Redundancy and Restructuring Knowledge & Resources

Redundancy refers to the decision by an employer to reduce the number of it’s employees for one or more of the following “redundancy situations”

• A diminished requirement of the business for employees to do work of a particular kind  
• The closure of one or several sites, or the relocation of a businesses 
• The closure of a business altogether.  

The need to reduce employees can vary, but common reasons are economic pressures on the business, the advancement of technology or internal reorganisation to make more efficient use of resources.   

If an employer proposes making 20 or more employees redundant as a single entity within a period of 90 days or less, they are legally required to consult on the proposals with an employee representative (who will be elected by the affected employees) and notify BEIS.  

Where an employer proposes making 20 – 99 employees redundant within 90 days, they must consult with the employee representative for no less than 30 days before the first dismissal. Where an employee proposes making 100 or more redundancies, this period is extended to no less than 45 days. 

If an employer fails to follow the guidelines for collective redundancies (set out in s. 188 of the Trade Union and Labour Relations (Consolidation) Act 1992), they may be liable to pay a protective award which equates to up to 90 days’ gross pay per affected employee.  

Before selecting an employee for redundancy, an employer must consider what the appropriate pool of employees for redundancy selection should be. An employer should act reasonably in forming the pool. Factors such as what type of work is diminishing, the roles performing the diminishing work as well as employees with interchangeable roles, should be considered. There can often be disputes between employers who may wish to keep pools as narrow as possible and employees who may wish to keep pools as wide as possible (to reduce the chance of selection). 

The criteria for selecting employees should be objective and measurable, rather than just based on personal opinion, and be documented for verification. Potentially fair selection criteria may include 

• performance and ability
 
• length of service 
• attendance records

 
• disciplinary records. 

It is normal for an employer to attach weightings to the criteria, reflecting their relative importance, but it should be able to justify any such weightings.  

Notwithstanding the above, employers may take into consideration subjective criteria (e.g. company values and future potential), but where subjective criteria is relied upon, it must be applied objectively in selecting the employees for redundancy.  

Employers must not act in a manner which is discriminatory in selecting employees for redundancy. There are nine protected characteristics that redundancy selection must not be based on: race, religion or belief, age, sex, sexual orientation, pregnancy/maternity, disability, marriage /civil partnership or gender reassignment.  

Consultation with individually affected employees is fundamental in determining the fairness of the redundancy dismissal. There is no set duration of time for a consultation to be considered meaningful and fair (unless it is a collective redundancy), but the shorter the consultation period the more likely it is that it will be called into question. For a consultation to be meaningful, the employer must have an open mind about the continuation of the employee’s employment and be capable of influence about the matters discussed. A consultation must not be held when the employer has already made the decision to terminate the employee’s employment. 

The matters that should be discussed during the individual consultation process will depend on the specific circumstances but should usually include: 

• An opportunity for the employee to comment on the basis for selection, both in terms of the pool and the selection criteria

 
• An opportunity for the employee to challenge their redundancy selection assessment and to explain any factors that might have led to their selection and of which their employer might not have been aware

 
• An opportunity for the employee to put forward any suggestions for ways to avoid their redundancy

 
• Consideration of any alternative employment positions that may exist  
• An opportunity for the employee to address any other matters or concerns that they may have. 

A dismissal is likely to be unfair if, at the time of the dismissal, the employer gave no thought to suitable alternative employment opportunities within the organisation. Not all current vacancies will be considered “suitable” alternative employment. Employers should consider the level of remuneration of the vacancy, the responsibilities of the role, the skillset it requires and the location of the role to determine its suitability for the employee. An employer is not obliged to create alternative employment for a redundant employee.  

If the employee is offered a suitable alternative role, it might be subject to a statutory trial period of four weeks. If the trial period is unsuccessful and the employee is terminated, they will be dismissed by reason of redundancy and still be eligible for a statutory redundancy payment.  

If an employee refuses an offer of suitable alternative employment, they may forfeit their right to receive a statutory redundancy payment.  

The amount of notice an employer must give depends on the length of service. An employee is entitled to statutory notice if they have been employed for more than one month. A contract of employment may require more notice to be given, but it cannot provide for less notice than the statutory minimum. The statutory minimum notice periods are:  

• one month to two years’ service ⁠–⁠ the minimum notice is one week 
• two to 12 years’ service ⁠–⁠ the minimum notice is one week for each year you’ve worked 
• 12 years or more service ⁠–⁠ the minimum notice is 12 weeks. 

