How to Make Employees Redundant

Reorganisation and redundancy - gentleman talking

Redundancies can unfortunately be an inevitable part of running a business. If they do become a necessity, it’s essential to follow correct procedures at every stage in the process. Failure to do so could see you embroiled in costly employment tribunal cases, which can have a detrimental effect on your business.

This is why understanding exactly how to make employees redundant is crucial. By having a firm grasp of the rules and ensuring the right legal representation is in your corner, you can be confident that everything has been taken care of. 

In this article, we’ll outline how to make employees redundant, the process you need to follow, and discuss potential alternatives — so you can make an informed decision on what is best for your business.

What Does Redundancy Mean?

Redundancy is a form of fair dismissal, and occurs when there is no longer a requirement for a particular role within a business. This could be because of changes in processes, or the need for a reduction in headcount. When making redundancies, it’s essential to follow a set process to avoid unfair dismissal claims which could result in legal action. 

Making employees redundant is usually a last resort for businesses, after all other avenues have been explored. This is due to the large amount of upheaval the process can cause, as well as the potential ramifications for getting it wrong. 

How to Make Employees Redundant Correctly

There’s a lot for business owners to consider when making employees redundant. From assessing potential alternatives and establishing fair reasons, to following correct procedures and calculating redundancy pay, it’s essential to be aware of all your obligations and ensure they are met.   

Here are our recommendations on how to make employees redundant:

– Assess all Options

The first thing you should consider is whether there are potential alternatives that could be more suitable. These could range from changes to the company’s operations to the withdrawal of certain non-contractual benefits.

Although making amendments of this nature may require prior approval from employees, they may be more willing if they understand your reasoning and the position your business is currently in. 

– Establish a Fair Reason for Redundancy

If redundancy is the only viable option, the next step is to establish the reasoning behind your decision. If you aren’t able to do this, you could run the risk of being challenged for unfair dismissal further down the line. 

Examples of fair reasons include:

  • Planned company closure 
  • The business is relocating and staff will be unable to follow 
  • The work carried out by affected staff members is already being undertaken by others
  • A merger or acquisition 
  • There is no longer a requirement for the tasks carried out by affected workers

It’s important to note that redundancy is not appropriate in cases where you simply wish to remove individuals from your organisation — for reasons such as underperformance, absence, misconduct, or attitude issues. In these situations, you should follow your disciplinary or performance management processes

– Avoid Unlawful Discrimination & Unfair Dismissal

Our next piece of advice on how to make employees redundant is to ensure you’re aware of unlawful discrimination and unfair dismissal. Unlawful discrimination in redundancy is where a person is selected to lose their job purely as a result of them having a “protected characteristic” — as defined under the Equality Act 2010. Examples of these include a person’s age, gender, sexual orientation, religion, race, marital status, or if they have a disability. 

Even if a person does not have a protected status, there are several other reasons that should not be used as the sole excuse for redundancy. These include:

  • If they are pregnant or on maternity leave
  • Making use of statutory or contractual parental leave
  • They are a trade union representative or have joined a trade union
  • Taking part in industrial action
  • Requesting flexible working opportunities
  • Whistleblowing
  • Asking for a legal entitlement

If you’re ever unsure about your obligations regarding unlawful discrimination or unfair dismissal, it’s essential to speak to specialist employment solicitors

– Calculate Redundancy Payments

Statutory redundancy pay is calculated based on a number of factors, such as their age, years of service, and average weekly wage. As of now (May 2024), weekly pay is currently capped at £508 while years of service is up to 20 years. To be eligible for this payment, an employee must be under contract and have worked for your company for at least two years continuously. 

Statutory redundancy pay is calculated as follows:

  • Up to (not including) age 22: Half a week’s pay for each year of service
  • Age 22-40: One week’s pay for each year of service
  • Age 41-64: A week and a half’s pay for each year of service

For people aged 64, the payment award is reduced by a twelfth each month up until they reach 65, at which point it is zero.

– Focus on the Future

Once the redundancy process has concluded, it’s important to pay attention to the staff members left behind. It’s common for the remaining workers to feel insecure about their own roles, so they will need to be reassured that their jobs are safe. 

Clear communication is crucial here. Explain that the redundancies were unavoidable and keep people informed of the current state of the business and your plans for the future. 

What is the Redundancy Process?

There are several key elements to the redundancy process, from the initial consultation and the creation of a redundancy pool, to giving notice and the eventual dismissal of affected staff members. It’s important that employers adhere to all their obligations, otherwise they could find themselves faced with an employment tribunal claim. 

