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Redundancy

A dismissed employee is entitled to a redundancy payment if he or she has been dismissed wholly or mainly by reason of redundancy and has more than two complete years of service at the date of dismissal.

A failure by an employer to follow fair procedures can result in large financial claims for failure to consult or because the dismissal was unfair.     

An employer should

  • Consult employees
  • Operate fair selection procedures
  • Consider alternative employment

What is redundancy?

To be entitled to a redundancy payment an employee will usually have to show that he or she has been dismissed wholly or mainly by reason of redundancy.  An employee will be redundant if his or her dismissal is attributable wholly or mainly to the fact that :-

  • The employer has ceased or intends to cease to carry on business for the purposes of which the employee was employed or to carry on that business in the place where the employee was employed: or
  • The requirements of that business for the employee to carry out work of a particular kind (generally or in the place the employee was employed) have ceased or diminished or are expected to cease or diminish.

Complete closure of the business is likely to constitute a redundancy situation.   If, however, the employer ceases to carry on the business because it has been transferred to a new owner whether or not there is a potential redundancy situation will depend upon whether the transfer is covered by special rules covering a "transfer of undertaking" which may result in the employee's contract of employment being transferred to the new employer.    This can be a complicated area of law and specialist advice should be taken in such circumstances.    

A redundancy situation may arise where the requirements of the business for employees to carry out work of a particular kind has diminished so that employees have become surplus to requirements or where work has not diminished but fewer employees are needed because of, for example, a re-organization of the business or the replacement of employees by independent contractors or technology. 

REDUNDANCY PAYMENTS

Right to a payment

The following factors need to be considered in deciding whether or not there is a right to receive a redundancy payment :-

 

  • Has the employee been dismissed?
  • Is the dismissal due to redundancy?
  • Has there been a refusal of suitable alternative employment which might defeat the right to receive a redundancy payment?
  • Has there been a business transfer?
  • Has the employee's right to a redundancy payment been affected by misconduct or a strike?
  • Is the employee covered by any exclusion or exemption?

Dismissal

To be entitled to a redundancy payment an employee will usually have to show that he or she has been dismissed.     Such a dismissal of an employee occurs when :-

 

  • His or her Contract of Employment is terminated by the employer either with or without notice.
  • He or she is employed under a Fixed Term Contract and the fixed term expires without being renewed under the same contract.
  • He or she has been constructively dismissed (the employee resigns, with or without notice, because of a repudiatary breach of contract by the employer)

Additional Rules apply to redundancies :-

Leaving before notice expires

An employee under notice of dismissal for redundancy may wish to leave his employment before the notice expires perhaps to take up alternative employment. 

If the employer agrees that the employee can leave before the expiry of the notice period a dismissal by the employer will still have occurred and the employee will remain entitled to a redundancy payment.   If there is no such agreement an employee wishing to leave before the end of his or her notice period must give notice in writing to terminate his or her employment on a date earlier than the expiry of the employer's notice.      If the employer does not accept this notice a further notice can be served by the employer calling on the employee to work out the full term of notice.     If the employee chooses to comply with the employer's notice then the original notice of termination by the employer takes effect.    An employee who does not comply with the employer's further notice will be taken to have been dismissed by the Employer on the date specified in the Employee's counter notice but is not then entitled automatically to a redundancy payment by reason of that dismissal and must apply to an Employment Tribunal who will decide whether it is just and equitable for the employee to receive a redundancy payment.     

Implied Termination

Certain events arise, which would not normally amount to a dismissal for unfair dismissal purposes but which may qualify as a dismissal for the purposes of a redundancy payment.      These include the death of the employer and the appointment of a Receiver of the employer by Order of the Court.    

Voluntary Redundancy

Voluntary redundancy normally presents no difficulties provided there is a genuine redundancy situation but a distinction must be made with voluntary retirement.    If an employer has made a decision that redundancies are required an employee who volunteers for redundancy will still be considered to have been dismissed although an employer need not accept a volunteer for redundancy.

Lay off and short time work

Usually an employee will only be able to claim a redundancy payment if he or she has been dismissed for redundancy.  However, an employee who has been laid off or put on short time for at least four or more consecutive weeks or for a total of six weeks (no more than three being consecutive) in any period of thirteen weeks is entitled to give his employer written notice of intention to claim a redundancy payment.   Provision for counter notice to be given by the employer is provided in the Scheme. 

Specialist advice should be taken in such circumstances.  

