The construction industry is uniquely susceptible to market fluctuations, project delays, and changes in client demand.  These realities often lead to workforce restructures or redundancies. Organisations in the construction sector must tread carefully as improperly handled redundancies can trigger costly legal disputes, damage reputations, and affect future recruitment.

Following the collapse of ISG, a major UK contractor, 1,650 out of its 2,400 former employees have filed protective award claims in the Employment Tribunal. The majority of the claims allege that ISG failed in its legal duty to consult collectively with staff before making them redundant, as required under section 188(1) of the Trade Union and Labour Relations (Consolidation) Act 1992. The protective award allows employees to seek compensation when an employer does not properly consult about proposed redundancies. In ISG’s case, the government’s Redundancy Payment Service may face a payout exceeding £9 million, with individual awards capped at £5,600 due to the company’s insolvency. Tribunal decisions have already begun, with at least one former employee awarded over £16,000 for breach of contract and failure to consult.

The legal risks associated with redundancies and restructures in the construction sector are cemented into every phase of the process and if the proposed changes under the Employment Rights Bill are implemented, those risks will stretch well beyond the blueprint of a multi-phase development.

Why restructures are common in construction

Redundancies in construction are often driven by:

• completion of major projects;
• loss of tenders or contracts;
• economic downturns;
• technological change or automation; and/or
• business mergers or reorganisations.

Despite their frequency, construction redundancies remain firmly under the spotlight of employment law.  The project-based and often casual nature of site work adds structural complexity to what might otherwise seem like routine processes.  

Building blocks of the legal framework

In England and Wales, a genuine redundancy exists where:

• an organisation no longer requires the employee’s role to be performed due to operational reasons such as business downturn or restructure; and/or
• the redundancy is not due to the employee’s performance or conduct.

Importantly, organisations cannot label a dismissal as a “redundancy” to mask other motives such as avoiding an unfair dismissal claim or targeting specific workers.

Common employment law trip hazards in construction redundancies

1. Misclassifying employment relationships

Many construction workers are engaged on casual or fixed-term contracts, leading some organisations to assume these arrangements shield them from redundancy obligations.  This is a risky assumption. Employment Tribunals routinely look beyond contractual labels to assess the true nature of the working relationship. If a worker is found to be operating as an employee rather than a contractor, they may be entitled to redundancy pay and protection against unfair dismissal.

To avoid legal snags, organisations should regularly review and accurately document the employment status of all site personnel, ensuring that the reality of the working arrangement aligns with the contractual designation.

2. Failure to consult

Where an organisation proposes to dismiss 20 or more employees at one establishment within a 90 day period or less, a legal duty requires companies to consult with the affected employees.  This includes any recognised trade union representatives, where applicable, before any redundancies are made.

In England and Wales, the failure to conduct a meaningful consultation can lead to claims in the Employment Tribunal for a protective award. The protective award can be up to 90 days’ gross pay per affected employee however, this is subject to a cap where an organisation becomes insolvent. The time period for the award is proposed to be extended under the Employment Rights Bill, potentially increasing the financial exposure for companies facing redundancies.

Before throwing a spanner in the works, it is suggested that organisations lay the groundwork early.  Companies should begin consultation as soon as redundancies are contemplated, be transparent about the business rationale and actively explore alternatives to redundancy where possible.

3. Inadequate selection criteria

When selecting employees for redundancy, organisations may be tempted to rely on informal or subjective selection processes such as choosing those nearing the end of a project or those on temporary contracts. However, without clear, objective, and consistently applied selection criteria based on factors like skill set, qualifications, and performance, organisations expose themselves to legal risks, including Employment Tribunal claims of unfair dismissal and discrimination.

To build a legally sound selection process, organisations should develop a transparent matrix of criteria, document each step thoroughly, and provide employees with an opportunity to respond or challenge their selection.

4. Discrimination claims

Redundancy decisions must not disproportionally impact certain groups unless there is a clear and proportionate means of achieving a legitimate aim.

For example, targeting older workers, specific genders, nationalities or individuals with disabilities under the guise of redundancy, particularly without considering reasonable adjustments or options of suitable alternative employment, can lead to discrimination claims. Employment Tribunals will scrutinise whether the process was fair and inclusive.  Conducing an equality impact assessment as part of the restructure planning phase is an important step. This assists by identifying and mitigating potential bias in selection criteria and outcomes, ensuring the process is fair and legally compliant.  

5. Lack of alternative employment consideration

Even in cases of genuine redundancy, organisations are required to consider redeployment opportunities within the organisation or wider group. Additional protections apply to employees who are pregnant or on maternity leave as they have the right to be offered a suitable alternative role if available in a redundancy situation.

Dismissing employees without offering suitable alternative roles (even temporary ones) could render the redundancy unfair.  Organisations should document efforts to find alternative roles, seek input as to how the individual could potentially avoid a redundancy and discuss the situation with the employee before proceeding to termination.

Lessons for organisations

It is important to seek legal advice before initiating redundancies and particularly for those that are large scale, companies must communicate with staff and follow due process.

While the construction sector may be dynamic and fast-paced, employment law obligations remain constant. A legally compliant redundancy process is not just about avoiding claims in the Employment Tribunal, it reflects an organisations’ values, builds trust, and ultimately contributes to the long-term stability of the organisation.

How we can help

For further information or to discuss issues relating to disciplinary investigations, workplace relationships, or reviewing internal policies, please contact us to speak to a member of our Employment Team.