The main parts of the redundancy process you’ll need to consider are: 

– Initial Consultation

Staff members should first be made aware of the decision to make redundancies via a consultation. This can be done on a one-to-one basis or as a collective, depending on how many people are being let go. If more than 20 people are going to be made redundant within a 90-day period, a collective consultation is mandatory. 

If 20-99 people are being made redundant, the consultation must take place at least 30 days before the first dismissal happens. This rises to 45 days if 100 or more individuals will be affected. 

– Offer Voluntary Redundancy

In some circumstances, it may be beneficial to offer employees the chance to take voluntary redundancy. This involves staff members leaving the company of their own volition in return for fair financial compensation. 

Voluntary redundancy is often viewed much more positively by staff compared to enforcing job losses. On the other hand, it can prove to be more expensive for businesses, as the final settlement package will need to be agreed on by both the employer and the employee.

– Make Your Selections

The next step of the redundancy process is to decide which employees will be let go. The criteria used for this must be fair and consistent and not be based on any personal feelings or preferences. 

Examples of potential reasons for making an employee redundant include:

  • Their skill level and qualifications
  • Attendance record
  • Historical performance standards 
  • Aptitude for the role
  • Length of tenure

In cases where an entire department is being made redundant, there’s no need for the selection process to take place. 

– Give Notice

The amount of notice given will depend on whether the employee in question has a specific notice period defined in their contract of employment. If they do have a period stated, and it’s longer than the statutory minimum, then this will be the timeframe used. 

If the statutory minimum is to be followed, the required notice period depends on their length of service:

  • One Month to Two Years: One week’s notice
  • Between Two and 12 Years: One week for each year of employment
  • 12 Years or More: 12 week’s notice

Should you decide that the employees won’t have to work their notice, you can offer them a payment in lieu of notice (PILON) at their usual rate. 

– Redundancy Notice Letter & Appeals

The decision to make an employee redundant should be given in writing. The letter needs to include elements such as the reasons for selection, notice period, and financial package. 

If an appeal is requested, this should ideally be carried out by someone other than the person who conducted the redundancy selection (where possible). Regardless of who ends up in the meeting, they must be as impartial as possible. 

Alternatives to Redundancy

There are several alternatives to redundancy that could be considered where appropriate. Making people redundant should ideally be a last resort, so it’s important to ensure all other avenues are explored beforehand. 

The main alternatives to redundancy include:

  1. Reducing pay or working hours
  2. Temporary layoffs
  3. Retraining or reskilling employees
  4. Overtime bans/suspensions
  5. Withdraw non-contractual benefits

It’s important to document any alternatives to redundancy that you consider and why they were chosen/rejected. Any changes to employees’ working practices will need to be reflected in their contract terms.

Redundancies During Business Takeovers

Redundancies can be common during mergers and acquisitions. In these circumstances, it’s important for the new owners to be mindful of their obligations under the Transfer of Undertakings Protection of Employment (TUPE) regulations

Before redundancies can be made, an ETO test has to be carried out by the new owner. This involves establishing an “economic, technical, or organisational” reason for the reduction in workforce. 

The Protection from Redundancy (Pregnancy and Family Leave) Act 2023

From 6th April 2024, the government extended the protections under the Employment Rights Act 1996 to a larger number of people. 

Qualifying employees will be afforded “protection” from redundancy for a set period of time, which means that during this timeframe they must be given first refusal if any redeployment opportunities arise. 

Exactly who is protected and for how long is as follows:

Start of ProtectionEnd of Protection
Pregnant Employee Taking Maternity LeaveDate employer is notified of the pregnancy.18 months after the child’s birth, or expected due date. 
Employee Who Suffers a MiscarriageDate employer is notified of the pregnancy.Two weeks after the end of the pregnancy or full statutory coverage. 
Employees Taking Adoption LeaveBeginning of adoption leave.18 months from the date of placement, or entry into the UK if the adoption was from overseas. 
Employees Taking Shared Parental Leave (SPL)Beginning of shared parental leave. 18 months after the child’s birth, provided more than six weeks of SPL has been taken.

Bespoke Redundancy Advice from Thursfields

As an employer, understanding how to make employees redundant is crucial. With so much to consider, and the potential for employment tribunal claims if you were to get something wrong, you need to be confident in the quality of your legal advice. 

The employment team at Thursfields is dedicated to offering targeted support according to your unique circumstances. We’ll be with you every step of the way, ensuring your best interests are protected at all times.
For more information about how Thursfields can help you, contact us today.

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