Suitable alternative employment

Consideration of alternative employment for employees selected for redundancy will form part of a fair and reasonable redundancy procedure.    The right to a redundancy payment will be lost if the new employment was suitable in relation to the particular employee and if the employee's refusal of the offer of new employment was unreasonable.     

Suitable Alternative Employment

Whether an alternative job is "suitable" in relation to the employee appears to involve an objective approach by way of, for example, comparing the new conditions of employment with the old including pay, status, location of work, fringe benefits and hours of work.    Where an alternative job is offered on unreasonable terms, the dismissal of an employee who refuses that offer will probably be treated as unfair.   

In considering redundancies an employer should identify the group of employees from whom those to be made redundant will be drawn.    This becomes the "pool for selection".  A dismissal without due consideration to the question of a pool is likely to be unfair.     

Where a customary arrangement or agreed procedure exists specifying a particular selection pool good reason will need to be shown by an employer to depart from it.  

In the absence of customary arrangement or agreed procedures an employer must show that the matter has been appropriately considered and genuine motives applied with the following factors relevant:-

  • Whether other groups of employees are doing similar work to the group from which selections are made
  • Whether employees jobs are interchangeable
  • Whether the employees inclusion in the unit is consistent with his or her previous position.

Having selected a pool an employer should apply objective selection criteria verifiable, where possible, by data including attendance records, efficiency and length of service.      

Discriminatory selection criteria on the grounds of sex, race, disability, sexual orientation, religion or belief may not only be unfair but also contrary to the Sex Discrimination Act 1975, Race Relations Act 1976, Disability Discrimination Act 1995, The Employment Equality (Sexual Orientation) Regulations 2003 or The Employment Equality (Religion or Belief) Regulations 2003.

Unreasonable refusal

This can be considered more subjectively and may involve personal considerations of the employee.    It may, for example, be reasonable for an employee to refuse an offer of alternative employment involving increased travelling time because that particular employee may have domestic responsibilities making the new conditions of employment unsatisfactory and their rejection reasonable.  Other factors that have been found relevant upon the question of reasonableness of an employee's refusal include the vagueness of the offer, housing and schooling considerations and medical reasons.  

Trial Period

If the terms and conditions of the alternative employment differ wholly or partly from the existing Contract of Employment or the job and place in which the employee is employed differ, the employee is entitled to a four week trial period in the alternative employment without loss of redundancy rights.     

Amount of a redundancy payment

An employee is entitled to a written statement from an employer confirming how a redundancy payment is calculated and failure by an employer to comply with this obligation without reasonable excuse may constitute a criminal offence.

A redundancy payment is based upon age, length of continuous employment and a weeks pay.   A maximum of 20 years continuous employment is taken into account working back from the date of redundancy allowing :-

  • one and a half weeks pay for each year of employment over the age of 41 ;
  • one weeks pay for each year between the ages of 22 and 41 ; and
  • half a weeks pay for each year of employment between the ages of 18 and 22
  • weeks under eighteen years of age do not count
  • a redundancy payment cannot be claimed beyond the age of 65.
  • the redundancy payment is scaled down where the employee is aged over 64 for each complete month from the date of the 64th Birthday to the effective date of dismissal.

"A Weeks Pay"

Reference to a weeks pay is subject to a statutory maximum (currently £290.00 with effect from 1st February 2006).       

A weeks pay means gross and not net pay and is normally the contractual pay for working the normal working hours in a week.    

When normal working hours vary, or where there are no normal working hours, a weeks pay is averaged over the previous twelve weeks before the date that the Notice of Dismissal takes effect.     

Time Off during Notice of Redundancy to look for other work

An employee who has been given notice of redundancy may be entitled to reasonable time off to look for new employment or to make arrangements for training and future employment.  

Negotiating a Settlement

In general, any agreement under which an employee relinquishes his right to bring an employment claim including unfair dismissal, statutory redundancy payments, race, sex or disability discrimination arising out of his or her employment or its termination is void insofar as it excludes him or her from making or pursuing such a claim.     In order to reach a binding settlement the employer and employee must reach agreement either by :-

  • Agreeing terms by negotiation through ACAS; or 
  • A written Compromise Agreement complying with the procedural requirements of Section 203 of the Employment Rights Act 1996 (or the relevant discrimination legislation).
  • The procedural requirements for a Compromise Agreement provide for such agreement to be in writing and for the employee to have received independent advice from a Solicitor or other suitably qualified person holding professional indemnity insurance as to the effect of the agreement.   Legal advice should be taken on the correct terms for such an agreement.

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