Dealing with redundancy can be daunting for both employers and employees: employers need to ensure that they follow correct procedures and apply them fairly. Employees have a number of rights in a redundancy situation and both parties need to understand what these are.
To fall within the statutory definition of "redundancy" set out in section 139(1) of the Employment Rights Act 1996 (ERA 1996), an employee's dismissal must be "wholly or mainly attributable to" the employer:
- Ceasing or intending to cease to carry on the business for the purposes of which the employee was employed by it (business closure)
- Ceasing or intending to cease to carry on that business in the place where the employee was so employed (workplace closure); or
- Having a reduced requirement for employees to carry out work of a particular kind or to do so at the place where the employee was employed to work (reduced requirement for employees)
Where 20 or more employees are being made redundant over a period of 90 days or less, an employer has a duty to:
- Inform and consult appropriate employee representatives.
- Notify the Secretary of State.
Redundancy and unfair dismissal
An employee who has at least one year's continuous employment is entitled not to be unfairly dismissed. Redundancy is a potentially fair reason for dismissal.
A redundancy dismissal is likely to be unfair if the employer fails to:
- Consult with individuals
- Identify the correct pool for selection or fails to apply objective selection criteria to those in the pool
- Offer suitable alternative employment, subject to a trial period, where appropriate
In certain circumstances, selection of an employee for dismissal on grounds of (genuine) redundancy will be automatically unfair.
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.
Statutory redundancy payments
Employees with at least two years' continuous employment at the relevant date are entitled to a statutory redundancy payment if they are dismissed by reason of redundancy.
Statutory redundancy pay is calculated according to a formula based on age, length of service and pay.
The maximum number of years that may be taken into account to calculate a redundancy payment is 20. Further, for these purposes, a week's pay is capped at the statutory maximum, which is increased in February each year.