I may have to make some of my staff redundant. What are the key legal issues?

This business briefing summarises the key issues that a business should be aware of when dealing with a redundancy situation.

When can a redundancy situation arise?

Redundancy encompasses three different types of situation:

• Business closure.
• Workplace closure.
• Reduction of workforce.

Collective consultation

If a business is making 20 or more employees redundant over a period of 90 days or less, the business must:

• inform and consult appropriate employee representatives.
• notify the Department for Business, Innovation and Skills (BIS).

An employment tribunal can award up to 90 days’ pay for each employee if the business has not consulted adequately. The business can also be fined for failing to notify BIS.

The business should also ensure that it follows a fair procedure during the redundancy process (including consulting with employees properly) to minimise the possibility of claims for unfair dismissal.

Redundancy and unfair dismissal

Redundancy is a potentially fair reason for dismissal. However, a redundancy dismissal is likely to be unfair unless the business:

• identifies an appropriate pool of employees for selection for redundancy.
• consults with the individuals in the redundancy selection pool.
• applies objective selection criteria to the employees in the redundancy selection pool.
• considers suitable alternative employment where appropriate (subject to a trial period).

In certain circumstances, selecting an employee for redundancy will be automatically unfair. For example, selecting an employee:

• for a reason connected to pregnancy;
• because they refused to sign a working tie opt-out agreement; or
• for reasons related to trade union membership or activities.

Alternatives to redundancy

At the start of a redundancy procedure, the business should consider whether it can avoid making compulsory redundancies or reduce the number of compulsory redundancies. For example, by:

• suspending or restricting recruitment;
• reducing or removing overtime opportunities;
• not renewing contractors’ contracts; or
• ceasing or reducing the use of agency workers.

If these steps are unavailable or insufficient, the business could also consider:

• inviting potentially redundant employees to apply for suitable alternative vacancies;
• inviting employees to volunteer for redundancy;
• inviting employees to consider early retirement; or
• temporarily laying off employees or reducing their hours.

Redundancy payments

Employees with at least two years continuous employment with the business at the point they are made redundant will be entitled to a statutory redundancy payment.

Some employees may also be entitled to an enhanced contractual redundancy payment, if their contract of employment or other documents provide for it.