Answers to Frequently Asked Questions (FAQs) About Redundancy

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Q: Can an employer simply inform an employee that their employment is ending by reason of redundancy without following a process?

A: This depends on how long the employee has been employed:

  • If an employee has been employed for less than 2 years, then an employer can simply dismiss the employee by providing notice in accordance with the employee’s employment contract. If there is no written contract in place, an employer is only required to give statutory notice of 1 week.
  • If an employee has been employed for at least 2 years, an employer must carry out a redundancy process before taking the decision to dismiss an employee by reason of redundancy.

Q: What is a standard redundancy process?

A: This will depend on the number of employees an employer plans to dismiss by reason of redundancy in a 90-day period:

  • If there are more than 20 employees, an employer must follow a statutory process.
  • If there is less than 20 employees, there is no statutory process, but an employer must act fairly.

Statutory process

Where an employer is proposing to dismiss as redundant 20 or more employees at one establishment, within a period of 90 days or less, the employer must collectively consult about the dismissals of those affected employees, at least 30 days before the first dismissal takes place.  Those affected employees are referred to as being at risk of redundancy.

As part of the collective consultation process, employers must consult with recognised trade unions or existing employee representatives.  If there are no representatives in place, then those employees at risk of redundancy are entitled to elect their own employee representatives and employers must follow the statutory process.

An employee representatives’ role is to represent the views and opinions of those employees at risk of redundancy in and act as a conduit between the employer and the employees.  Employee representatives can if they wish seek employment law advice on the redundancy process and any payments that may be made to employees that are dismissed by reason of redundancy.

An establishment means the unit to which the employees have been assigned. It is not essential that each unit should have its own management which could have carried out the redundancy process itself.  Consequently, collective consultation may not apply, and an employer will have to consult on an individual basis, which is not governed by a statutory process.

Non-statutory process

Where an employer is not required to collectively consult employees, they must provide individual consultation to those employees placed at risk of redundancy.  An employer must discuss planned changes with each employee and get their ideas and feedback for avoiding redundancies before an employer has finalised its planned changes.

If an employer is seeking to reduce the number of employees doing the same type of work, the employees will need to be placed in a selection pool, selection criteria devised, and a selection process carried out.  If an employee performs a unique role and that role is at risk of redundancy, then they will normally be in a selection pool of 1 and selection criteria and selection process will not be applicable.

Q: What can employees do if an employer fails to follow a proper consultation process?

A: If an employer fails to follow a proper consultation process, any resulting dismissal could be unfair and lead to a claim for unfair dismissal. Failure to collectively consult could also lead to a tribunal making a protective award of up to 90 days’ gross pay per employee.

However, compensation for unfair dismissal can be reduced by a percentage under what is referred to as a ‘Polkey’ deduction where an employer has been found by an employment tribunal to have acted unfairly in dismissing an employee by failing to follow correct process.  If an tribunal concludes that the employee may have been dismissed anyway, it can reduce compensation based on the likelihood as a percentage deduction. Therefore, if a tribunal finds a dismissal was absolutely inevitable, compensation could be reduced by 100%.

Q: If an employee is dismissed by reason of redundancy what are they entitled to receive?

A: An employee that has been employed for a minimum of 2 years and dismissed by reason of redundancy is entitled to a tax-free statutory redundancy payment, which is calculated based on age, length of service and capped at a maximum weekly amount, currently £538.  If an employee earns less than this amount, then the statutory redundancy payment will be based on their actual weekly pay.

An employee will also be entitled to either work their contractual or statutory notice period (whichever is the higher) or receive a payment in lieu of working their notice. An employee will also be entitled to receive a payment for accrued untaken holiday to the date of dismissal.

An employer may decide to make enhanced redundancy payments above the statutory redundancy payment amount. This could either be set out in a redundancy policy or at an employer’s discretion.  In such circumstances, an employer may be asked to sign what is called a settlement agreement.  It is a legal requirement that an employee must take advice (normally from a solicitor) on the terms and effect of signing a settlement agreement.  An employer will make a contribution towards the legal costs in providing that legal advice.

The material contained in this blog is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.