Redundancy facts and fictions

1 August 2024 | Business & Workplace |

When a business needs to deal with redundancy, it is important to ensure it follows the correct procedure. As well as factual requirements, many myths have grown around redundancy. We consider the facts and fictions surrounding the redundancy process.

Some redundancy facts

What is redundancy?

Redundancy is where a job or position in a business is no longer required.

There are certain obligations on an employer to provide information, make the correct selection for redundancy and engage in consultation with those affected.

Why might a redundancy situation arise?

A redundancy situation may arise because of new or disruptive technology or systems of working requiring fewer people. Redundancy might occur because of business restructuring or branch closures. In the most extreme cases, redundancy occurs when the business closes.

Right to information

Employers are obliged to provide information. This includes why redundancies are needed. They should also provide information on how many employees will be affected, the procedure involved and when the redundancy will happen. In addition, the employer must inform the employees on how redundancy payments will be calculated and, importantly, how employees will be selected for redundancy.

Selection for Redundancy

Selection for redundancy must have clear criteria. The employer cannot simply make arbitrary decisions. Perhaps top of the list is skills and experience. Those with fewer skills and less experience may face selection. Employers are also likely to consider standards of performance as well as the employee’s disciplinary record. Attendance and timekeeping are also factors that feature in selection.

Whatever the selection criteria, it must be applied fairly to all employees whose position is under threat of redundancy.

Consultation

Once employees have been informed that they will, potentially, be dismissed by reason of redundancy, their employer must consult with them. There are additional rules where 20 or more employees are affected. Where there are more than 20 employees affected, the employer must give at least 90 days’ notice and hold collective consultation with any trade-union or elected employee representative. In addition, the Secretary of State must be informed of the intention to make more than 20 employees redundant.

Where there are less than 20 employees affected, employees are entitled to be accompanied by a colleague during the consultation.

The consultation can explore a wide range of options from reassignment to different roles to employment at a different location. It should also discuss the range of information available to the employees and the basis of selection for redundancy. You can find out more about when you must consult on the ACAS website.

Redundancy pay

If you have been employed by your employer continuously for a period of two years, you have a right to redundancy pay. Unless your contract of employment provides otherwise, the amount you will receive by way of redundancy payment will depend on your gross weekly wage, the years you have worked for your employer and your age.

• If your age is between 17 and 21, you should receive half a week’s pay for each full year you have worked.
• Where you are aged between 22 and 40, you should receive one week’s pay for each year worked from age 22 and half a week’s pay for each full year you worked before that.
• If you are more than 41 years of age, you should receive one and a half week’s pay for each full year worked from the age of 41, one week’s pay for each full year worked between the ages of 22 and 40 and half a week’s pay for each year you worked between the ages of 17 and 21.

In addition, you will either be required to work your period of notice or will receive payment in lieu of notice. The notice period will depend on your contract of employment and your length of service with your employer.

The UK government has an online calculator to help you work out your redundancy pay.

Redundancy pay is capped at both a maximum weekly amount and a maximum overall amount. You can only get redundancy pay for up to 20 years of work, regardless of how long you have worked for your employer. The maximum weekly amount used to calculate redundancy pay is £643 in 2023/24 . This means that the maximum overall amount of redundancy pay you can get is £19,290 in 2023/24.

Some redundancy fictions

Unfortunately, there is much misinformation about dismissal by reason of redundancy. Here are some redundancy fictions.

Redundancy is Unfair Dismissal

This is incorrect. Redundancy is a form of dismissal and if carried out properly, the dismissal is fair.

Employees can be made redundant immediately

This is incorrect. There are rules surrounding consultation and notice periods. If an employer fails to observe these, the employee can apply to an employment tribunal.

Employees cannot challenge the redundancy

Again, this is incorrect. Employees can challenge all elements of the redundancy process from the proposition that a redundancy position exists through to the basis for selection for redundancy. An employee can apply to an employment tribunal if they are not satisfied with any part of the process.

Redundancy can be used to dismiss an underperforming employee

This is redundancy myth. The redundancy process is not the correct route to manage underperforming employees. An employer leaves itself open to an unfair dismissal claim if the redundancy route is selected for the basis of dismissal.

Everyone made redundant is entitled to redundancy payment

This is incorrect. At the moment, only those employees who have been employed for 2 years or more are entitled to at least statutory redundancy payment.

Redundancy only affects the newest employees

This is another incorrect assumption. The selection process must be robust and simply basing redundancy on a “last in, first out” basis is unlikely to protect the business against a claim for unfair selection for redundancy.

Whether you are employer or employee, it is important to seek professional advice if a redundancy situation should arise.