SEARCH, INDEX, UPDATES, CONTENTS, REGULATIONS, REDUNDANCY
What is Redundancy?
Redundancy occurs when an employer reduces the number of employees, possibly of a certain category or grade, for reasons not related to the individual(s) concerned.
Dismissing an employee and recruiting a replacement is not normally redundancy. It could be if there were significant differences between the original position which ceases to exist and the new position.
What is a redundancy proposal?
Considering redundancy as one option among two or more is not a proposal to make people redundant until that option is selected.
Making 20 people redundant?
If an employer is proposing to make 20 or more people redundant, then there are additional requirements, not considered
here, to consult with ‘appointed representatives’ and give 30 or 90 days notice to the DTI.
Are there alternative jobs?
Consideration must be given to any alternative jobs arising within the organisation, and to any retraining requirements which might be necessary.
Who might be made redundant?
Without reference to specific individuals, the employer should decide on the number and categories of employees to be made redundant, and which individuals are within those categories.
Is there an established selection procedure?
Criteria for selection should be objective and consistent, e.g. last in first out.
What is the requirement for consultation?
Consultation must not be a sham exercise, nor can an employer avoid the consultation step by arguing that it would be futile.
Unless ‘appointed representatives’ are elected where 20 or more redundancies are proposed, consultation is required with each individual considered for redundancy.
What is the consultation process?
The employer should disclose in writing -
The employer should allow a reasonable time for consideration, perhaps a week, and set a time and date to hear the employees views and invite volunteers for redundancy. The employer should consider the views put forward, but the employer is not obliged to adopt any or all of the views expressed.
This outline of a consultation document is provided as an example and should be amended in accordance with the actual circumstances.
"
Dear ......
Redundancy Proposal Information Document
The reasons for the redundancy proposal
Unfortunately we lost a major contract on ...... and we do not expect to
achieve any replacement for that contract (in the foreseeable future).
The number and categories of employees that we propose to make redundant
We consider that we should make 3 drivers and 2 warehousemen redundant.
(We will create an additional sales position in order to try to replace the lost
contract.)
The total number of employees in those categories
We currently employ a total of 12 drivers and 6 warehousemen.
The proposed method of selection
We will select candidates for redundancy on the following criteria (in order
or importance)
Skills, qualifications, aptitude and attitude
Standard of work performance based on our appraisal system
Last in, first out.
The proposed method of implementing the proposal
Everybody who is being considered for redundancy will be notified of the
outcome by letter posted first class (or at individual interviews at the main
office) on Friday dd mmmm yyyy. If you believe that you should not have
been selected for redundancy in accordance with the criteria, you should appeal
in writing within 3 days to..........
The proposed timescale for implementing the proposal
All the redundancies will occur on dd mmmm yyyy.
The date and time for a meeting to hear employees views
A meeting will be held in the main boardroom at 12:00 on dd mmmm yyyy.
The management will welcome any comments and suggestions including offers of short time working and voluntary redundancies. We will consider all views expressed, but are not committed to act on those views and intend to act in the best interest of the business and the employees generally.
Yours sincerely,
Managing director
"
What is the redundancy process?
After making the decision that redundancies are necessary, and after consulting with the potentially redundant employees, having considered their views, the employer will select which employees are to be made redundant.
The employer must then consider the terms of notice and date of redundancy, taking into account the statutory notice period, and the terms included in the Contract of Employment (CoE). Is it desirable for the employees to work out their notice or will their presence be disruptive, bad for morale, a threat to confidential information, or simply unproductive?
If the CoE provides for pay in lieu of notice (PILON) then any PILON will be taxable and subject to National Insurance Contributions (NIC). If the CoE does not refer to PILON, then such a payment is for breach of contract and may not be taxable or subject to NIC. HMRC consider PILON to be taxable if it is the custom of the employer or the employee can expect it.
Employees may waive their right to notice, but any waiver of rights should be under the terms of a Compromise Agreement. PILON should take into account any expectation of overtime, commission, benefits, and pension rights, but might be calculated on basic pay.
An employer may put employees on ‘garden leave’. The employees continue to be paid and receive their full contractual benefits, but are not required or permitted to attend for work or contact customers or suppliers. Pay during this period will be subject to tax and NIC.
The employer should inform those employees selected for redundancy as soon as possible, and tell them how they can appeal if they consider they have been unfairly chosen. It is sensible to do that in writing and helpful to enclose a calculation of any redundancy pay due.
Can redundancy be unfair dismissal?
The selection for redundancy can give rise to a claim for unfair dismissal.
Selection for redundancy which is not dependant on objective criteria may be unfair. Employers can adopt a system of selection which relies on managerial assessment of employees ability and performance, but not simple subjective judgement by managers as ‘who should go and who should stay’.
There are some reasons for selection which are automatically unfair, such as having reported a Health and Safety matter, or being family related.
Can holiday entitlement be paid?
An employer can only pay workers in lieu of permitting them to take accrued statutory holiday entitlement on termination of employment, so accrued holiday can be taken by agreement during the notice period or be paid.
What is the employees entitlement?
During the notice period, employees are entitled to reasonable time off on full pay for job hunting or to arrange training.
If an employee leaves before his notice expires he will only lose his right to redundancy if the employer serves a written request for him to withdraw his earlier notice, warning him that if he does not do so the employer will contest any liability to make a redundancy payment.
An employee who has been dismissed by reason of redundancy, loses his right to a redundancy payment if he unreasonably refuses an offer of suitable alternative employment from the employer, and the offer is made before the redundancy is due to take effect, and the alternative employment will start within 4 weeks from the end of the original employment.
The statutory redundancy payment, which is exempt from tax and NIC, is calculated on up to 20 years employment as a multiple of up to 30 weeks pay, subject to a maximum of £280 per week. No amount is due to employees aged 65, and the sum due is reduced by 1/12 for each complete month over the age of 64 on the date of termination.
See also www.businesslink.gov.uk
Reminder - disclaimer applies. Please feedback your comments. This page was last modified 3 December 2005.