Redundancy — overview

Redundancy arises when the needs of the business require fewer employees. A redundancy situation exists when a business (or a workplace) closes, or the amount of work needed by a business reduces. In general, employees dismissed by reason of redundancy have rights to:

• a redundancy payment

• fair selection for redundancy

• proper consultation before dismissal

• permission to take reasonable time off to look for alternative employment

The redundancy payment

Redundancy payments are made to compensate employees for losing their jobs. A redundancy payment is payable when an employee with two years' continuous employment is dismissed because of redundancy. This can include where:

• fixed term contracts come to an end without renewal

• circumstances operate to terminate the contract

• an employee volunteers to take redundancy

• the work which one employee performs has not diminished, but he is dismissed to allow his position to be given to another employee whose work has diminished

• an employee who is paid according to work done earns less than half his usual week's pay for a period of time

The payment is calculated according to an employee's age, his weekly pay and the number of years of continuous employment he has.

An employee can lose his right to a redundancy payment if:

• he is reinstated or re-employed in suitable alternative employment within a certain period of time (ie he is treated as not having been dismissed)

• he unreasonably refuses an offer of suitable alternative employment or tries out a new position and unreasonably terminates it during the trial period

There are also various technical exclusions from a right to a redundancy payment, relating either to classes of employees, or other matters such as pension entitlement, a failure to serve out a notice period or striking during the notice period.

If an employer cannot or will not pay a redundancy payment, the employee can apply to BIS (previously BERR) for payment.

Fair selection

In some redundancy situations, selection for redundancy will not take place because all of the affected employees are made redundant. This might happen where a business closes down entirely. However, where there is to be selection for redundancy, employees will be very concerned to know that the selection procedure has been fair. To achieve this, an employer needs to identify a fair pool from which the redundant employees will be selected, adopt fair selection criteria, apply them fairly, and then consider alternative employment within the business or within a group of companies. If the employer fails to do this, he could be vulnerable to a finding of unfair dismissal.

Consultation before dismissal

Employers should consult with the affected employees at each stage of the redundancy process (and failure to do so may make dismissal unfair) when:

• there is still an issue whether it will be necessary to make redundancies at all

• the selection criteria are chosen

• provisional selection is made according to the selection criteria

• alternative employment is being considered

Where more than 20 employees are being made redundant, a formal period of consultation with trade union representatives or other elected employee representatives must take place before redundancies are made. The relevant period is 30 days when between over 20 employees are made redundant, and 90 days when over 100 employees are made redundant. Failure to do this will render an employer liable for a protective award of up to ninety days pay to each employee.

Time off to look for other work

An employee who has been given notice of redundancy may be entitled to time off to look for alternative employment, as long as he has two years' continuous employment and certain other criteria are met. He will also be entitled to be paid up to two days' pay for this time off. In practice, this means employees are entitled to request reasonable time off and employers may not refuse it unreasonably.