Redundancy & Restructure

Employees with over two years’ continuous employment with your business are entitled to a statutory redundancy payment.  This amount depends on the employee’s age, length of service and pay.

There may also be an entitlement to an enhanced redundancy payment depending on the terms of employment.

In addition, the employee is entitled to notice pay and pay in lieu of untaken holidays.

There could also be an entitlement to other payments or benefits depending on the terms of employment.

The amount depends on the employee’s age, length of service and salary as follows. First, calculate the number of full years of continuous employment at the relevant date. Part years do not count.

The entitlement is then calculated as follows:

• One and a half weeks’ pay during each year when the employee was aged 41 or over at the start of the year; plus
• One week’s pay during each year when the employee was aged 22 - 40 at the start of the year; plus
• Half a weeks’ pay for each year during which the employee was aged under 22 at the start of the year.

A week's pay generally means gross basic salary unless pay varies with the amount of work done. There is a cap on the maximum that will count, which increases annually.

This can be an unexpectedly tricky decision. 

The starting point is to consider what areas of work are ceasing or diminishing or are expected to cease or diminish and then consider who is doing that work. 

However, there is lots of case law on how employers should define their 'redundancy pool' and this decision making could be challenged at an Employment Tribunal so legal advice should be taken.

Case law has established that employers should use fair and objective selection criteria in a redundancy process. Objective means something which is capable of being measured and does not depend solely on the subjective judgement of the employer. 

For example, 'critical skills needed in the business' and 'job performance and contribution' would usually amount to objective criteria whereas 'passion for the business' is likely not to.

This wouldn’t usually be a good idea. Firstly, it may well not result in the retention of those best suited to take the business forward. Secondly, it risks being discriminatory on the grounds of age if, for example, many of those affected would be younger employees.

They can be used but care needs to be taken to ensure that this doesn’t result in inadvertent discrimination, for example, absence arising as a result of a long-term medical condition or a disability should be discounted.

Yes. Employees on maternity leave can be included in the redundancy process if their job is at risk of redundancy. 

However, care needs to be taken to ensure that any redundancy selection criteria are adjusted to discount any negative effect of the maternity leave absence and that the employer’s redundancy considerations have not been affected (even inadvertently) by the maternity leave absence. 

This is a difficult area and legal advice should be taken. Employees on maternity leave who are dismissed by reason of redundancy must be offered any suitable alternative employment and to this extent are ‘at the front of the queue’ in comparison to other colleagues affected by redundancy. 

Currently, those employees who have two or more years of continuous service at the relevant date are eligible to bring unfair dismissal claims if their employment is terminated (although the Employment Rights Bill contains provisions for ‘day 1 rights’). The employer would need to demonstrate that the reason for dismissal was a genuine redundancy situation and that they acted reasonably in deciding to dismiss. This involves a fair selection for redundancy and consulting with the employee over the decision making and any ways that a dismissal could be avoided.

If the redundancy decision is discriminatory then there is no requirement for two years' continuous service.

In addition, for larger-scale redundancies (those involving 20 or more proposed dismissals at one establishment in a period of 90 days) there is a duty to inform and consult with representatives and a claim for a protective award if this duty is breached. The protective award is currently up to 90 days pay per employee but this will increase to 180 days pay when the Employment Rights Bill comes into effect.

A redundancy situation may occur if a site is closing down or there is less work for employees to carry out there. Although, if the employer has a contractual right to require employees to change their job location the employer may choose to rely upon this rather than going down a redundancy route.

However, it may not always be possible to rely on a so-called 'mobility clause' as these may be narrowly interpreted by a Tribunal.

Another consideration is that there is no legal entitlement to a redundancy payment if the employee acts unreasonably in turning down an offer of suitable alternative employment.

Legal advice should be taken in this situation.