they are planning as it can help to ensure that a fair process is followed and avoid the risk of any legal claims.

A redundancy plan should include details of:

• Any options considered to avoid redundancies.
• The number of redundancies that are being considered.
• How employees will be kept informed and supported throughout the redundancy process, including any redundancy training for line management.
• How employees will be consulted.
• The timeframes required to carry out the process fairly and legally.
• Details of a fair selection criteria.
• Details of redundancy pay and notice periods and whether these are statutory or contractual.
• The appeals process to be used should an employee(s) consider the redundancy process or their selection was unfair.

Selection

The next stage is identifying the pool for selection for redundancy. Before applying any selection criteria, it is important to identify the correct pool of employees to whom the criteria are to be applied. Employers should consider whether there is a procedure for identifying the pool which has been agreed by the trade union or employee representatives and if so, this should normally be followed.

If there is no agreement in place then employers should carefully identify the pool using at least one of the following:

• Those who undertake a similar type of work.
• Those who work in a particular department.
• Those who work at a relevant location.
• Those whose work has ceased or been reduced or is expected to be.

If an employer fails to consider a selection pool correctly, the dismissals will be legally unfair.

Once the pool is identified, employers can now define the selection criteria for redundancies. If an employer is proposing that all employees within a selection pool will be redundant, for example everyone in a particular role or at a particular location, then detailed selection criteria are not needed. Fair selection will simply be a question of whether they are performing that role or working at that location.

However, if an employer is proposing to reduce numbers by keeping some people within a pool whilst making others redundant, then it will need a mechanism for choosing who out of the selection pool will be provisionally selected for redundancy. The selection criteria should, as far as possible, be objective.

Many employers use a matrix of criteria which takes account of a range of issues such as:

• Relevant skills and knowledge.
• Relevant experience.
• Relevant qualifications or training.
• Disciplinary record.
• Attendance record.
• Timekeeping record.
• Communication skills (verbal/written).
• Productivity/efficiency.

Care needs to be taken so as not to fall foul of discrimination legislation such as the Equality Act 2010 when applying the criteria. For example, using attendance as a criterion on the face of it is fair; however, employers should check the reasons for absence to ensure that this does not put women or disabled employees at a particular disadvantage.

Last in, first out is also a risky selection criterion to use, as those with less service are more likely to be younger employees which could result in potential age discrimination claims. Criteria should always be appropriate in the circumstances and must be applied in a reasonable manner; there should be a business justification for the use of each.

Notification

The next stage is for the employer to inform employees that redundancies are being considered.

The employer should hold meetings with all employees to explain:

• The reason(s) why it may be necessary to make redundancies and the risk of redundancy.
• How many redundancies are being considered.
• How everyone at risk of redundancy will be notified, consulted and what the next stages will be.

This meeting(s) should enable employers to answer any questions that employees may have and help to prevent the rumour mill from starting. Employees should also be given a point of contact should they have any further queries on the matter.

Employees who are at risk of redundancy should then be written to, to confirm that they are at risk of redundancy, outlining the options and detailing the consultation process and timetable.

At this stage, offering a voluntary redundancy or an early retirement package and seeking volunteers may help to avoid compulsory redundancies.

Consultation

Consultation is the next stage in the redundancy process. Consultation involves a two-way discussion between the employer and the employee(s), potentially over a number of weeks.

All employees who are at risk of being made redundant must be consulted and that includes any employees who might be, for example, on maternity/paternity leave, on long-term sick leave or on secondment. When arranging a consultation meeting, an employer should give the employee(s) adequate time and information to prepare properly for it.

There’s no minimum statutory timescale when fewer than 20 employees are being made redundant; however, the consultation must be meaningful. For example, employees are entitled to be consulted on the proposed selection process and scoring system, and may also be covered by contractual terms or policies.

An employee is entitled to be accompanied at all individual consultation meetings by a trade union representative or colleague.

Collective consultations must be held by law, where all of the following apply:

• 20 or more redundancy dismissals are planned.
• The redundancies are at one location, not necessarily across the organisation as a whole, which may be much larger.
• The redundancies are panned to occur within 90 days.

These collective consultations must be held with recognised trade unions or elected employee representatives and start within minimum timescales:

• At least 30 days before the notification of redundancies for dismissals of 20–99 employees.
• At least 45 days before the notification of redundancies for dismissals of 100 or more.

