In a nutshell

Making an employee’s role redundant is the same as dismissing that person. However, it is all about dealing with a job that has disappeared, as opposed to disappearing an employee you don’t like managing. It is an uncertain and difficult time for you and your staff and must be handled carefully.

You are having to go down that path, because of a business reason that may involve losing a contract or client or a slowing down or lack of work generally. This is a matter of concern for you financially and in terms of the growth of your business.

Your staff will be feeling vulnerable about their current position and their future. Only staff with two years’ service are entitled to a statutory redundancy payment. They will be worried about their financial position and finding another job amongst other concerns.

It is a time for thoughtful words and considered actions. Not only should a redundancy situation be handled sensitively, it is worth being aware of the legal consequences that can unwittingly ensnare you if you fail to follow certain steps.

What are the risks?

  • Handling a redundancy situation in a callous manner, is likely to alienate your staff and that could lead to your best employees voting with their feet.
  • From a legal perspective, a failure to follow a fair and reasonable process can turn an unfair redundancy into an unfair dismissal.
  • Where selection for redundancy is required, choosing on a subjective rather than an objective basis can lead to a claim of discrimination. For instance, many an employer has used redundancy as a fake reason for dismissing a woman who has just had a child. In proven cases, this has amounted to sex discrimination. Whilst compensation for unfair dismissal has a limit, compensation for discrimination does not.

Key steps to managing this issue

1. Follow your redundancy policy

Assuming you have such a policy, following it to the letter is evidence of an employer being fair and reasonable and at the same time it works as a blueprint for all concerned. You can use the download below to help you start to create a policy, but it’s advisable to work with an HR consultant to refine it.

Many redundancy policies and processes start with voluntary redundancy (VR). Quite literally, you are asking your staff for volunteers to redundancy. VR is a form of dismissal, so it is important to follow the key steps below. Experience shows that VR will only be attractive to your staff if you pay more than the statutory minimum required by law.

Whilst VR may be sufficient in certain circumstances, it may still be necessary to make compulsory redundancies. Whether you have a policy or not, it is prudent to make a plan based on the steps suggested in this document.

2. Be able to prove business need

'Business need' is a mantra chanted by employers when faced with a reason for redundancy. It is always important to be able to provide some clear and tangible evidence of that fact. Showing that you have lost customers or clients or there is a downturn in business is a good starting point to establishing a fair redundancy.

It demonstrates that you are being influenced by a realistic reason for making redundancies, and not using that as a reason to shed some of your staff for questionable reasons such as an employee who has been off sick for a long period.

You should keep a record of the identified business need in case an employee makes a tribunal claim at a later date.

3. Identify the type of redundancy

The law recognises two types of redundancy. The first is known as 'place' redundancy. This means you are shutting a whole department, section, office or factory and everyone in that part of the business is affected.

The second type is known as 'job' redundancy. This is where you are selecting certain roles or jobs for redundancy, perhaps due to a slowing down of that area of business.

The type of redundancy that is in play becomes important when you start to follow the due process of the law and look to comply with 'the big three' (see below).

4. Comply with the due process of redundancy law

The "big three" aspects of ensuring a fair redundancy are:

a. Inform and consult

Inform means 'tell', consult means 'talk' (not negotiate). Tell your staff:

  • why the redundancies are necessary
  • the reasons behind it
  • what alternatives to redundancy you have considered
  • the number of people involved
  • who they might be
  • how you are going to select employees for redundancy
  • the right of appeal and appeal procedure
  • the redundancy payment and how it has been calculated

You can inform via a staff or group meeting and follow it up with a one to one. It also makes sense to inform staff via letter or email. If more than 20 employees but less than 100 employees are involved, there is a 30 day minimum period imposed to ‘tell and talk’. Even if there are less than 20 employees involved, you should work to a reasonable time scale for informing and consulting.

b. Explain the basis for selection

When you are selecting certain roles for redundancy, it is vital that you choose based on objective selection criteria. The wider your 'pool' for selection, the better. The actual criteria you use need to be fair and transparent.

Examples of such criteria are:

  • performance
  • appraisals
  • skills
  • experience
  • disciplinary record
  • criteria specific to your particular industry

You can score each criteria say 20 marks, and if you have a maximum of three criteria (3x20=60); those who score less than 30 out of 60 are candidates for redundancy. If you are able to do so you should ask someone else to review your scoring and selection.

You can use the checklist resource below to help ensure you follow a fair process.

c. Suitable alternative employment

This will depend on the size of your business, and is applicable if there are other jobs available where you can redeploy staff. If there are suitable alternative roles these should be offered to those who have been selected for redundancy during their notice period.

'Suitable' means that the new job is on par with the redundant role with regard to pay, terms, status, job type, hours and location. The employee can try the alternative role for four weeks. If it works for the employee, they carry on in that role and no redundancy payment is due.

Otherwise, if they don’t find the alternative role suitable and/or reasonable, it is likely you will have to make the employee redundant and pay the original redundancy payment.

5. Offer support to your staff

This can take many forms and while not a legal requirement, but is good practice (and can help maintain good relations with former and continuing employees):

  • Take as long as possible to inform and consult.
  • Be generous in terms of a redundancy payment ie to those who don’t have two years’ service.
  • Provide a detailed reference.
  • Allow staff plenty of time to look for other jobs and attend interviews.
  • Talk through their worries or concerns.
  • Do not escort them off the premises when the time comes.
  • Help them find an expert to update their CV or improve interview skills.

Tools and resources

Use the redundancy policy heading checklist to help you start to create or update your redundancy policy and download the redundancy process checklist to help you follow a fair process.

Legal disclaimer

The materials on this site are for guidance only and do not constitute legal or other professional advice. You should consult your professional adviser for legal or other advice.

The CIPD is not liable for any damages arising in contract, tort or otherwise from the use of or inability to use this site or any material contained in it, or from any action or decision taken as a result of using the site.

This site offers links to other sites thereby enabling you to leave this site and go directly to the linked site. The CIPD is not responsible for the content of any linked site or any link in a linked site and the inclusion of a link does not imply that the CIPD endorses or has approved the linked site.