CIPD - Redundancy

Employment law

Revised October 2008

This factsheet gives introductory guidance. It:

makes suggestions for managing and responding to workplace change flexibly
encourages organisations to develop strategies which reduce, avoid or limit redundancy
seeks to ensure that if redundancy occurs, it is handled in accordance with the law
seeks to raise awareness of strategies which assist those affected to retain self-respect and enhance employability
reminds organisations about the impact on those employees who remain
includes the CIPD viewpoint.

Predictions that the number of redundancies in the UK will rise sharply during the credit crunch have been substantiated by the latest figures from the Office for National Statistics which have revealed an increase in the number of people claiming Jobseekers’ Allowance. The impact of the economic slowdown has also been demonstrated by fewer job vacancies and a rise in the number of redundancies particularly in the finance, business services and construction industries.

Redundancy is one of the most traumatic events an employee may experience. Announcement of redundancies will invariably have an adverse impact on morale, motivation and productivity. The negative effects can be reduced by sensitive handling of redundant employees and those remaining.

This factsheet gives some introductory advice and links to other resources on our website. The links in the Useful contacts and Further reading sections below give additional suggestions for finding out more.

The legal position

Both statute and case law determine redundancy obligations and rights. The main legislation governing redundancy is:

The Trade Union and Labour Relations (Consolidation) Act 1992
The Collective Redundancies and Transfer of Undertakings (Protection of Employment) Regulations 1995 (SI 1995/2587)
The Employment Rights Act 1996
The Collective Redundancies and the Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 1999 (SI 1999/1925)
The Collective Redundancies (Amendment) Regulations 2006 (SI 2006/2387).

CIPD members can find out more on redundancy law in our Redundancy FAQs.

Go to our Redundancy FAQs

The Employment Equality (Age) Regulations 2006 which came into force on 1 October 2006 have also affected redundancy, for example, by removing the previous upper and lower age limits (of 65 and 18 respectively) for statutory redundancy payments. The existing age bands used to calculate statutory redundancy pay are unaffected. For further details of the main provisions of the age regulations which affect redundancy, CIPD members should see our Age discrimination and retirement FAQs.

Go to our Age discrimination and retirement FAQs

Definition

A genuine redundancy only arises when either there has been, or is going to be:

a cessation of business
a cessation of business at the employee’s site
a reduction or cessation of work.

In recent CIPD surveys, the primary reasons for making redundancies are listed as reorganised working methods and efficiency/improved competitiveness. Even during expansion, redundancies can occur if specific work is disbanded. In a substantial minority of cases, redundancies are not accompanied by falls in total staff numbers and have either no effect on total numbers or are more than offset by recruitment.

Go to a list of our surveys

Confusion may arise because ‘making someone redundant' is often used as an euphemism for saying an employee is being dismissed for some reason other than redundancy.

Managing redundancy

If possible, it is preferable for an organisation to establish a formal procedure on redundancy. In many organisations a formal agreement may have been negotiated and agreed between management and trade union or employee representatives. Some organisations deal with redundancies by an informal arrangement with a practice which varies for each redundancy or they may only start to consider the appropriate procedure for the first time when a redundancy situation arises.

At the very least in order to plan and implement a redundancy situation properly, the following stages will be followed in most redundancies:

planning
invitation of volunteers
consultation, both collective and individual
identification of a pool for selection
notification of large-scale redundancies (more than 20 employees) to the Department for Business, Enterprise and Regulatory Reform (BERR) (formerly DTI)
use of objective selection criteria
compliance with all three stages of statutory dismissal procedures
advance notice of individual consultation meeting
permitting a colleague to be present at consultation meetings
opportunity to appeal
allowing seeking of suitable alternative employment
statutory or other redundancy payment
relocation expenses
helping redundant employees obtain training or alternative work.

Of course the exact procedure varies according to the timescale and size of the redundancy. The core points concerning some of these stages are summarised below.

Planning and preventive measures

Organisations should always attempt to avoid redundancies. Ways of doing this include:

natural wastage
recruitment freeze
stopping or reducing overtime
offer early retirement to volunteers (subject to age discrimination issues)
retraining or redeployment
offering existing employees sabbaticals and secondments.

Seeking volunteers

As part of the overall procedure, once the need for redundancies has been identified and careful planning has taken place, offering a voluntary redundancy package and then seeking willing redundancy volunteers may avoid compulsory redundancies altogether.

Individual and collective consultation

Individual consultation is necessary for all redundancies and the law requires that collective consultation is required in the multiple redundancy situations referred to below. As an absolute minimum, organisations must at present follow the three key steps of the statutory disciplinary and dismissal procedure – for more information, and for the proposed changes to these procedures, see see our factsheet on discipline and grievances in the workplace. Case law concerning consultation continually evolves, so keeping informed of relevant decisions is vital. CIPD members can also see our Discipline and grievances procedures FAQs.

Consultation should also include:

the reason for the redundancy dismissals
why and how individuals have been selected
possible ways of avoiding redundancy
possible alternative work.

Collective consultations with recognised trade unions or elected representatives must start at least 90 days beforehand for proposed redundancy dismissals of 100 or more employees, and at least 30 days before notification of redundancies for 20–99 employees. In cases where collective consultation is required, it must be completed before notice of dismissal is given to any of the employees concerned. The law requires meaningful consultation - it is not enough only to inform. The maximum compensation that can be awarded if an employer fails to consult is 90 days pay.

