The definition of “Redundancy”
The statutory definition of “Redundancy” encompasses three types of situation: business closure, workplace closure, and reduction of workforce.
Redundancy and Unfair Dismissal
An employee who has sufficient qualifying service, 2 years continuous employment, is entitled not to be unfairly dismissed. Redundancy is a potentially fair reason for dismissal.
Even if a dismissal is genuinely on grounds of redundancy, whether it is fair or unfair to dismiss for that reason normally depends on the application of the general test of fairness, namely whether the employer acted reasonably in dismissing the employee in all the circumstances.
A redundancy dismissal is likely to be unfair unless the employer:
- Has a genuine redundancy situation
- Identifies an appropriate pool for selection
- Consults with individuals in the pool
- Applies objective selection criteria to those in the pool
- Considers suitable alternative employment where appropriate, subject to a trial period
In certain circumstances, selection of an employee for dismissal on grounds of redundancy will be automatically unfair, for example, selecting an employee for a reason connected to pregnancy, or because the employee has refused to sign a working time opt-out agreement.
Alternatives to redundancy
At the outset of a fair redundancy procedure (and throughout the consultation process), an employer should consider whether it can avoid making compulsory redundancies or reduce the number of compulsory redundancies.
Initial steps that the employer should consider include:
- Suspending or restricting recruitment.
- Reduction or removal of overtime opportunities.
- Not renewing the contracts of contractors.
- Ceasing or reducing the use of agency workers.
If these initial steps are unavailable or are not sufficient, the employer could consider:
- Inviting potentially redundant employees to apply for suitable alternative vacancies.
- Inviting employees to volunteer for redundancy.
- Inviting employees to consider early retirement under the pension scheme.
- Temporarily laying off employees or reducing their hours.
Redundancy payments
Employees who are dismissed by reason of redundancy may be entitled to a statutory redundancy payment. Additionally, they may have an express or implied contractual right to an enhanced contractual redundancy payment. In circumstances in which an employer is liable to pay an employee a statutory redundancy payment, if the employer either fails to make the payment because it is insolvent or refuses to do so, the employee may apply to the Secretary of State for payment out of the National Insurance Fund.
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There are five potentially fair reasons for dismissal
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- This could be a single act of misconduct or a series of less serious acts
- Capability or qualifications. This includes poor performance, ill-health and formal qualifications
- This includes workplace closure, business closure, or reduced need for employees
- Where continuing to employ the employee in the position they hold would contravene a statutory restriction (for example, because of their immigration status)
- “Some other substantial reason” (SOSR). This is a catch-all category of potentially fair reasons that do not fall under the other categories. For example, this category may include dismissals for failure to agree to changes to terms and conditions, pressure from third parties such as clients, and business reorganisations falling short of a genuine redundancy situation.
