Redundancy and business restructures

“I'm an employer needing to make redundancies but I'm worried about how to proceed.”

Do you have concerns about redundancy? Redundancy is one of the fair reasons for dismissal but it must fall within the statutory definition and the selection of employees for redundancy must follow a fair procedure.

See our guide to redundancy.

There are two reasons that can give rise to the need to make redundancies:

Closure of a business and/or workplace

This is where a business comes to an end and/ or the place of work closes.

Decrease in the need for employees

This is where there is no longer the need for employees who do a particular kind of work or the need for employees is expected to diminish. In other words a need for fewer employees to carry out work of a particular kind.

“I'm an employer, how do I begin making redundancies?”

Plan, select, consult.

If you are an employer wanting to make redundancies there are procedural requirements for both small scale and larger scale redundancies:

1. Plan

As an employer you must make preliminary plans of when, where and how the redundancies would be best made. Employers must not make final decisions about which employees are to be made redundant at an early stage. Consider alternatives to redundancy.

2. Select

Employers must decide on the areas where the redundancies may take place, the number of employees that are to be made redundant. Invite volunteers (i.e. those willing to take voluntary redundancies) and consider alternatives.

“Objective Criteria” must be used to select employees who are potentially at risk of redundancy. For example length of service, conduct and disciplinary record.

3. Consult

Redundancy procedure for up to 19 employees:

Employees should at the very least receive a letter about the proposed redundancy and be given the option of attending a consultation meeting.

Redundancy procedure for over 20 employees

If 20 or more employees are to be dismissed within 90 days or less employers must consult with trade union representatives (if recognised) or employee representatives if no trade union is recognised.

Individual consultations

If you are an employer you must explain to employees that there is a redundancy situation and that the employee's job is at risk. The possibility of alternative work must be discussed. If you are an employee you can raise suggestions about alternative work before an employer can fairly dismiss. If you are an employer you are obligated to consider employee suggestions. Employees should also be allowed time off to seek other employment.

Dismissal notices

Employers must not send out dismissal notices until the consultation has taken place. If you are an employee you only have a right to appeal against your selection if your employer has a policy or term in your contract stating this.

Suitable alternative work

Employers must look into alternative work for employees. If you are an employee and reject a suitable vacancy, you may forfeit the right to receive a redundancy payment.

If a suitable job is found employees must be offered the new contract of employment before the previous one comes to an end. The alternative employment must begin either immediately or within four weeks of this. If provisions of the new contract are different from the previous contract, there must be a trial period for the employee. 

The trial period begins on the date the employee starts work and is usually for four weeks. A longer trial period may be agreed between employers and employees. If during this time either the employee or employer terminates the contract the employee will be treated as being dismissed on the date that the previous employment contract ended. If this happens an employee will still be entitled to redundancy pay.

“I've made my employees redundant, what if they want to claim against me?”

Employees may be automatically unfairly dismissed for reasons of redundancy if selection for redundancy was unfair, or the employer does not act fairly in the circumstances. As an employee you can claim for unfair dismissal on the basis that the dismissal was not procedurally fair even though the reason (i.e. redundancy) is a fair one. An example of this would be if you do not receive a letter.

As an employer you should ensure you follow a fair procedure when making dismissals. If a claim is successful employers will be liable for unfair dismissal in addition to redundancy payments. Contractual redundancy payments are usually offset against any compensatory award. 

To make a claim for unfair dismissal an employee must:

• Have been continuously employed for two years
• Claim within three months of dismissal
• Not fall under excluded categories

“I'm an employer, do I have to pay Statutory Redundancy Pay?”

Statutory Redundancy Payments (‘SRP')

To be eligible an employee must:

• Have been continuously employed for two years
• Have been dismissed by reason of redundancy
• Not fall under excluded categories
• Have not unreasonably refused alternative employment

Most employers pay SRP voluntarily. However, if you are an employer and do not pay an employee, a claim can be made for compensation for unfair dismissal or SRP. A claim can also be made by written notice. Employees must commence the claim within six months of the date of termination of employment. SRP and the basic award for unfair dismissal are the same and are usually offset against each other.

SRP is calculated on the same basis as the basic award for unfair dismissal:

Age x Service x Week's Pay

Age is calculated as follows:

1 week's pay for each year of employment between the ages of 22-41

1.5 week's pay for each year of employment over the age of 41

0.5 week's pay for each year of employment under the age of 22

Service is the length of time an employee has been continually employed and is counted backwards to a maximum of 20 years.

Week's Pay is the actual gross weekly pay up to a maximum of £643.

If you need to restructure your business or make employees redundant please speak us in confidence on 0113 320 5000 or email employment@winstonsolicitors.co.uk. You can check out what other services our Leeds solicitors offers here.