Redundancy
PLEASE NOTE: This page is intended to give general information about the law but is not intended as legal advice and you must not rely on it as such, nor is any liability accepted if you do rely on it. The law may change from time to time and we cannot include all elements of the law and its application in this summary. For further advice relating to your circumstances, please contact us.
What is redundancy?
A redundancy is a form of dismissal which occurs in the following situations:
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Business closure - closure of a company’s whole operation, which might be temporary or permanent.
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Workplace closure - closure of one of several sites or relocation to a new site, taking into account the employee’s actual place of work and any contractual mobility clause.
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A reduced requirement for employees to carry out work of a particular kind (which does not necessarily mean that the amount of work has reduced).
The law does not interfere with an employer’s freedom to make commercial decisions about the requirements of its business, even if the decision itself proves to be a bad one. Provided a tribunal is satisfied that redundancy is the genuine reason for dismissal, an employer will not be required to justify its business decision beyond this.
Is an employee entitled to redundancy pay or pay in lieu of notice?
An employee with at least two years of continuous service is entitled to a statutory redundancy payment. The payment is calculated using a formula which takes into account the employee’s age, length of service (subject to a maximum of 20 years) and amount of a week’s pay, subject to a statutory cap which is revised each year. See here for the up to date rates of a week’s pay.
Some employees will be entitled to an enhanced contractual redundancy payment if their contract or an industry agreement provides for this.
Redundancy payments of less than £30,000 can be paid free of tax. The balance over and above £30,000 if any, is subject to deductions for tax and NI.
If an employer is insolvent, or refuses to pay all or part of a redundancy payment, an employee may be entitled to apply to the Secretary of State for a payment from the National Insurance Fund using Form RP1.
An employee who is dismissed without being given their full statutory (or enhanced contractual) notice period is also entitled to payment in lieu of notice.
Is a redundancy dismissal unfair?
An employee with at least 2 years’ continuous employment is also entitled not to be unfairly dismissed. For a redundancy dismissal to be fair the employer must:
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From the outset, consider whether compulsory redundancies can be avoided or reduced.
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Warn and consult its employees individually about the proposed redundancies.
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Unless the employee’s job no longer exists (e.g. there is a business closure), follow a fair selection process for selecting potentially redundant employees.
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Consider whether there is any suitable alternative employment within the organisation.
Employers should be mindful of the potential for the process to be deemed discriminatory. Criteria such as “last in first out” or the selection of part time staff first, may be discriminatory. In particular, pregnant women and those on maternity and parental leave must not be selected on grounds related to their pregnancy or maternity.
Potentially redundant employees on maternity/ adoption/ shared parental leave also have an automatic right to be offered suitable vacancies before other employees at risk of redundancy.
In certain circumstances, selection for dismissal in a genuine redundancy situation will be “automatically unfair”. For example, if the selection for redundancy was for a reason connected to pregnancy or childbirth, whistleblowing or asserting a statutory right.
Redundancy Entitlements and Remedies
Redundant employees are entitled to contractual or statutory notice (whichever is greater) and to a statutory redundancy payment (if they qualify for this) as well as possibly an enhanced payment if this is provided for in their contract of employment.
If a redundancy dismissal is held to be unfair, then the usual unfair dismissal compensation principles apply. (See our Unfair Dismissal fact sheet for further information.) Any compensation awarded will usually be reduced by the amount of statutory or contractual redundancy or ex gratia payments received.
Do collective consultation obligations apply?
Where there is a proposal to make 20 or more employees redundant at the same establishment over a period of 90 days or less, in addition to individual consultation, the employer has a duty to:
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Inform and consult a trade union or elected employee representatives
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Notify the Redundancy Payments Service (RPS) on Form HR1
Where 100 or more redundancies are proposed, consultation must begin - and notification must be received - at least 45 days before the first dismissal takes effect. For fewer than 100 redundancies, the consultation period and notification deadline is 30 days before the first dismissal.
Breach of the collective information and consultation duty may result in a tribunal award of up to 90 days’ gross pay in respect of each employee. Failure to notify the RPS is a criminal offence and the employer will be liable to an unlimited fine.
What if the employer is insolvent?
If your employer goes insolvent you may be able to claim a redundancy payment from the Insolvency Service.
It may also be possible to get certain amounts in respect of wages, notice and holiday from the insolvency service. Find out more here.
What if the employer has ceased trading but has not started insolvency proceedings?
It can be difficult if your employer stops trading but doesn’t actually start insolvency proceedings.
If you are dismissed without a redundancy payment and your employer remains solvent, you should make a request in writing to your employer as a first step. You might then be able to claim a redundancy payment (but not other entitlements) from the state.
Deadlines
Redundancy payment: A claim for a redundancy payment must be brought by an employee within six months of the last day of employment. ACAS should be notified of the claim within that period. You will always have at least one month from the date of the ACAS certificate in which to submit a claim to the Employment Tribunal.
Unfair dismissal claim: A claim for unfair dismissal based on unfair selection for redundancy must be brought within three months of the last day of employment. ACAS should be notified of the claim within that period. You will always have at least one month from the date of the ACAS certificate in which to submit a claim to the Employment Tribunal.