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Detailed Practice Notes written by our Professional Support Lawyers, guiding you through the key issues in each topic.
Redundancy - overview
For the purposes of entitlement to a redundancy payment, an employee is dismissed by reason of redundancy if the reason for dismissal is:
the employer ceases carrying on the business in which the employee worked
the employer ceases carrying on the business in the place in which the employee worked, or
the business needed fewer people carrying out work of the kind which the employee performed
A much wider definition of redundancy applies (solely) in the context of consultation: there, 'dismiss as redundant' means a dismissal for any reason or reasons not related to the individual concerned.
In general, employees dismissed by reason of redundancy have rights to:
a redundancy payment
fair selection for redundancy
proper consultation before dismissal
take reasonable time off to look for alternative employment
For more information, see Definition of redundancy and Redundancy - checklist for employer proposing redundancies.
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
For further information, see Entitlement to statutory redundancy payment.
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. For further information, see Insolvency and the state guarantee fund.
An employee may also have a contractual entitlement to a redundancy payment. For further information, see Contractual redundancy payments.
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.
When a redundancy situation arises, an employer may wish to retain a more senior, skilled or long-serving employee whose work has reduced and dismiss another employee who is not apparently redundant. This practice is called 'bumping'. Collective agreements may make provision for this and it may sometimes be unfair for an employer not to consider including other employees whose work has not reduced in a pool for redundancy. Where an employee whose work has not diminished is dismissed to make way for an employee whose work has diminished, that dismissal is still a dismissal by reason of redundancy.
For further information, see Bumping.
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 (see Suitable alternative employment and Unreasonable refusal of alternative employment)
For further information, see Information and consultation in redundancy, Individual redundancy, Redundancy - checklist for employer proposing redundancies and Redundancy - individual consultation checklist for employers.
Where an employer is proposing to dismiss 20 or more employees as redundant at one establishment in any 90-day period, a formal period of consultation with trade union representatives or other elected employee representatives must take place before redundancies are made. If an employer is proposing to dismiss 100 or more employees, the consultation must begin at least 90 days before the date on which the employer proposes that the first of those dismissals should take effect. If an employer is proposing to dismiss 20 or more employees, the consultation must begin at least 30 days before the date on which the employer proposes that the first of those dismissals should take effect. These time periods are a minimum: it is required that consultation should start 'in good time and in any event' by the beginning of the stipulated period. Failure to undertake this consultation properly will render an employer liable for a protective award of up to 90 days' (uncapped) pay to each employee.
For more information, see Information and consultation in redundancy, Protective awards, Collective redundancy, and Redundancy - checklist for employer proposing redundancies.
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.
For further details, see The right to take time off to seek work.
Renewal of contract, re-engagement and trial periods
The effect of a redundancy may be eliminated if an employee is re-engaged within four weeks. The employee is considered not to be dismissed and not eligible for a redundancy payment if, after being made redundant, his employer finds him suitable alternative employment (unless he reasonably refuses it). The way in which this principle operates depends on the circumstances.
Where the employee is not offered his old job back on identical terms and conditions but is offered a job in a different place, a different capacity or simply on materially different terms, both the employer and the employee are given an opportunity to try out the new arrangement under a statutory four-week trial period. If the new employment is terminated during or at the end of the trial period, the employee's eligibility for a statutory redundancy payment will depend on whether the employer or employee terminates the employment, and the reason for the termination.
For further information, see Renewal of contract, re-engagement and trial periods.
Payment for lay-offs and short time
An employee may claim a redundancy payment without being dismissed in one situation: where instead the employer suspends the contract (a lay off) or asks the employee to work shorter hours for less pay.
For further information, see Payment for lay-offs and short time.
Effect of death of employer or employee
The death of an individual employer terminates the contract because it is frustrated. The ERA 1996 deems it to be a dismissal by redundancy.
Where an employee dies after having received an offer of new or renewed employment, but without refusing it or terminating a trial period, the principles of suitable alternative employment and unreasonable refusal apply in an altered form to determine whether his estate is entitled to a redundancy payment.
For further information, see Effect of death of employer or employee.
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