The prospect of planning dismissals on the grounds of redundancy is never easy - for you as an employer, or for your team. But if change is unavoidable, it’s vital to handle the process with care, clarity, and compliance. There will be a lot to consider and there are several fundamental stages to factor in.
The first step is to understand what is meant by a redundancy dismissal. Then you should establish exactly what changes are required within the business and what impact that will have upon the amount and nature of work carried out, the number of employees required to perform that work. Finally, you will need to plan and achieve a fair and transparent selection process, incorporating the appropriate consultation.
Our expert employment law team review the process and discuss your options, helping you make informed decisions while treating people with the respect and transparency they deserve.
Contents:
- What is redundancy?
- Leading case law – the three-stage test in Safeway
- What factors may lead to a genuine redundancy?
- Getting it right - how do you choose a pool for selection?
- Is Last in First Out (LIFO) a fair selection criterion?
- How do I fairly score employees under the selection criteria?
- What if the selection process goes wrong?
- Summary
What is redundancy?
Redundancy has a technical statutory meaning in employment law, and so fully understanding what redundancy means is critical before embarking on a redundancy process.
Under the statutory definition, redundancy is where the dismissal is wholly or mainly attributable to the closure of the business or place of business where the employee worked or the business’ requirements for employees to carry out work of a particular kind is no longer needed.
Leading case law – the three-stage test in Safeway
The leading case on establishing whether an employee has been dismissed because of redundancy is the EAT decision in Safeway Stores plc v Burrell. It is important because it sets out a three-stage test, as follows:
- Was the employee dismissed?
- If the employee was dismissed, had the requirements of the business for employees to carry out work of a particular kind stopped or reduced, or was there a business or workplace closure or a reduced requirement for employees to do work of a particular kind?
- If so, was the dismissal of the employee caused wholly or mainly by one of the circumstances in 2, above.
Only if the answer to all three of the above stages is ‘yes’ will there be a redundancy dismissal.
Cases are still being judged by the Safeway three-stage test today and so considering whether your situation will pass all three stages before moving to a dismissal will assist with your decision as to whether this is a genuine redundancy dismissal.
Is the Redundancy Genuine?
When assessing your potential redundancy situation, it is important to understand what constitutes a dismissal. There is a dismissal if:
- an employer terminates the employee’s employment with or without notice or
- an employee’s fixed term contract expires and is not renewed or
- the employer’s conduct entitles the employee to resign with or without notice (constructive dismissal) or
- there is an act of the employer or event affecting the employer such as the death or retirement of an individual employer, which terminates the employment by operation of law (for purposes of redundancy payments only, not unfair dismissal)
The employer must communicate to the employee that they are terminating the employee’s employment contract, and the date the dismissal will take effect either expressly orally, in writing, or by deeds, so that this is clear and unambiguous from the communication, as it would be understood by a reasonable observer.
Where an employer invites employees to volunteer for redundancy, an employee responding to that invitation is volunteering to be dismissed by the employer by reason of redundancy. The employee is not agreeing to resign, so where a voluntary redundancy takes place, there is generally a dismissal.
Is there closure of a business?
If the employer ‘has ceased or intends to cease… to carry on the business for the purposes of which the employee was employed’ there is a redundancy situation. Even if a closure is temporary and the employer intends to reopen in the future, this could lead to redundancies. It will depend on the facts of the case whether the closure is long enough to qualify.
If a business is closing so that it can change and re-open again, the facts will determine whether an Employment Tribunal decides that the new business is sufficiently different from the original business. If it is, this will mean that the original business ceased, and any dismissals were for redundancy. If a business transfers to a new owner, the employees will likely transfer to the new owner under TUPE and will not be dismissed or made redundant, unless insolvency rules apply in a narrow set of circumstances. TUPE, has its own specific set of rules and employer obligations. If you are unsure whether your business is involved in a TUPE transfer, our employment experts would be happy to assist you with that.
Is there closure of the workplace?
