A recent survey of 2,000 employers carried out by the Chartered Institute of Personnel and Development (CIPD) revealed that redundancy intentions are at their highest level in 10 years, barring the Covid pandemic with just over a third of the 2,000 firms it spoke to saying they planned to reduce their headcount through redundancies or by recruiting fewer workers. There are key steps in the redundancy process that will help you avoid redundancy claims. Our employment law experts guide you through the process, as even the most diligent employer can get caught out by redundancy pitfalls.
Increases to employer National Insurance Contributions and National Minimum Wage rates from April 2025, together with rising costs, have created a challenging time for many businesses, leading to difficult decisions concerning their staff. Unfortunately, for some businesses, redundancy may be the only option, but a redundancy process is not straightforward. The consequences of getting it wrong can be both financially costly if it leads to legal claims but also risk reputational damages and a demoralised workforce.
Contents:
The key steps of a fair redundancy process
- Consider alternatives - redundancies should be a last resort and so it’s important to explore alternatives at an early stage with your employees. This could include reducing pay, temporary layoffs or voluntary redundancies.
- Inform employees and identify the pool of employees at risk of redundancy and score them fairly against objective criteria.
- Consider whether any employees are pregnant, on or have recently returned from family leave as different redundancy protection rules apply
- Arrange meetings with employees to engage in genuine and meaningful consultation
- Consider whether there are any suitable alternative roles available
- Give notice of termination of employment and make statutory redundancy payment if applicable
- Offer a right to appeal
What are some of the most common pitfalls?
Calling it redundancy when it isn’t
Redundancy has a specific legal meaning so to fairly dismiss on the grounds of redundancy, you will need to ensure that any planned changes fall within the legal definition of redundancy. A redundancy situation can arise when you:
- close a business
- close a workplace
- need fewer employees to carry out existing work, or there is less work for your existing employees
Not every organisational change will amount to a redundancy – for example redistributing work among the same number of employees or changes to terms and conditions such as working hours may not meet the definition of redundancy.
It’s also important to ensure that the redundancy is not a sham to hide another reason for dismissal such as performance or misconduct.
Getting the selection pool wrong
Selection pools help make sure employees are selected for redundancy in a fair way. It will be important to consider which kind of work is disappearing and which employees do this work.
You should include all roles that are the same or similar in each pool and also consider including roles that have similar skills.
For example, if you need fewer employees to carry out marketing roles you may consider including PR roles in the selection pool as well if the skills are broadly similar to those needed for marketing.
Choosing an appropriate pool can be one of the most difficult issues to get right. A wider pool is likely to have a more detrimental impact on morale and require more time from management and HR in terms of overseeing the process. But if the pool is too narrowly defined employees who are subsequently selected for redundancy may argue they wouldn’t have been selected if others were included in the pool.
Using subjective selection criteria
Any selection criteria used must be objective where possible to avoid personal opinions being taken into account. Unless there are selection criteriapre-determined in your redundancy policy or agreed with Trade Unions or employee representatives, there is some flexibility in the selection criteria you can choose to score employees in the pool for selection.
Some objective criteria which are easily measurable might include:
- qualifications, skills and/or experience
- attendance
- disciplinary record
- performance (evidenced by previous appraisals)
- flexibility (in terms of an ability to fill more than one role).
Using the criteria Last In First Out (LIFO) is OK in principle if considered alongside other objective criteria, but it should not be used alone as a means of selection as this could potentially be age-discriminatory.
It is important that discrimination does not creep into the process of scoring against the selection criteria. For example, if using attendance is a criteria, you should disregard absences relating to disability, pregnancy, maternity or other family leave.
Late or insufficient consultation
You should consult with your employees at an early stage about why the proposed redundancies are necessary, ways to avoid or reduce the number of redundancies and any selection criteria to be used in the scoring process. It’s important that consultation is meaningful and not just a box-ticking exercise as this could lead to a finding that the decision to make an individual redundant or a group of employees redundant was a forgone conclusion.
Failing to consider alternative roles
An employee who is selected for redundancy should be offered any available vacancy that would be suitable, even if it is at a lower salary or at a lower status than the post from which they are being made redundant, and you should continue to consider any other roles that become available until the end of any notice period being worked.
If an alternative role is offered on different terms, there is a statutory four-week trial period for both the employer and the employee to decide whether the alternative employment is suitable.
Forgetting that special rules apply to employees who are pregnant or new parents
Employees who are pregnant or new parents have special protection in a redundancy situation which means that if they are selected for redundancy, they must be offered a suitable alternative vacancy if there is one available in your organisation in priority to other employees at risk of redundancy.
This redundancy protection during pregnancy and maternity starts when an employee informs you they are pregnant, and ends 18 months from the exact date the baby is born. This special protection also applies to employees who are taking shared parental leave, adoption leave or from April 2025, neonatal care leave.
What are the common legal claims an employee can bring?
The key claims that can arise when a redundancy process goes wrong are:
- Unfair dismissal – if an employee can successfully argue that there was not a genuine case for redundancy or that the redundancy process used to dismiss was unfair in some way, they may be able to claim compensation for unfair dismissal. Commonly unfair dismissal claims relate to issues around the selection pool, selection criteria or the scores applied or a lack of consultation.
- Automatic unfair dismissal because of pregnancy, childbirth or statutory family leave - it is automatically unfair to dismiss an employee or to select them for redundancy if the reason is connected to their pregnancy, childbirth or taking statutory maternity or other family leave. Failure to offer a suitable alternative vacancy to employees who are pregnant, or new parents can also lead to a claim of automatic unfair dismissal.
- Unlawful discrimination –in addition to claiming unfair dismissal an employee selected for redundancy may argue that their dismissal was discriminatory. The employee may claim that the redundancy was not genuine or a ‘sham’ and that a protected characteristic, such as an employee’s sex or race, was the true motive for making them redundant. This could arise, for example, when an employee is selected for redundancy when pregnant or on maternity leave.
Even where there is a genuine redundancy situation an employee may claim that some aspect of their selection for redundancy was discriminatory in terms of the selection criteria used or the process that was followed. - Failure to collectively consult - Where you make 20 or more employees redundant within a 90-day period there is a minimum process and period of collective consultation required. If you fail to comply with the requirements, then the Employment Tribunal can make a protective award to employees of a week’s pay for each week of the ‘protected period’ up to a maximum of 90 days. The Employment Rights Bill contains provisions to double this protective award to a maximum of 180 days when it comes into force.
Using an employment lawyer to support you through the process and reduce risk
Embarking on a complex redundancy process can be daunting and with so much at stake, you may decide that it is worth taking legal advice at the outset to ensure that what you are planning is legally compliant and to guide you through the process to minimise the risks of legal claims which can be financially costly as well as potentially damaging to your reputation. Employment Tribunal judgements are published online which could of course impact your reputation and standing with remaining employees and possibly with customers.
What to do if an employee brings a claim
You will usually be notified if an employee is considering making a claim as the employee must first raise a complaint by ACAS, which is known as the early conciliation process. It's important to engage in the process as this will give you an understanding of what issues the employee is looking to raise and what resolution they are looking for (usually compensation).
We would recommend consulting a solicitor at this stage to advise on the prospects of successfully defending a claim by the employee and whether it would be in your interests to consider reaching an early settlement.
Summary
Navigating a redundancy process can be challenging for any business, so careful planning and management of the process is key to avoid mistakes. Consulting our employment team at an early stage can ensure that you avoid the common pitfalls and reach the best outcomes for all involved.
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