Many companies will at some point need to implement redundancies, perhaps because of a downturn in demand or a need to relocate or restructure the business. This section of the Guide sets out the employment law framework for a redundancy exercise and also outlines the legal position if a company wishes to lay employees off or to put them on short-time working. Companies that are contemplating redundancies may wish to contact us for advice. A detailed guide to handling redundancies is also available ( Redundancy links ).
This section opens by discussing the legal definition of redundancy and then goes on to examine the steps that are involved in implementing redundancies lawfully. A checklist summarising these steps can be found elsewhere in this Guide (checklist for handling redundancies).
There are several pieces to the legal jigsaw that need to be fitted together when implementing redundancies. An employer that is proposing to dismiss 20 or more employees has specific legal obligations to consult with its workforce at a collective level (collective consultation) and to notify the Department for Business, Innovation and Skills (notifying BIS). In addition, unfair dismissal law requires an employer that is implementing redundancies to act reasonably. The Acas Code of Practice on discipline and grievance does not apply to redundancy situations. However, previous decisions of the courts and tribunals have confirmed that acting reasonably involves:
Discrimination legislation needs to be borne in mind when making redundancies. The Equality Act 2010 prohibits discrimination on grounds of age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex or sexual orientation. Discrimination issues, particularly indirect discrimination, are likely to arise especially when the employer establishes the criteria for selection for redundancy.
The Equality and human rights commission (EHRC) Code of practice on employment states that an employer in order to avoid discrimination should, in consultation with any recognised trade union, adopt a selection matrix containing a number of separate objective selection criteria rather than just one selection criterion so as to reduce the risk of any possible discriminatory impact. The Code gives the example of the criterion of “last in, first out” which may be indirectly discriminatory in respect of a number of protected characteristics and if used as a sole criteria may be unlawful, but if used as one of many criterion with a fair selection procedure could be a proportionate means of achieving the legitimate aim of rewarding loyalty and creating a stable workforce and so lawful.
Part-time workers and fixed-term employees are also protected from unjustified discrimination on the ground of their part-time or fixed-term status (part-time working) (equal treatment principle ). This covers both the way they are treated during the redundancy process and the redundancy payments they receive.
When it comes to terminating redundant employees' contracts, an employer must respect employees' contractual rights to notice of termination (terminating employment) and their statutory right to paid time off during their notice period to look for alternative work or be retrained (time off during notice period). Many employees who are made redundant will also be entitled to a redundancy payment under their contract of employment or under the statutory scheme or both (redundancy payments).
Different legal considerations apply when an employer responds to a downturn in business by laying employees off or putting them on short-time working, rather than making them redundant. An important preliminary issue is whether the company has the right under the employees' contracts of employment to lay them off or reduce their hours and earnings (contractual issues). In addition, the company needs to be aware that employees who are not provided with work or have their hours reduced may be entitled to a guarantee payment or to claim a redundancy payment (guarantee payment ), (claiming a redundancy payment ).
Sometimes redundancies are due to a company going into liquidation. This section ends with a summary of the legal protection that is given to employees who have not received their redundancy payment or other sums that they are owed because their employer is insolvent (redundancy and insolvent companies).
The employment implications of other aspects of business reorganisations are covered elsewhere in this Guide. These include the legal issues that arise when changing contracts of employment ( Changes to contracts ) and the situation where a company transfers all or part of its business to another employer through the sale or contracting-out of its operations ( Transfer of undertakings ).
The legal mechanics of how an employment contract ends and related issues such as the right to written reasons for dismissal are also covered elsewhere in this Guide (terminating employment), as are the general principles of unfair dismissal law (unfair dismissal ).
EEF has produced a Managing Redundancies Toolkit containing further detailed guidance as well as model letters and selection matrices
Related links
acas: redundancy handling
acas: lay-offs & short-time working
Business link: redundancies
EEF Managing Redundancies Toolkit