An overview of managing a redundancy process
Economic conditions, mergers or a change in business operations can lead to your company needing to make staff redundant. This guide covers the general legal and human resource issues you would need to consider and does not replace expert advice.
What is redundancy?
The statutory definition of redundancy is set out in Section 139 of the Employment Rights Act 1996:
"...an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to:
- the fact that his employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed by him, or has ceased, or intends to cease, to carry on that business in the place where the employee was employed; or
- the fact that the requirements of that business for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where he was so employed, have ceased or diminished or are expected to cease or diminish".
Is redundancy the best option?
Business planning strategies can avoid or limit the incidence of redundancy. If staff reduction is likely in future business plans, managers may consider natural wastage and think about how staff may be redeployed within their area or department.
The government recommends that companies take steps to avoid compulsory redundancies. Ways of doing this can include:
- recruitment freezes
- restricting (including banning) overtime
- offering suitable alternative work within the organisation
- offering voluntary redundancy or early retirement
- providing sabbaticals and secondments
- pay and bonus freezes
- laying off self-employed contractors, freelancers etc
- not using casual labour
- giving employees pay cuts in return for taking time off work
- temporary unpaid leave (if their employment contract allows this)
- short-time working (when an employee has no paid hours for a number of working days in a week).
Ensure you agree changes with staff first to avoid being in breach of contract.
The redundancy process: legislation
There is a vast amount of employment legislation which employers must comply with. If your company does not manage redundancies legally, employees may be able to successfully claim for unfair dismissal.
To minimise the risk and impact of changes it is advisable to adopt and follow a formal process wherever possible. If an employment tribunal judges that an employee has been unfairly dismissed, your company may have to pay them compensation. The process can be adapted to suit particular circumstances but should cover the following areas:
- Consultation: If your business is making more than 20 people redundant within any 90-day period at a single establishment, a statutory collective consultation process must be completed.
- Selection: You must identify employees at risk of redundancy. Make sure selection criteria are applied fairly and do not discriminate.
- Notice: If redundancy applies, notice of redundancy should be given in accordance with the employee’s contractual notice period (which must be at least as long as the statutory notice period).
- Redundancy pay: You can use the GOV.UK redundancy pay calculator, which uses the individual’s age and length of service to calculate the statutory amount.
- Appeals: If an employee is confirmed as redundant you can allow them to appeal internally. It is recommended that you appoint a senior manager to hear the appeal.
Treating employees sensitively
You should allow reasonable requests for time off with pay so to allow an affected employee to seek work elsewhere or undertake retraining.
As well as adhering to employment law, businesses should consider the human resource implications of redundancy.
Being made redundant can obviously be extremely traumatic for employees. Remaining employees can also feel the impact, leading to an adverse impact on morale, motivation and productivity.
Ensure that managers are trained to handle redundancies sympathetically and to provide employees with the correct information on all their options. Explain to employees why the decision has been reached; reassure survivors that they are valued and the business has a positive attitude towards its future and theirs.
The ICAEW Library and Information team maintain a web section on redundancy. This provides a range of articles, books and online resources providing quick links to guidance and background information. It also contains a ‘Legal alerts’ section which highlights important redundancy case law decisions.
ICAEW is providing a collection of resources with help, advice and resources to assist those affected by redundancy. Find out more at the redundancy support for employers and individuals hub.
The information contained in this article is for general guidance only and does not constitute advice. You should always seek professional advice for your personal circumstances. Please read the full disclaimer.