Stage one: Establish whether there is a genuine redundancy situation
For a redundancy to be considered a fair reason for dismissal, an employer must demonstrate a genuine redundancy situation.
There will be a genuine redundancy situation where:
- There is a closure of the business within which the employee was employed;
- There is a closure of the place of business where the employee was employed to work; and/or
- There is a reduced requirement for the employee to carry out work of a particular kind.
Stage two: Establish the number of employees at risk of redundancy
The employer must decide how many roles it proposes removing from its organisational structure.
If over 20 redundancies are being proposed, the employer will need to consider the collective consultation process detailed at the end of this guide.
Stage three: Look for alternatives to redundancy
A redundancy is more likely to be viewed as "fair" if an employer has considered alternatives to potential redundancies before making a restructure proposal.
Alternatives to redundancies may be:
- voluntary redundancies: employees volunteer to be made redundant as opposed to compulsory selection;
- Reducing hours of work: this can involve short-time working or overtime bans;
- Temporary stoppages of work: this can include lay-offs or unpaid leave; and/or
- Recruitment freeze: not taking on any more employees.
Stage four: Establish a proposal for restructure and its supporting rationale
An employer needs to identify which "roles" it intends to remove and have a sound justification as to why. Roles can be either "standalone" roles, i.e. where only one role of that type exists in the organisation (e.g. vice-chancellor), or can form a "pool" of roles, i.e. where multiple roles of that type exist (e.g. law lecturer).
If an employer intends to remove a role from a pool of roles, it needs to ensure that it consults with all employees within the defined pool before making a selection as to which employee is to be made redundant potentially. If the employer does not add all the appropriate roles into this pool, it risks redundancies being deemed unfair.
There are no fixed rules as to how the pool should be determined. It is up to the employer to decide which roles will make up the pool based on an assessment of which roles represent work of a similar kind.
However, an employer should remember that it should judge the situation objectively and not take personal views of the individuals occupying particular roles into account when creating the pool. Therefore, provided the employer genuinely applies its mind to those who should be in the pool, the Employment Tribunal is unlikely to question the employers' discretion in this area.
Factors that may be taken into account when considering the pool include, but are not limited to:
- What type of work is ceasing/diminishing;
- The extent to which employees do similar work;
- The extent to which employee roles are interchangeable; and
- Whether the employer genuinely applied its mind to the composition of the pool.
Stage five: Initial mechanism of informing employees they are "at-risk" of redundancy
The employer can meet with all "at-risk" employees as a group and explain:
- Why there is a potential redundancy situation;
- The number of roles that are at risk; and
- The alternatives to redundancy that the employer has considered (possibly asking for anyone to come forward if they wish to take voluntary redundancy).
While it is not imperative that an employer initially meets with employees to explain the situation before formal consultation, many employers do this out of courtesy and to ease the process by providing the employees with as much information as possible and being transparent and open from the beginning.
Regardless of whether or not an initial meeting is held, all employees at risk of redundancy should be informed via an "at-risk" letter to confirm. The letter should confirm their role is at risk of redundancy and why this is the case and outline the consultation process.
NOTE: It is essential that at the initial meeting, everything is presented as a proposal, and it is made clear that no decisions as to any redundancies have been made.
Stage six: Pool of roles
If the proposal concerns a pool of roles, and there are more employees in the "pool" than the proposed redundancies (e.g. there are 5 law lecturers, and the employer is proposing to reduce this by 2). In that case, the employer must establish selection criteria to decide which employees will be selected for potential redundancy if the proposal goes ahead.
An employer must propose fair selection criteria that it will rely on to select those employees occupying roles within the pool that will be selected for redundancy if necessary. The selection criteria should be objective and not based on personal subjective opinions.
Potentially fair selection criteria may include, but is not limited to:
- Performance and ability;
- Attendance records; and
- Disciplinary records,
A common criteria employers favour is the length of service, e.g. "last-in, first-out". Employment Tribunals have not looked fondly on this as it can be discriminatory based on age. Therefore, if such a criterion is used, it should be used alongside other, more important criteria or as a tie-break criterion where the scoring of two individuals is equal.
The collective consultation process should be undertaken here if necessary, i.e. where it is proposed that more than 20 roles are to be removed.
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Stage seven: First consultation meeting
All employees should be invited to attend an initial formal consultation meeting. This should be done in writing (usually as part of the "at-risk" letter).
It is recommended the employee is allowed to be accompanied to the meeting by a Trade Union representative or a colleague.
This letter should make clear that the proposal is subject to consultation and that no final decision has been made at this stage.
If selection criteria will be applied, the letter should also refer to this as this will form part of the consultation.
First meeting consultation
An employer should discuss the situation that has led to the proposal for possible redundancies.
The employer should discuss this with the employee if selection criteria are proposed. This may result in the criteria being changed from the original criteria proposed.
The employer should ask the employee whether they have any counter-proposals to the overarching proposal and the proposed selection criteria, and if so, ask them to explain these.
The employer may also wish to go through any potential suitable alternative roles and the potential redundancy package with the employee so that the employee is aware of their options if the proposal is adopted.
Detailed notes should be taken at this meeting.
Following the meeting, an employer should write individually to the employees who were consulted. This letter should confirm what was discussed at the meeting and, if necessary, invite the employee to a further consultation meeting. A second consultation meeting will be required if counter-proposals were not addressed in the first meeting and/or selection criteria are proposed.
It is advised that the notes from the meeting are sent alongside this letter to allow the employee to review these. The employer should ask the employee to sign and return the notes to indicate they accept the minutes represent a true reflection of the meeting.
Stage eight: If fair selection criteria have been used, the employees must be provisionally scored against these.
If fair selection criteria have been used, the employees must be provisionally scored against these.