If there is an intention for you to cease carrying on your business in the place where the employee is employed, covering relocation and site closure, there is likely to be a closure of the workplace. To establish the workplace of the employee, it is the reality of where the employee works, at the time of the dismissal, that is relevant. If the employee’s actual workplace is different to what is written in the employee’s contract, it is the last place of work, which matters. A mobility clause can complicate this and must be looked at when considering the ‘workplace’ of the employee, where they work or have worked in more than one location.
If an employee’s place of work is two or more places and only one is closing, it may be easier to establish a redundancy situation because of a diminishing requirement for employees, rather than closure of the workplace. However, if there is a mobility clause, and there is enough of the same work available at another location, you may choose to use the mobility clause to avoid redundancy.
Is there a reduced requirement for employees to do work of a particular kind?
This category is slightly wider than closure of a workplace, as a dismissal will be for redundancy if it is wholly or mainly attributable to reduced need for employees to carry out work of a particular kind in their workplace place or within the entire business. If you are reorganising the business, you will need to consider carefully whether there is a case for redundancy on these grounds.
Other circumstances may also give rise to a redundancy situation. If two roles are absorbed into one, if a particular type of work or project reduces and so fewer staff are required to fulfil demand, if a change in role function or reduction in hours occurs or is anticipated, further consideration as to whether there is a redundancy should be given.
It is not necessary for overall headcount to reduce for there to be a redundancy situation, though. If the amount of a particular type of work reduces but other work increases, there may be work available for the same number of employees in different areas of the business; a dismissal of an employee wholly or mainly for that reason can be a redundancy. A department may have a reduced need for a copywriter but an increased need for a business development officer, for example.
When looking at whether there is less of a need for employees to do a particular type of work, a commercial judgement about the priorities of the business by the employer is the starting point. If there is a genuine business reason, the Employment Tribunal will not require you to justify that business decision. What is clear though, is that the focus should be on the requirements of the business for employees to do work of a particular kind, not on the contractual requirements relating to a particular employee.
So, what is ‘work of a particular kind’? This may be wider than two roles with the same job title, it may also include roles with overlapping tasks and skills. It might be that work is not of the same kind if a different level of experience or seniority is required for two different roles, but generally other characteristics of a role such as salary or hours are not considered, the focus is on skills and tasks.
If there is a reduction in the requirements of the business for employees to carry out work of several kinds this could be capable of satisfying the test of reducing work of a particular kind, as there is a reduction of headcount required, even if staff are all placed in the same pool for redundancy and carry out work of different kinds.
What factors may lead to a genuine redundancy?
There are many factors which may mean that making redundancies is the best course of action for your business, and whether there is a genuine redundancy will be fact sensitive, but here are some reasons which you may have for needing to make redundancies:
External economic issues – such as an increase of applicable business rates, tariffs, or taxes, or an increase in the national minimum wage. These external factors over which you have no control, can make it more expensive to employ people. This can lead to a reduced budget to hire and pay employees, requiring a reduction in head count.
- Change in what your business does – if your business pivots because the market in one area becomes bigger, but another area of work reduces, so fewer employees are required in that area of your business, there may be redundancies required if employees do not have the skills or qualifications for the new work.
- Efficient internal reorganisation – if you wish to reorganise your business so that there are fewer levels of management or roles are merged to make your business more cohesive and efficient, this is a valid business aim and could foreseeably lead to redundancies.
- Technology replacing jobs – if your business can now use technology to save costs and make your business more productive, which will lead to the loss of jobs for your staff, this, again, is a legitimate business objective which is likely to lead to redundancies.
- Relocation – if your business is looking to change its location for cost or other operational reasons, depending on where the relocation is to and the situation of the staff employees, it is likely that this will lead to a reduction in staff, unless there is a valid and reasonable mobility clause.
What happens if the redundancy is not genuine?
- Mobility clauses in employee contracts of employment which are reasonable in scope, may allow for an employee to move and work from a different location. Dismissal for failure to relocate in this situation could be a disciplinary issue and for failure to obey a lawful instruction, rather than for redundancy.