If an organisation has to make more than 20 people redundant, the Secretary of State must be notified of this intention. Failure to do so without justification may result in prosecution and/or a fine for the organisation or any of its officers. Advance notification of the redundancies is made using the HR1 Form.

An organisation is required by law to notify the Insolvency Service’s Redundancy Payments Service of potential redundancies in any 90-day period. If an organisation has more than one site, then each site is treated separately for notification and consultation purposes. In the event of more than one round of redundancies, then each round should be treated as a separate redundancy event; an organisation cannot merge or conflate them into one event.

At the start of the consultation process the employer is legally obliged to give the following information to the employee representatives:

• The reason for the redundancy dismissals.
• The number of proposed redundancies and their job types.
• The total number of employees affected.
• The proposed methods of selection.
• The procedure to be followed in dealing with the redundancies.
• The method of calculating redundancy payment.

Employers should be able to show that they have genuinely consulted with and considered any suggestions or points made by employees, even if they do not accept them. A consultation can end even if an agreement has not been reached.

However, if employers fail to collectively consult, the maximum extra compensation payable, known as a protective award, is 90 days’ pay per employee. Collective consultation must be completed before notices of dismissal are issued.

Compensation

Next, an employer needs to calculate redundancy pay for those whose roles are being made redundant. Employees who have been employed for at least two full years are entitled to, at a legal minimum, statutory redundancy pay.

Redundancy payment calculations are limited to a maximum of 20 years’ service. However, many organisations may have an enhanced contractual redundancy payment scheme, usually detailed in their redundancy policy and employee contracts, which may be at a higher rate than the statutory redundancy payment and may even extend the length of service cap.

Employers cannot, by law, pay less than the statutory redundancy pay amount but can pay above it. The UK Government redundancy pay calculator can help to calculate statutory payments.

If an employer is considering offering the option of voluntary redundancies to help prevent the need for compulsory redundancies, they may want to consider enhancing the statutory payment amount to encourage volunteers.

Prior to redundancy dismissal, an employee(s) who is selected for redundancy should be offered any available vacancy that they could fill, even if it is at a lower salary or at a lower status than the post from which the employee is being made redundant.

An employer has a duty to search for suitable alternative employment within the organisation until the end of the affected employee’s notice period.

Any offer of alternative employment must be made before the end of the employment under the previous contract; it must also take effect either immediately on the ending of the employment under the previous contract or after an interval of not more than four weeks.

If the terms and conditions of the new or renewed contract of employment differ in any way from the corresponding provisions of the previous contract, there is a statutory four-week trial period for the employee to decide whether the alternative employment is suitable.

If the employee terminates the contract during the statutory trial period, they are treated as having been dismissed on the date at which the original contract ended. If the termination is unreasonable, the employee will not be entitled to any redundancy payment.

Dismissal

The next stage is dismissal. In cases of disciplinary and performance dismissals there is a legal requirement to have an appeals procedure; however, there is no legal obligation to offer an appeal against dismissal in a redundancy situation, although it is good practice for an employer to do so, in order to demonstrate that they have followed a fair and thorough procedure.

Appropriate reasons that an employee might appeal against being made redundant are if they believe their selection was unfair or that the employer did not follow a fair redundancy process.

By not offering those made redundant the right to appeal, an employer can open their process up to scrutiny as there is a precedent set for unfair dismissal because of a lack of appeals process. An appeals process gives the employee a fair chance to raise any issues and allows the employer to amend any procedural flaws that happened before the dismissal decision.

When an employer reaches the redundancy dismissal stage, they should ensure that they are giving the affected employees enough notice that their contracts are ending.

The statutory notice period depends on their length of service:

• One week’s notice if they have been employed between one month and two years.
• One week’s notice for each year of service if employed between two and twelve years.
• 12 weeks’ notice if employed for 12 years or more.

Some employers may have longer redundancy notice periods set out in their contracts of employment. Affected employees need to be given their contractual notice period if this is longer than the statutory notice period or the employee could bring a claim for wrongful dismissal.

In some cases, employers may offer “garden leave” to employees whose roles are redundant. This often happens when the role ceases immediately and an organisation is keen to move forward with any organisational changes.

Employers need to provide each employee whose role is being made redundant with a letter informing the individual that they have been selected for redundancy and giving them notice of their dismissal.

