The Law of Redundancy

What is redundancy?

Definition of redundancy in the ERA:

Business ceases (or ceases where employee employed) or employer requires fewer employees for “work of a particular kind”.

Redundancy is a form of dismissal from your employment because your employer needs to reduce the workforce. Reasons for redundancy include:

  • new technology or a new system has made your job unnecessary
  • the job you were hired for no longer exists
  • the need to cut costs means staff numbers must be reduced
  • the business is closing down or moving

Redundancy is one of the prescribed fair reasons for a dismissal. A properly carried out redundancy should be a fair dismissal.

Collective redundancies

If an employer is making more than twenty employees redundant in one establishment within a 90 day period, this is known as a collective redundancy.

If an employer is considering collective redundancies, there is a duty to consult with the representatives of the employees who may be affected. The representatives would be the employees’ trade union official. If there is no trade union official, the employer should arrange for the employees to elect their own representatives.

If an employer fails to consult the representatives then a claim can be made to an Employment Tribunal for a protective award. This is a monetary award of up to 90 days pay.

Collective redundancies generally occur where:

  • there is to be closures and the business or building in which you work in is to close and your employer will need fewer employees.
  • the business is going through a reorganisation or reallocation of work which requires the taking on of new recruits for the new work or the redeployment of some of the employees who will now work under new contracts with different terms and conditions while others will be made redundant.

Individual redundancies

Even if an employer is making fewer than 20 employees redundant in one establishment certain procedures must still be followed:

  • the selection procedure must be fair
  • you should be warned and consulted about the redundancy
  • your employer should take reasonable steps to redeploy affected employees
  • you should get any redundancy pay you are due, and be given the correct amount of notice
  • your employer should consider any alternatives to redundancy

If an employer uses redundancy to cover up the real reason for ending a person’s employment, or if they do not carry out the redundancy procedure properly, it may amount to an unfair dismissal. The rights to redundancy payments and collective consultation are claimed separately from unfair dismissal.

Redundancy and unfair dismissal

Redundancies fall to be judged under the law of unfair dismissal (ERA, s.94 – the right not to be unfairly dismissed)

As with other dismissals the two-stage test in the ERA: a fair reason, s98(1)-(3), and reasonableness, s98(4), both apply to dismissal because of the need for redundancies.

Redundancy is one of the possible fair reasons for a dismissal. Thus, a redundancy is likely to be a fair dismissal, when carried out correctly.

Role of the employment tribunal

It is not the role of the employment tribunal to decide whether redundancy was the correct managerial response to a situation. Its role is simply to decide whether or not the dismissal was a redundancy. Thus, as long as redundancy is the genuine reason for the dismissal, the employment tribunal cannot challenge it.

Thus, redundancy is a managerial prerogative – it is within management’s discretion as long as it is genuine (Moon v Homeworthy).

Selection for redundancy

Unless the selection is automatically unfair then the test of reasonableness applies.

Automatic unfairness

Redundancy is automatically unfair dismissal if selection is for any of the following reasons:

  • family reasons
  • health and safety cases (s.100)
  • shop and betting workers (Sunday working)
  • working time cases
  • occupational pensions scheme trustees
  • employee representatives (consultations over redundancy or business transfers)
  • protected disclosures
  • asserting a statutory right
  • national minimum wage cases
  • tax credits reasons (s.104B).
No qualifying employment needed in the above automatically unfair cases