Cookies on Pinsent Masons website

This website uses cookies to allow us to see how the site is used. The cookies cannot identify you. If you continue to use this site we will assume that you are happy with this

If you want to use the sites without cookies or would like to know more, you can do that here.

Making redundancies

This guide was last updated in August 2011.

Employees who are dismissed and have 12 months' service or more can claim unfair dismissal. To avoid a successful claim for unfair dismissal, an employer must have a fair reason for that dismissal and follow a fair procedure.

Redundancy is one of a limited number of 'fair' reasons for dismissal laid down by statute. A fair redundancy procedure involves advance warning of the redundancies, a fair selection process, consultation with employees and consideration of suitable alternative employment. When making large scale redundancies, an employer has additional obligations to consult collectively with representatives of the employees.

Any employee dismissed by reason of redundancy who has worked for the employer for more than two years is entitled to receive a statutory redundancy payment. In addition, some employees may benefit from a contractual entitlement to enhanced redundancy payments.

Unfairly dismissed employees will receive a compensatory award.

Is there a redundancy?

A statutory redundancy situation arises where either:

  • an employer's need for an employee to do work of a particular kind ceases or reduces; or
  • the business in which an employee is employed is shut down, either entirely or at a particular location.

FAIR REDUNDANCY PROCEDURE

Warning

Usually the first step in a redundancy exercise is to warn potentially affected employees and, in the case of collective redundancies, their representatives that there may be a need to make redundancies.

Voluntary redundancy

Seeking volunteers for redundancy may avoid or reduce the need for compulsory redundancies, and may avoid selection issues.

Selection for redundancy

Where a whole workplace is being shut down, selection for redundancy is unlikely to be an issue. Selection becomes important where there is a reduced requirement for employees to do particular work but some employees are still needed. To avoid a claim for unfair dismissal, it is important to make sure that the correct people are made redundant on objective and sustainable grounds.

The selection process has three stages: selecting the pool and choosing and applying the selection criteria.

The pool: this is the group of employees from which those who are to be made redundant will be chosen. Employers have a lot of flexibility in deciding on the pool but will usually include all those doing similar work.

The selection criteria: this should be as objective as possible and should be applied fairly. Examples of criteria which are capable of being objective include:

  • qualifications;
  • experience;
  • performance;
  • timekeeping and attendance;
  • disciplinary record.

The use of 'last in, first out' (LIFO) as a selection criterion has become less popular due to the risk that it indirectly discriminates on grounds of age against younger employees.

It is common for employers to develop a selection 'matrix' under which employees will receive scores against a range of criteria. Different weight may be given in the scoring process to the various criteria. Any information used in scoring should be as objective as possible - for example, if 'performance' is used as a criterion there should be a history of appraisals or equivalent documents to support the score given. The scoring should not be just subjective opinion - for example, the person scoring an employee thinks 'he does not fit in' or 'other people are better' - without some documentary evidence backing up these views.

It may assist if the selection criteria have been discussed and agreed with a union or employee representative. Such discussion and agreement is mandatory in the case of collective redundancies.

Applying the criteria: this will usually be a process of scoring each employee against the criteria.

Individual consultation

Individual consultation with employees is an important element of a fair redundancy dismissal. The purpose of individual consultation is to:

  • inform the employee that a redundancy exercise is being undertaken and the reasons for it;
  • explain the composition of the redundancy pool, the selection criteria used and why the employee has been provisionally selected;
  • give the employee the opportunity to question his selection;
  • explain the redundancy terms on offer;
  • examine alternatives to dismissal, including alternative employment.

The employer should provide the employee with details of his scores so that the employee has a proper opportunity to comment on his selection during the consultation process. It is not necessary, however, to provide the assessments of other employees or the 'break' point or mark which the employee would have to attain to avoid being selected for redundancy. In practice, however, if this is at issue employers will often provide this information on an anonymised basis to avoid a finding of unfair dismissal.

Alternative employment

Looking for alternative employment for an 'at risk' employee is an important element of fairness. Employers with more than one site should consider the availability of alternative employment at all of their sites. Employers should not assume that an employee will not be interested because the work is at a different location. The employer should also consider whether alternative employment is available with an associated employer.

Looking for alternative employment is also important for another reason: if an employer is able to offer 'suitable alternative employment', and an employee unreasonably refuses the offer, then he will lose his entitlement to a statutory redundancy payment.

Dismissal

If there are no alternatives to redundancy following the consultation process then the selection for redundancy will be confirmed and the employee may be given notice of termination. The employee should also be informed of any right of appeal. During the notice period, alternative employment should continue to be sought.

Expertise in Employment

We are independently recognised as one of the best and most experienced teams of employment lawyers in the country. With over 100 employment lawyers (including 20 partners) it is also one of the largest in the country and offers genuine national coverage from offices in London, Birmingham, Leeds, Manchester, Aberdeen, Belfast, Edinburgh and Glasgow.

More about Employment