The letter should be clear from the outset as to its purpose and the following should be included as a minimum:

• Reasons for redundancy – State why the employee’s role has become redundant and why they are being dismissed, and provide the reason as to why the individual has been selected for dismissal.
• Redundancy notice – The letter should then deal with the practicalities of the dismissal, including timescales for next steps, the final date of employment and details of any entitlements.
• Payment in lieu of notice (PILON) if applicable – If the employee’s contract allows, an employer may be able to make a payment to them in lieu of them working their notice. This means the employee would stop working for the organisation as soon as they agree to the payment. If the employee’s contract does not allow for payment in lieu of notice, then an employer can ask them if they would agree to it. An employer cannot force the employee to agree and if they do not want to do so, then they would be subject to statutory notice periods as stipulated above.
• Any other details – Details of any alternative roles or if none are available, should be stated as evidence that the employer has given consideration to suitable alternative employment.
• Finally – End the letter with a personal touch, thanking them for their service, for example, and/or telling them where to access support if they need it.

Employees’ rights during redundancy

Under the Employment Rights Act 1996 and the Equality Act 2010, employees whose roles are being made redundant have certain legal rights, some of which are described above, and include:

• To be selected for redundancy in a fair, non-discriminatory way. If an employee is selected specifically for any of these reasons below, it could be classed as unfair dismissal:
  – Because of their age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation.
  – They have been a whistle-blower.
  – They are a member of a trade union.
  – They have asked for holiday or maternity leave.
• A consultation with the employer and to be accompanied by a union representative or colleague.
• The option to move into a different job, if available.
• A statutory notice period (detailed above).
• Redundancy pay, subject to the qualifying employment service of two years, tax free if it is below the threshold of £30,000, a written statement showing how their redundancy pay has been calculated, any outstanding wages, holiday pay and any other money due.
• Reasonable time off to find a new job.
• Job references.
• Pension details.

Anyone who feels that the employer did not hold genuine and meaningful consultation before making redundancies, has the right to apply to make a claim to an employment tribunal for unfair dismissal.

Although not a legal right, many organisations may offer employees who are going to be made redundant, career counselling and outplacement services which includes CV writing and interview skills training. Some organisations also provide access to mental health support and/or occupational health (OH) or employee assistance (EAP) services.

Managing staff redundancies

Managing redundancy sensitively can make a significant difference to how the people affected cope. Any redundancy, whether individual or for a number of roles, impacts throughout the organisation and can damage employer/employee relationships.

Being made redundant can be one of the most stressful life experiences. The people affected are often not equipped for the job market and can feel stressed, confused, isolated, angry and afraid.

Employers should take time to explain to all employees the reasons for the redundancy and why it is a hard business decision, as well as the actions that were taken to avoid redundancy and to facilitate any possible redeployment.

Giving dismissal notices to employees is a difficult task, and managers should be trained to handle redundancies with understanding, consideration and clarity, and to develop the necessary personal skills and attitude to operate effectively during periods of traumatic change.

Immediate and ongoing support should be available to employees to safeguard their health and wellbeing. Often the impact on the “survivors” of redundancies and reorganisation is something that is not recognised by employers.

Employees remaining with the organisation, irrespective of their level in the organisation, may need support and training too at this time of change, in order to strengthen their resilience to deal positively with change and to maintain motivation and productivity through change.

Where possible, outplacement advice and training should be offered to departing employees to help them to refresh their interview skills, redraft CVs, and reply effectively to job advertisements to help them to find alternative employment and to maintain their morale.

The types of redundancy pay

As mentioned above, there are two types of redundancy pay: statutory redundancy pay and contractual redundancy pay.

Statutory redundancy pay is the payment that someone is entitled to according to the law. If someone has been employed by the employer continuously for two years or more and there is a genuine need to make the role redundant, then the employer must pay this.

The statutory redundancy payment will be based on the individual’s gross pay, that is their earnings before tax. There is a maximum limit to the weekly payment calculation, which currently (2022/2023) stands at £571 per week, and there is also a limit to the number of years’ service that will be taken into consideration for redundancy payments; currently, this stands at 20 years’ service maximum. The payments calculations are also affected by the individual’s age.

These are:

• Up to the age of 22, a half week’s pay for each full year employed by the employer.
• Between ages 22 and 40, one week’s pay for each full year employed by the employer.
• Above age 41, one and a half week’s pay for each full year employed by the employer.

For example, if an employee aged 35 has worked for their employer for 12 years at a weekly wage of £475 at the time of redundancy, they would be entitled to a statutory redundancy payment of 1 x 12 x £475 which amounts to a total of £5,700.

