Redundancy Process in the UK - Guide for Employers
UK Redundancy Pay Process
Though not particularly welcomed by employees and employers, for understandable reasons, redundancy situations are not an unusual business practice, and they are considered a potentially fair reason for the dismissal of an employee in accordance with the Employment Rights Act.
Redundancy law can be complex but arming yourself with the basic position is useful should you ever find yourself considering redundancies to manage necessary workforce cuts. Our redundancy solicitor in London unveils best practices in this guide to reduce the risk of claims and preserving your reputation and talent pool.
A redundancy situation can arise when:
a part or all of the operations of a business are ceasing or are proposed to cease;
a particular business site is closed or is proposed to close; or
if the requirement for employees to perform work of a particular kind diminishes or ceases altogether or is expected to cease or diminish.
The above situations fall into the statutory definition of a redundancy situation. Although redundancy can be a fair reason for the termination of an employee’s employment, for a redundancy to be lawful, employers need to follow a fair process.
Failing to follow a fair process increases the possibility of your business getting it wrong and consequently potentially facing unfair dismissal claims from employees with a minimum of 2 years’ continuous service or discrimination claims under the Equality Act 2010.
Whether a redundancy process was fair or not, is what a tribunal will consider and will ultimately determine whether a claim is won or lost. This can be incredibly costly to employers, not only from a financial perspective but from a reputational standpoint. With the trend of “cancel culture”, a fair redundancy procedure is something that employers will want to get right.
What is a fair redundancy process?
Once a statutory redundancy situation (as referred to above) is established, a fair redundancy procedure should be followed and includes the following stages:
warning and consultation of potentially impacted employees;
ensuring a fair basis is established for the selection of employees for redundancy;
consideration of alternative employment; and
opportunity to appeal the redundancy decision.
Warning and consultation of potentially impacted employees
Employers need to provide potentially impacted employees with fair warning and properly consult with them either individually or if the employer is proposing to make 20 or more employees redundant within any 90-day period at a single establishment, collectively via their representative.
Proper consultations include the employer participating in genuine and meaningful consultation with employees, considering other options, such as offering voluntary redundancy for example. It is vital that consultation takes place early in the redundancy situation and before any final decisions are made. Any implications that a redundancy is predetermined, could give way to an unfair redundancy claim.
Fair basis for the selection of employees for redundancy
Employees who are to be potentially selected for redundancy from a 'selection pool', must be selected based on a clear objective, measurable and non-discriminatory selection criteria which is applied in the same way for all employees in the selection pool.
Selection criteria can include skill, qualifications, experience, performance history, attendance record (without reference to family leave or sick leave due to a disability) and disciplinary records. Employers can score employees based on the selection criteria as a way of deciding who is to be made redundant.
With the rise in Artificial Intelligence (AI), we are seeing an increasing trend in employers using AI to determine who is at risk of redundancy. However, employers need to be extremely careful in this regard as AI systems and algorithms can be tainted with discrimination. “As AI systems learn from data which may be unbalanced and/or reflect discrimination, they may produce outputs which have discriminatory effects on people based on their gender, race, age, health, religion, disability, sexual orientation or other characteristics. The fact that AI systems learn from data does not guarantee that their outputs will not lead to discriminatory effects”[1].
Consideration of alternative employment
One of the essential elements of a fair redundancy process is for employers to explore and if available, offer an employee suitable alternative employment as an alternative to redundancy.
Failure to do this may mean that an employee could make a claim to an employment tribunal for unfair dismissal.
So, what is considered suitable alternative employment? If the new terms offered to the employee materially differ from the employee’s existing / old terms, then an objective assessment must be carried out. However, suitable employment will differ from employee to employee, as the employer will need to consider the suitability of the job for the employee in question and consider factors, including but not limited to:
tasks to be performed and responsibilities;
skills and qualifications required;
salary / wages;
hours of work; and
location of the role and employee.
As a general approach, in order for the alternative role to be considered suitable, there should be a broad similarity and equivalence when assessing the new job and the old. If more than one employee is interested in the same role, an employer must follow a fair interview process, bearing in mind that some employees have the right of first refusal e.g. employees who are on maternity leave.
Appealing a redundancy decision
Generally, in order for a redundancy procedure to be considered to have been carried out fairly, an employer should offer employees the opportunity to appeal the decision to terminate their employment by reason of redundancy. The absence of an internal appeal is a factor a tribunal will consider when reviewing the fairness of a redundancy dismissal case.
Entitlements on redundancy
Employees who have 2 years or more of continuous service who are dismissed by their employer by way of redundancy are generally entitled to statutory redundancy pay as well as their notice and any accrued but untaken holidays.
An employee’s redundancy pay is based on a prescribed calculation based on their age, length of service and pay:
half a week’s pay for each full year the employee was under 22
one week’s pay for each full year the employee was 22 or older, but under 41
one and half week’s pay for each full year the employee was 41 or older.
An employee’s weekly pay is the average of their pay which they earned per week over the 12 weeks before the day the employee received their redundancy notice. The length of service is capped at 20 years for the purposes of the statutory redundancy pay calculation.
Any employees who are made redundant after 6 April 2023, have their weekly pay capped at £643 and the maximum statutory redundancy pay an employee can receive is £19,290. In order to calculate an employee’s statutory redundancy pay, you can use our redundancy calculator below.
Calculate your employee's statutory redundancy pay
An employer may choose to offer an employee an enhanced redundancy package (an offer which provides redundancy pay, over and above statutory requirements) and agree a settlement agreement with an employee depending on the circumstances.
Thinking of redundancies?
Considering and implementing a compliant redundancy procedure can be complex and there is not a ‘one size fits all’ approach. Careful management of any redundancy processes and effective communication is vital to reducing the risk of claims and preserving your reputation and talent pool.
At Dragon Argent, our employment law specialists can help you to navigate your employment law requirements as an employer and support you to ensure you are compliant with your legal obligations with bespoke legal advice. If you have any questions about the contents of this article, please feel free to contact us.
[1] ICO - What about fairness, bias and discrimination?
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