Once the fair selection criteria have been decided, each employee in the pool must be rated against the criteria to provide them with an overall score.
It is advised that this is done separately by two different managers so that the employer can demonstrate the scoring process was objective and fair.
Stage nine: Second consultation meeting
If a second consultation meeting is required, this should be requested via formal invite.
A second consultation meeting is not always necessary. However, the option should be given to employees to ensure that the employer can answer any questions the employee may have following the initial meeting/ the employer can provide answers to any counter-proposals raised.
A second consultation meeting will be required if the employee forms part of a pool and selection criteria are proposed. This is to discuss the final proposed selection criteria and the employee's provisional score against this. The employee must also be informed of the highest and lowest scores.
Detailed notes should be taken at this meeting.
Stage ten: Decision on proposal
If an employer follows the individual consultation meetings and believes its original proposal should still be adopted, they will need to inform those employees whose roles will be removed.
Out of courtesy, the employer may wish to meet with these employees to explain the situation and again run through potential suitable alternative employment and the employee entitlements.
Regardless of whether a meeting takes place, the employer must write to the employees to confirm the decision to adopt the proposal and what this means for the individual employee. The letter should cover any potential suitable alternative employment and/or potential confirmation of termination by reason of redundancy.
If issues from the second consultation meeting have not been fully addressed, this letter should also address these.
Importantly, the letter must give the employee the right to appeal the decision.
Stage eleven: appeal
If an employee appeals the employer's decision, the employer will need to invite them to attend an appeal meeting, to be chaired by an impartial manager who has not been involved in the process to date.
Once again, it is recommended that the employee is allowed to be accompanied to this meeting. Following the meeting, the employer must write to the employee to inform them of the outcome of the appeal.
This letter should re-confirm the employee's payments if their appeal is unsuccessful.
Suitable alternative employment
During the consultation process, the employer must offer the employee suitable alternative employment (if this exists) to avoid their potential redundancy. Before the first consultation meeting, the employer should check the list of vacant roles.
All offers of suitable alternative employment must be made before the employee's employment contract ends.
Offers of suitable alternative employment don't have to be made in writing. However, for evidential purposes, it is advised that they are.
The offer should set out the job and any areas of the role which differ from the employee's current employment. If the employee is offered multiple roles, these differences should also be clearly distinguished.
For the offer to be deemed suitable alternative employment to avoid redundancy, the employee must start this new role within four weeks of their existing employment ending.
If the terms of the new role differ from those the employee was initially told, this will not be suitable alternative employment, and the employee's original redundancy dismissal will stand.
If the employee unreasonably refuses an offer of suitable alternative employment, the employer is under no obligation to provide them with a statutory redundancy payment. For this to occur, the employer needs to have offered the employee the role, not just invited them to apply for it.
Whether a rejection is "unreasonable" will depend on the suitability of the role to the employee. This is judged objectively on whether the nature of the role is suitable, but also subjectively as to whether the role is suitable for that individual employee depending on their circumstances.
It is risky to rely on rejecting suitable alternative employment to withhold a statutory redundancy payment.
If an employee accepts an offer of suitable alternative employment, they are entitled to a trial period of four consecutive weeks to assess whether, in practice, the role is suitable for them.
While the employee is legally entitled to this, it will take effect automatically; it is good practice for the employer to remind them of this fact when offering suitable alternative employment.
The trial period can be extended for a further four weeks if the employer and employee deem this necessary. However, this extension must be granted in writing before the trial period commences.
If during the trial period, the employee decides the employment is not suitable for them, they can choose to leave the role, and they will be treated as if they were dismissed by reason of redundancy on the date their old contract of employment ended.
If the trial period is successful, the employee will be treated as not dismissed by reason of redundancy and will continue in the new role while maintaining their continuity of employment with the employer.
If the employee's employment is terminated during their trial period by an employer for a reason related to the differences of this new role in comparison to their old role, they will be taken to have been dismissed by reason of redundancy when their old contract of employment ended.
However, if the employee is terminated for a different reason (for example, due to misconduct), they will be terminated at that date and will not receive any redundancy payment.
Entitlements on redundancy
Upon a redundancy dismissal, an employee is entitled to their usual basic entitlements of notice in accordance with their contract of employment and payment for their accrued but untaken holiday at the effective date of termination.
The employee may also be entitled to a redundancy payment. This will usually be a statutory redundancy payment. However, employers may provide employees with enhanced redundancy payments over and above the statutory entitlement if they so desire.
To be eligible for a statutory redundancy payment, the individual must be an employee and have at least two years of continuous service with their employer at the termination date.
As mentioned, if the employee has unreasonably refused suitable alternative employment with the employer, the employee will lose their right to a statutory redundancy payment.
Furthermore, if the employee has been dismissed summarily for gross misconduct, the employee has no entitlement to a statutory redundancy payment.
NOTE: Employers cannot get employees to contract out of the right to a statutory redundancy payment. If such clauses appear in a contract of employment, they are likely to be deemed void by an employment tribunal.
The statutory redundancy payment an employee is entitled to is calculated based on their length of service (based on complete years up to a maximum of 20 years), age and salary at the effective date of termination.
The following multiplier is applied based on the age of the employee at the time of the redundancy:
- One and a half week's pay for each complete year of service in which the employee was aged 41 or over at the beginning of the year;
- One week's pay for each complete year of service in which the employee was aged 22-40 at the beginning of the year; and
- Half a week's pay for each complete year of service in which the employee was under the age of 22 for any part of the year.
A week's pay is capped by statute. Currently, the cap is £571 per week.
The first £30,000 of a statutory redundancy payment can be paid tax-free. Anything over and above this amount will be subject to the employee's usual deductions.