Our guide below addresses the most common questions which often arise during a redundancy situation: -
- What is a Redundancy?
- Do I have the right to Statutory Redundancy Pay?
- What is the relationship between Redundancy and Unfair Dismissal?
- What are my employment rights when faced with Redundancy?
- Redundancy and Settlement Agreements
- How much Redundancy pay will I receive?
- Do I need legal advice during a Redundancy?
What is a Redundancy?
Section 139 of the Employment Rights Act 1996 (“the Act”) sets out the definition of Redundancy, however, in simple terms Redundancy is a form of dismissal. It is one of the five potentially fair reasons that an Employer may use to dismiss an Employee.
A person may find themselves facing a redundancy situation if their Employer is: -
- Closing the business completely; or
- Closing a part of the business/moving location: or
- Reducing the number of job roles.
The right to Statutory Redundancy Pay
Section 155 of the Act states that an Employee does not have any right to receive a statutory redundancy payment unless that person has been employed continuously for 2 years.
Therefore, any person with less than two complete years of service, cannot claim statutory redundancy pay.
If you are facing redundancy and have less than 2 complete years of service, at the very least your employer should make a payment in lieu of notice (PILON) if you are not expected to work your notice period and payment for any accrued unused annual leave.
Occasionally an employer may recognise that an employee with less than two years of service does not have a right to claim statutory redundancy pay but may offer an ex-gratia payment which is paid tax-free as a gesture of goodwill.
Redundancy and Unfair Dismissal
As outlined above, Redundancy is a form of dismissal.
Where an Employee with the requisite qualifying service (2 complete years) is dismissed, the dismissal will be unfair unless: -
- The Employer can show that the dismissal was for a potentially fair reason, such as Redundancy; and
- That in the circumstances the Employer acted reasonably i.e. follows a fair redundancy process/procedure
As a general rule, any employee with less than two complete years of service cannot claim statutory redundancy pay or unfair dismissal. There are some exceptions to this which are discussed below.
What are my employment rights when facing Redundancy?
Although Redundancy is one of the five fair reasons that an Employer may use to dismiss an Employee, it will only be fair if the Employer: -
- Can satisfy the definition of redundancy by proving that there is a complete or partial business closure or by reducing the number of employees; and
- Follows a fair redundancy process/procedure
Broadly speaking, an Employer will usually be able to satisfy the reason for redundancy. Cash flow problems tend to be the main reason for redundancy although other reasons can include technological advances reducing the need for the number of employees or if the company (or part of the company) is being taken over by another.
What an employer must not do is select an employee for redundancy due to any of the protected characteristics outlined in Section 4 Equality Act 2010 since that would amount to employment discrimination. The protected grounds are age, race, religion or belief, sex, sexual orientation, pregnancy and maternity, marriage and civil partnership, and disability.
Above, we explained that if an employee has less than 2 years’ complete service, generally a claim cannot be brought for unfair dismissal by reason of redundancy. However, if the principal reason an employee has been selected for redundancy is due to one of the protected characteristics, the dismissal would be automatically unfair and there may be ground to pursue a claim against the employer.
If your employer is making less than 20 redundancies, generally there is no defined consultation period. Ideally, your employer should still notify you of the risk of redundancy and consult with you.
If the number of proposed redundancies is 20 or more, the collective consultation rules apply. Before dismissing any employees by reason of redundancy, your employer must consult for a period of at least 30 days and if the number of redundancies is expected to be between 20 – 99 or a minimum of 45 days where the number of proposed redundancies is 100 or more.
Prior to making any redundancies, your employer will identify those individuals whose jobs are at risk. This is often referred to as the ‘selection pool’.
To identify which employee/s are going to be made redundant, the employer may use a scoring method based on objective criteria. This may include salary, performance, skills, and disciplinary record. Whilst some employers may opt to use attendance as a selection criterion, this must be exercised with caution since this may be discriminatory based on sex or disability.
Ideally, your employer should try to identify suitable alternative employment within the business as an alternative to redundancy. Factors to be taken into consideration will be pay, similarity in the role, and responsibilities.
How much redundancy pay will I receive?
Remember, you will only qualify for statutory redundancy pay if you have been employed for a continuous period of at least 2 years.
Statutory redundancy pay is based on an employee’s age, length of service, and average weekly pay.
It is worth noting that average weekly pay is currently capped at £571 for the purpose of calculating statutory redundancy. Therefore, if your average weekly pay is more than £571 and you have been employed for more than 20 years, the maximum statutory redundancy pay is £17,130.
The typical redundancy formula your employer must give you: -
- 1.5 weeks' pay for each full year you worked from age 41
- 1 week's pay for each full year you worked when you were between 22 and 40
- half a week's pay for each year you worked when you were between 17 and 21
This can often cause confusion so please click here to use our redundancy calculator.
Redundancy and Settlement Agreements
Sometimes redundancy is inevitable. Occasionally in these situations, an employer will approach an employee on a without prejudice basis offering to terminate their employment contract subject to the terms of a settlement agreement (what used to be called a compromise agreement prior to July 2013).
At the very least, an employer should offer the following: -
- A payment in lieu of notice (PILON) unless you are expected to work your notice period
- A payment in lieu of all accrued unused holiday pay; and
- Statutory redundancy pay
Ideally, we would like to see an incentivised offer, one which you deem reasonable to provide you with a financial cushion whilst you are now facing the difficult task of seeking new employment.
Do I need legal advice during redundancy?
Whilst we hope this guide does address the common key questions, we are happy to discuss these or any other queries you may have. Use our contact form and we will telephone you at our earliest convenience.