An employer may pay this in lieu (called a PILON), if the contract of employment permits. An employee is entitled to receive the same amount of pay as they would normally get if they worked the notice period.  

If an employee has been given notice to terminate their employment by reason of redundancy, and they have been employed for more than two continuous years, they have a right to request a limited amount of time off work to look for new employment and/or to make arrangements for training for future employment. This is not an absolute right; an employer may reject the employees request, but they must not do so unreasonably.  

An employee can appeal their employer’s decision to make them redundant if they believe that they were unfairly selected, or their employer did not follow a fair redundancy process (i.e. a fair consultation process and/or consideration of suitable alternative employment). The employee should ask their employer for details of who they should address their appeal to. 

All employees have a right, in line their contract of employment and statutory minimums, to be paid for their notice periods and any accrued but untaken holiday at the date of termination.  

Employees who have more than two years continuous service also have the right to a statutory redundancy payment.  

A statutory redundancy payment is calculated based on an employee’s gross weekly earnings, the number of years worked for the employer, and the employee’s age.  

As a general formula, redundancy pay is calculated as:  

Gross weekly earnings x years of complete service x age factor (0.5, 1 or 1.5)  

For employees aged:  

• 17 to 22, your employer must give you half a weeks’ pay for each complete year of service where you have been between the ages of 17 and 22 (x 0.5 in the above formula).  

• 22 to 40, your employer must give you one full week’s pay for each year of complete service whilst you have been between 22 and 40 (x 1 above).  
• 41 and over are entitled to one and a half weeks pay for each year of complete service where you have been over the age of 41 (x 1.5 above).  

It is common for an employer to offer employees a settlement agreement to depart on agreed terms instead of completing a full redundancy procedure. This saves the employer time and resources in carrying out the process, and the employee departs with an agreed severance package and on agreed terms. In exchange for accepting the agreed severance package, the employee waives their right to bring employment claims against their employer in the Employment Tribunal pertaining to the termination of their employment. Employees must receive legal advice before signing a settlement agreement.  

Read our settlement agreement FAQs to find out more. 

If an employer is insolvent, the insolvency practitioner for the company must tell the employee how their job is affected and what to do next. If the employee is made redundant due to their employers insolvency, the insolvency practitioner will give affected employees an RP1 fact sheet which explains how the employee  can apply to reclaim money they are owed, and a CN case reference number to use when they apply. Employees  can apply to the Government department for Business, Energy and Industrial Strategy (BEIS) for a statutory redundancy payment, holiday pay, outstanding payments (i.e. unpaid wages, overtime, commission), and/or the money the employee  would have earned from working out their  notice period, from the National Insurance Fund.  

There are limits on how much they can reclaim, if they are owed more than they are entitled to reclaim, they can register as a creditor with the insolvency practitioner to try to recover the outstanding sum.  

As a general rule, the employee should make their claim as soon as reasonably practicable but within the six-month period following the date of their termination.  

If an employer has not acted fairly in the way it has carried out the redundancy procedure, the employee may have claims for unfair dismissal and/or a breach of contract claim depending on whether they meet the requisite criteria for making a claim.  

If an employee has been dismissed by their employer, and they are refusing to pay statutory redundancy payment the employee may have a claim to recover this. 

If the employee believes that they have been selected for redundancy on the basis of one of the nine protected characteristics (race, religion or belief, age, sex, sexual orientation, pregnancy/maternity, disability, marriage / civil partnership or gender reassignment), they may have claims for discrimination in the Employment Tribunal. This claim does not require any minimum period of service.  

If an employer has not followed the guidelines for collective redundancies, where required to do so, they employee may be able to make a claim for a protective award which equates to 90 days gross pay per affected employee.  

When booking an appointment, your lawyer  will tell you what you should bring according to your specific circumstances. As a general rule, we would usually like to see a copy of any correspondence you have had with your employer regarding the redundancy process. It is also useful to provide  a copy of your employment contract and any other contractual documents, e.g. entitlement to a bonus or share scheme and your settlement agreement if you have been offered one. You’ll need to bring along two forms if ID if you haven’t used the firm before.