- Where suitable alternative employment has been offered. Where an employee is at risk of redundancy but suitable alternative employment has been offered, then there has not been a dismissal, and an employee will simply move from their former role, to the new employment. Without a dismissal, there cannot be a redundancy. Whether a role is suitable in terms of location will involve looking at the mobility and any other flexibility clauses in the employee’s contract, as well as the redundant employee's place of work and current commute. These will help determine whether there has been a workplace closure and whether a redundant employee has unreasonably refused an offer of suitable alternative employment by being offered a similar or the same role in a suitable and reasonable location. An employee will forfeit their statutory redundancy payment if they refuse suitable alternative employment.
- Changes to the employee's terms and conditions. Reorganisations can sometimes require an employer to vary the employee’s contract in order to add extra and different tasks and duties. Examples include requiring a member of the finance team to take on some duties of credit control or debt recovery, for an employer to reduce an employee’s wage or benefits, or to enforce a change in shift pattern where the tasks performed remain the same. In these situations, the requirement for the employee’s original work has not ceased or diminished. If an employer unilaterally changes the term of employment upon which the employee carries out their role, it may be a breach of contract, or unilateral breach giving the employee the right to claim constructive dismissal. However, if the requirement for the employee to do work of a particular kind remains the same, any arising dismissal cannot be for reason of redundancy. If the employer adequately consults with the employee before enforcing the changes but due to the employee’s refusal to accept, there is a dismissal, it is possible that a tribunal may attribute some other substantial reason (SOSR) as the reason for dismissal. If your business is facing a similar situation, and you are unsure of how to proceed, it is always better to seek legal assistance at the earliest possible opportunity. Our legal experts are here to help.
Discriminatory reasons – this may seem obvious, but some of the above changes might be more of an issue if an employee has a protected characteristic. For example, if an employee has a disability, a new location may not have the same physical adaptations or may be more difficult to travel to, causing a significant disadvantage to that employee because of their disability, compared to employees without the disability. Forcing a change of location might amount to indirect discrimination in those circumstances. Also note there are additional obligations in respect of maternity and redundancies and so in these situations, it is advisable to seek early professional advice.
Getting it right - how do you choose a pool for selection?
Once a business has assessed the necessary changes it needs to make, has established whether or not those changes are likely to result in a dismissal and is satisfied that the reason for those dismissals will be because of genuine redundancy situation, the next step is to identify the pool of potentially redundant employees and select those whose employment will cease.
A redundancy ‘pool’ is just the grouping from which the individuals will be selected for redundancy.
If there is a business closure and all employees are being made redundant, you will not be required to choose a pool for selection.
If there is not a business closure and you are retaining employees, then before you start the redundancy process, you will need to identify which employees are in the pool for selection. To do this you will need to consider carefully what roles or tasks are being reduced or removed from your business. To be able to identify which group of individuals are ‘at risk’ of redundancy, you will need to look at the reality of the particular roles, or tasks your employees perform. Those employees who perform the reduced or eliminated roles or tasks should be placed into the selection pool. They will then be at risk of redundancy.
It is possible for there to be a pool of one individual if they hold a unique role or have skills and perform tasks that no other employees carry out.
It is important to note that it is just a matter of identifying those employees at risk of redundancy at this stage, and no definite decisions about who will be made redundant or even if there will be any compulsory redundancies have yet been made.
It might seem obvious who will be made redundant. If specific jobs are lost, surely the individual currently occupying that role should be made redundant? However, this is not necessarily the case and assumptions should be avoided. The pool for selection should sometimes be wider to include staff with the same or similar skills, qualifications, or undertaking the same or similar tasks, even if these are undertaken in different departments or on different sites.
It may even be that employees would rather you use ‘bumping’ , which means putting them into a role that is already being carried out by another employee, then putting that other employee at risk of redundancy. It is not mandatory to do this, but in some cases, it has been held to be unfair to not even consider it. This means that the question of who is at risk and who will eventually be made redundant is not always clear cut at an early stage.