However, if the employee was 45 years old with 12 years’ service, being paid £475 per week at the time of redundancy, then the calculation would be 1½ x 12 x £475 which amounts to a total of £8,550. The maximum amount of statutory redundancy pay is £17,130.

Employers making redundancies cannot by law pay less than the statutory amounts detailed above; however, they can make enhanced payments. Many employers include an enhanced redundancy package in their employees’ contracts of employment. This is known as a contractual redundancy payment.

Depending upon the individual’s contract, their contractual redundancy payment may be substantially more than the statutory amount and may also be paid to employees with less than two years’ service. Employees should check their individual contracts of employment and their organisation’s redundancy policy to establish which redundancy payment they are entitled to. Currently, the first £30,000 of redundancy payments is free from income tax.

If an employer fails to pay redundancy pay or if an employee disagrees with the amount, they have three months from the date their employment ended to make a claim for payment to an employment tribunal. If an employee does not claim in time, a tribunal still has six months to decide whether or not they should get a payment.

There are some circumstances when there is no entitlement to statutory redundancy pay. As previously stated, anyone who has less than two years’ service with an employer has no entitlement to statutory redundancy pay, although individual employers may have contractual schemes where such employees may receive a payment on redundancy.

Other circumstances include:

• The self-employed.
• Police officers.
• The armed forces.
• Crown servants, parliamentary staff or holders of public office, for example a Justice of the Peace.
• Employees of a foreign government.
• Domestic staff working for their immediate family.
• Share fishers not employed under a contract of service.

There are redundancy payment helplines available for help and advice on dealing with redundancy payments:

ACAS – available Monday to Friday, 8am to 6pm. Telephone: 0300 123 1100. Textphone: 18001 0300 123 1100

If the employer is insolvent, that is, it has gone out of business and cannot pay its debts, then depending on their situation, the employee can apply to the government for:

• A redundancy payment.
• Holiday pay.
• Outstanding payments such as unpaid wages, overtime and commission.
• Money the employee would have earned working their notice period (statutory notice pay).

Contact the Insolvency Service redundancy payments helpline, available Monday to Thursday, 9am to 5pm, and Friday, 9am to 3pm. Telephone: 0330 331 0020 Email: redundancypaymentsonline@insolvency.gov.uk.

How could you lose your right to redundancy pay?

Employees entitled to statutory redundancy pay are also entitled to be offered any suitable alternative employment. An employer undergoing a redundancy exercise must offer suitable alternative employment to any employees who are at risk of redundancy if such a position is available or becomes available during the redundancy process. Suitable alternative employment is another role within the organisation where the employee already works, or an associated organisation. Such a role must be suitable for the employee in question and various factors will be taken into account in determining its suitability.

An employee who is offered suitable alternative employment is entitled to a four-week trial period in the new role if there is any difference between their current job and the new job. If an employee accepts the suitable alternative employment, they are deemed as not having been dismissed at the end of their old job and, consequently, will not be entitled to any statutory redundancy pay. Instead, they will begin their new role under the terms of their new contract of employment.

If an employee reasonably refuses an offer of suitable alternative employment, they are considered as having been dismissed on grounds of redundancy and entitled to any statutory redundancy pay. However, if an employee unreasonably refuses an offer of suitable alternative employment, they are considered as having been dismissed on grounds of redundancy but lose their entitlement to statutory redundancy pay.

Any employee who does not receive any redundancy pay because their employer believes their refusal of suitable alternative employment to be unreasonable is highly likely to bring a grievance against their employer and possibly seek early conciliation through ACAS in an attempt to resolve the dispute. They could then bring a claim in the employment tribunal against the employer for redundancy pay and, possibly, unfair dismissal.

An employee may also risk losing their entitlement to redundancy pay if they leave the organisation before the end of their notice period, for example to take up a new job. As mentioned above, some organisations may be prepared to negotiate an earlier end of contract date and arrange a payment in lieu of notice; however, the decision to agree to this rests with the employer unless they have made the offer.

Any employee who is dismissed for misconduct during their statutory redundancy notice period also risks losing their entitlement to any redundancy pay.

Final thoughts

Redundancy can be a very stressful experience for anyone.

If you need support to cope with redundancy, you can get in touch with:

• Mind.
• Mental Health and Money Advice from Mental Health UK.
• Relate for support with relationships.
• Samaritans.