Redundancy is one of the five potentially fair reasons for terminating an employee’s contract of employment. To do this, employers will need to follow the correct procedures and then apply them fairly.
Firstly, an employer will need to establish that a ‘redundancy’ situation exists.
Is there a redundancy situation?
The definition of redundancy in the Employment Rights Act 1996 sets out three scenarios, namely:
- Ceasing or intending to cease to carry on the business for the purposes of which the employee was employed by it (business closure)
- Ceasing or intending to cease to carry on that business in the place where the employee was so employed (workplace closure)
- Having reduced the requirement for employees to carry out work of a particular kind or to do so at the place where the employee was employed to work (reduction of the workforce).
Whilst the first two examples are fairly easy to spot, one of the more common redundancy scenarios is the reduction in workforce, where an employer establishes that they need less people to carry out work of a particular kind.
A fair process
As well as there being a redundancy situation (a potentially fair reason for dismissal), an employer will need to ensure that they have conducted a fair process and acted reasonably in dismissing the employee in all the circumstances. If a fair process has not been followed, then the employer can find themselves facing a potential claim for unfair dismissal from employees who have over two years continuous service.
A dismissal for redundancy is likely to be considered unfair if the employer does not:
- Identify an appropriate pool for selection
- Consult with individuals in the pool
- Apply appropriate selection criteria when selecting those to be made redundant from the pool
- Consider suitable alternative employment
Payments on redundancy
An employee who is dismissed for the reason of redundancy may be entitled to a statutory redundancy payment. They may also have a contractual right to an enhanced payment, or an employer may at their discretion choose to pay an enhanced sum.
In addition, the employee will also usually be required to work either their notice period or be paid in lieu of working it (or a combination of both). They will also be paid for any accrued but untaken holiday still outstanding upon termination.
Often where an employer is paying an enhanced redundancy payment, this will often be conditional on the employee entering into a settlement agreement where they agree to waive all of their employment rights in exchange for the enhanced sums being offered.
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