Selection

In the earlier stages, employers will need to carefully determine the initial selection pool for redundancy. Unless there is a customary arrangement, an employer should identify the group of employees at the planning stage who may be made redundant. This will usually be those who undertake a similar type of work in a particular department, or work at a relevant location, or whose work has either ceased or diminished, or is expected to do so. These will be the selection pool.

In the later stages of the redundancy process, individuals must be selected from within the wider pool. Where there is a choice between employees, selection must be based on objective criteria which may include:

length of service
attendance records
disciplinary records
skills, competencies and qualifications
work experience
performance records.

Following the age discrimination legislation (see above), ‘last in, first out’ is now risky as a selection method. But even before this, it was an unsatisfactory way of retaining the most competent.

Tribunals should look favourably on selection procedures based on a points system which scores each employee against the relevant criteria. However, great care must be taken in the choice and application of the criteria to avoid factors which may be discriminatory on any grounds. Unfairness can be indirect or overt, for example, selection of part-timers in preference to full-timers could be discriminatory if a high proportion of women are affected.

Notification

At least 90 days written notification must be given to BERR if 100 or more employees are to be made redundant, and at least 30 days for 20 to 99 employees. For less than 20 employees, no notification to BERR is required.

Unfair dismissals

In law, there are many reasons which are automatically unfair for selecting employees for redundancy, including:

trade union membership (or non-membership)
part-time status
pregnancy or maternity-related reasons
sex, sexual orientation, marital status, disability, race or religion.

A dismissal may also be a normal (ie not automatic) unfair dismissal if there is not a genuine redundancy or if the selection criteria are too imprecise or subjective. And although the reasons for redundancy may be completely fair, it may still be judged unfair on procedural grounds such as lack of consultation.

CIPD members can see more on the legal aspects of unfair dismissal in our FAQs.

Go to our Unfair dismissal FAQs

Appeals

Employees dismissed by reason of redundancy must be given the opportunity to appeal their selection for redundancy. The appeal must be handled carefully and comply with the three key steps of the statutory disciplinary and dismissal procedure.

Alternatives

Employers must consider suitable alternative work and are expected to look for alternatives throughout the organisation. There is an offer procedure dealing with this. The law removes entitlement to a statutory redundancy payment if an employee unreasonably refuses a suitable alternative.

Time off

The law requires employees be given paid time off to look for work during the final notice period.

Compensation

Dismissed employees with two or more years’ service are entitled to a minimum redundancy payments based on a formula similar to the basic award for unfair dismissal. There is a maximum statutory payment (£9,900 from February 2008), but many employers pay more than the law prescribes. CIPD members can find current levels of statutory awards and payments in the Employment Law at Work area of our website.

Go to our Employment law at work data webpage

Giving the bad news – counselling and support

Giving notice is unpleasant and need careful handling. Common faults include being brutally abrupt or too vague. Managers should be trained to handle redundancies with sympathy and clarity. Particular care will be needed to make sure that people know where to go for further advice or support.

Employees can be badly affected by redundancy and need support to accept reality and mount an effective job search. A well-designed redundancy programme should enable employees to refresh their interview skills, redraft CVs and reply effectively to job advertisements. Good counselling by outplacement consultants or others, also reassures those remaining that the organisation is prepared to treat redundant employees well.

Survivor care

In any redundancy situation, the immediate priority is the fair and sensitive treatment of employees who are losing their jobs. Once this has been achieved, the organisation’s ongoing effectiveness in today’s competitive market is largely dependent on the morale of the survivors. Clumsy redundancy handling is bad for the employer’s business and long-term reputation.

A demoralised workforce, anxious about job security and critical of the handling of the redundancies of colleagues, is not likely to display commitment, enthusiasm and initiative. Therefore, the primary objectives of management should be to:

give all the workforce a full explanation of the situation and explain the policies and practices adopted to those made redundant
demonstrate the necessity for change
give an appraisal of future employment prospects and details of changes in working arrangements
handle redundancies in a responsible, fair and effective way
provide a forward-looking, positive attitude for the future and show survivors the value of their role in that future
conduct, where necessary, individual discussions with remaining key workers to reassure them of their importance and employment prospects
ensure that managers have, or develop, the necessary personal skills and attitude to operate effectively during periods of traumatic change.

CIPD viewpoint

CIPD believes it is unrealistic to suggest that redundancy can always be avoided by a combination of human resource planning and employment flexibility. The future can never be forecast with total accuracy. Unexpected events may necessitate enforced workforce reductions and individual redundancies may also occur when a job is no longer needed. However, CIPD expects its members to:

encourage their organisations to take all reasonable steps to avoid the necessity of redundancies
develop planning and employment strategies which enable their organisations to deal with the requirements of short-term labour fluctuations, minimise the risk of enforced redundancies and maximise alternative opportunities
manage redundancies legally and in a way that minimises the inevitable adverse impact both on those who lose their jobs and on the ‘survivors’
implement communication strategies to ensure everyone in the organisation has the correct information about the reasons for redundancies.

CIPD acknowledges that even the most carefully handled redundancies are likely to result in damage to the psychological contract and a negative organisational culture – see our factsheet on the psychological contract. It always makes sense, therefore, to view redundancy as a last resort. This will also give a clear message to employees that they can trust the organisation not to make unnecessary redundancies.