The key questions to answer are what work is disappearing? Which employees do that work? Are there other employees who do similar work? These should help you to decide on the selection pool and employers do have a wide level of discretion in relation to the pools they decide upon. Unless there is a collectively agreed or customary selection pool, if your choice of pool is within the range of reasonable responses, it will be fair.
Once you have selected a pool of individuals which will be at risk of redundancy, you will need to score them against objective selection criteria.
What are fair selection criteria for redundancy?
Unless there are selection criteria prescribed in your employees’ contracts of employment or your redundancy policy, or agreed with Trade Unions or employee representatives, there is some flexibility in the selection criteria you can choose.
If there are criteria already set out, these must be used, if there are not, it is recommended that you agree on the criteria with any Trade Unions recognised by your business or employee representatives before you score the employees against the criteria. If there is no employee representation, then selection criteria should be discussed individually with the employees through individual consultation. If you would like assistance with the consultation process or with updating your employment contracts or redundancy policies, our expert lawyers can assist with this.
The scale of the proposed redundancies is important to the type of consultation that is required. The statutory duty to inform and consult arises where 20 or more employees are proposed to be dismissed as redundant at one establishment within a 90 day period. Although it is worth noting that, whilst it is not yet enforce, the latest iteration of the proposed Employment Bill removes the ‘single establishment’ rule for collective redundancies. The Government is also consulting on increasing the maximum protective award for those employers who fail to collectively consult.
When involved in collective consultation, it is important to ensure that you consult not only with those employees who are placed at risk of redundancy, but also any employees whose roles will be impacted by the measures taken in connection with those redundancies.
Examples of Criterion
Some objective criteria which are easily measurable and not just based on opinion might be:
- Performance (scores from previous appraisals)
- Skills
- Qualifications
- experience
- attendance
- disciplinary record
You might assess against these criteria from previous experience of the employee, or you may ask for at risk employeesto reapply and interview for a particular role to take that process into account as part of the scoring for redundancy.
Is Last in First Out (LIFO) a fair selection criterion?
This used to be a popular method for selecting employees for redundancy and it was previously widely accepted by employees that if an employee started employment with an employer last that they should be the first to leave. Whilst LIFO is in principle, an objective basis on which to score for redundancy, this must be applied fairly and should be considered alongside other objective factors.
The concern with LIFO as a selection criterion is that if it is the sole criterion or too heavily weighted as a factor when selecting for redundancy, this may lead to indirect discrimination, particularly indirect age discrimination against younger people. LIFO often penalises younger employees disproportionately because they are more likely to have shorter service, meaning they are more likely to be selected for redundancy under LIFO and are more likely to be entitled to a lower redundancy payment.
There is also an argument that women are likely to be indirectly discriminated against when using this criterion, as they tend to have shorter terms of employment due to often having to balance other caring responsibilities and needing flexibility and different roles to fit their lives at different times.
It may also be the case that LIFO disproportionally impacts under represented groups, which could amount to indirect discrimination on grounds of other protected characteristics like race or disability.
It is possible to justify LIFO as a proportionate means of achieving a legitimate aim, because this criterion helps to reward the loyalty of employees and to maintain a stable workforce, however, it is just wise to balance this against other selection criteria. LIFO is now often used as a tie break criterion should employees’ scores be tied.
How do I fairly score employees under the selection criteria?
The scores that you choose to award employees will be a matter for you, but they must be objective and justifiable to be fair. The scoring must be awarded consistently, and using a redundancy selection matrix where criteria are clearly defined and evidence provided for scores, can help. If there is any weighting of scores, so that some criteria are given more importance than others, this should be transparent so that employees are clear on what is being assessed, why and by whom.
Scoring against the different criteria should be based on assessment over a reasonable period so it is a fair reflection of the individual employee’s abilities and skills. Criteria that require a level of judgment (ability, performance, skills), should be verified with qualitative data.
If you are looking at performance data for example, you should use written performance reviews or appraisals over a period of time. If you are looking at skills, training records would be useful. Keeping a written trail is important to evidence your decision-making process.
For the scoring to be accurate and for consistency, it will be important for you to consider who is doing the assessing. For accuracy, the scoring will need to be carried out by someone with direct and specific knowledge of all at risk employees’ work, such as their immediate manager, so they can fairly compare. Given that one person’s view could be considered bias, it is strongly advisable that more than one person, but the same people, score each employee, so that there is consistency and less likelihood of dispute.
It is important that discrimination does not creep into the process in the application of the scoring to the non-discriminatory criteria. For example, when considering attendance records, you should not include absences or medical appointments relating to disability or maternity and parental leave. These should not be considered as absence in the same way as other absences from work, as this would unfairly disadvantage disabled people, new mothers, and parents, respectively.
You do not have to choose a weighting for particular criteria, they can all be taken into account equally when scoring employees. However, where certain criteria are more important to the future of your business and the staff you want to retain going forward, weighting will allow you to be more flexible in how you score employees. Again, you will want to be cautious not to discriminate with the use of weighting and if you are weighting criteria to reflect the most important factors for the future, LIFO should not be weighted more highly than other criteria you score against.
What if the selection process goes wrong?
Redundancy is a potentially fair reason for dismissal if there is a genuine redundancy situation and the selection process is fair. If the redundancy selection criteria are unfair or are applied unfairly, there may be potential claims for breach of contract, unfair dismissal, and/or discrimination against your business.
If an employee has been selected for redundancy for a discriminatory reason, this is automatically unfair and if that employee is dismissed under those circumstances, this could lead to an automatic unfair dismissal claim. Similarly, if you place an employee at risk of redundancy because the employee has made a protected disclosure, this would amount to a detriment short of dismissal, entitling an employee to pursue a compensation claim.
It is also automatically unfair, to select and/or make an employee redundant based on a protected disclosure, parental leave, or an employee taking time off to care for a dependant, acting as an employee or trade union representative, trade union activity, whether they are part time or fixed term, or for asking for their entitlement of pay, hours or holidays.
If an employee objects to one or more elements of your redundancy selection process, it is advisable to allow them the opportunity to discuss their objections through the individual consultation process. As already mentioned, as far as possible , elements of the process should be agreed (or at least discussed) in advance, such as the selection criteria to be used. If an employee objects to the scores they have been given, there should be individual consultation and discussion about this as soon as possible. Ultimately, there should also be the opportunity offered for an employee to appeal against their dismissal, should the employee be eventually dismissed.
If you are confident in the redundancy process you have carried out and are able to refer to written evidence and a clear written trail of decision making and discussions on a fair, consistent and non-discriminatory basis, this should be the end of the process. Even if an employee objects to being made redundant, provided you have paid them what is required under their contract and under statute and there was a fair reason for the redundancy, and they were fairly made redundant in the specific circumstances, there is unlikely to be any ongoing liability for your business. If you are unsure and would like to talk through the specifics of your business’ circumstances, our specialist employment solicitors can help.
If you are concerned about ongoing liability relating to your redundancy process, our employment lawyers are experienced in defending employment tribunal claims and resolving ongoing disputes under settlement agreements.
Summary
There are great advantages for employers planning redundancies who take the time to get it right from the beginning. Having identified what has happened in your business and how it has impacted the type and level of work you undertake, we can assist you in assessing how this may impact headcount, to identify those at risk and assess whether individual or collective consultation is required. A fair and transparent selection process, applying consistent reasoning can not only reduce the level of disruption and uncertainly to your business but also achieve fair dismissals on grounds of redundancy.
To avoid making errors leading to unfair dismissal, breach of contract or discrimination claims, if you are in doubt about any of the points raised in this article, please do contact our employment lawyers who would be happy to guide you through each stage of the redundancy process.
