In the latest Coffee Break Briefing, Employment Associate Chris Dobbs discusses redundancies, looking at how the consultation process works, steps employers can take to avoid compulsory redundancies and the key rules around collective consultation.
You can watch the recording of Chris’ webinar using the link below.
Why does Redundancy occur?
Under the Employment Rights Act 1996 , redundancy occurs where the reason for dismissal falls within one of three specific situations:
- The employer ceases to carry on the business for which the employee was employed
- The employer ceases to carry on the business in the place where the employee work
- The requirement for employees to carry out work of a particular kind diminishes
The situations focus on the needs of the business and the work required rather than the performance or conduct of the employee. The test is forward-looking and is about the employer’s future requirements.
What is the meaning of a “Redundancy Situation”?
The phrase “redundancy situation” is widely used in practise but does not have a precise legal definition.
Instead, employees must always refer back to the statutory definition in the Employment Rights Act 1996 to determine whether redundancy applies.
Even where a redundancy situation exists, it does not automatically mean that an employee must be dismissed for redundancy. A dismissal may still occur for another reason such as misconduct or poor performance.
Dismissal of any employee with requisite service must still follow a fair process.
When can a redundancy be an unfair dismissal?
A dismissal for redundancy can still be considered unfair if it can be shown that there was no genuine redundancy situation (substantive unfairness) or the that the process followed by the employer was unfair (procedural unfairness). In these cases, tribunals will consider the reasonableness of the employer’s actions as set out under Section 98(4) of the Employment Right Act 1996.
Employers should also be cautious in TUPE transfer situations as a redundancy that occur because of the transfer itself may be considered automatically unfair unless there is an economic, technical or organisational (ETO) reason which may justify the decision.
A failure to properly consult employees may be relevant when assessing whether a dismissal was fair and can also lead to a separate claim.
What is the Consultation and Redundancy process?
Consultation plays a central role in any fair redundancy process and should be meaningful; it is not a rubber-stamping process. Employers are generally expected to discuss proposals with affected employees before any final decision is made. This expectation applies even where only one role is at risk of redundancy which is sometimes referred to as a ‘pool of one’.
The purpose of the consultation is to allow the employees to understand and comment on the proposed changes. It should begin early and before any decisions are finalised.
What are individual or small-scale redundancies?
Where a small number of redundancies are proposed, employers must consult individually with affected employees before any final decision is made. Although there are no strict rules on how long this consultation must last or the exact format it should take, the process should still be carried out fairly and give employees a genuine opportunity to respond to proposals.
Employers should also discuss potential opportunities for suitable alternative employment within the organisation and any support that may be available to help employees secure new roles.
When do Collective Consultation rules apply?
Collective consultation rules apply where an employer proposes 20 or more redundancies at a single establishment within a 90-day period. This includes:
- compulsory and voluntary redundancies
- employees with less than two years’ service
- fixed-term contracts that end because the work is no longer required
When this number of proposed redundancies is reached, employers must notify the Government by submitting Form HR1 to the Redundancy Payments Service. This must be done at least 30 days before the first dismissal if 20-99 redundancies are proposed and 45 days before the first dismissal if 100 or more redundancies are planned.
Failing to provide this information correctly is an offense and consultation must begin early enough to meet these minimum timeframes.
Employees who are not collective consulted also have specific Tribunal claims which can be worth up to 90 days’ pay per affected employee (this increases to 180 days on 06 April 2026).
What is Collective Consultation in practise?
The purpose of the consultation is to ensure that employees are informed about what is happening and understand their rights while also giving both parties the opportunity to explore alternatives to compulsory redundancies. Ideally, it is about trying to reach agreement on the process and approach taken.
In collective redundancy situations, employers must consult with employee representatives. This will usually be a recognised trade union. If no union is recognised, consultation should take place with existing employee representatives. Where no representative exists, the employer must arrange for representatives to be elected. Only if this process fails should the employer consult directly with the affected employees.
To ensure consultation is meaningful, employers must provide certain key information. This includes:
- The reasons for the proposed redundancies
- The number and categories of employees affected
- How employees will be selected for redundancy
- How the redundancy process will be carried out
- How the redundancy payments will be calculated
Effective consultation should also cover ways to avoid any dismissals, reduce the numbers and mitigate the consequences of redundancies.
What is Pooling and Selection?
When identifying employees for redundancy, employers will usually create a selection pool. A pool should consist of employees who carry out similar work or have no comparable skills. It is not enough to define he pool purely by job title as employees with the same title may have different responsibilities or skillsets.
Once a pool has been established, employees should be assessed against objective, fair and measurable selection criteria. While subjective criteria can be used, it carries more risk of dispute. Factors such as disciplinary records or absence levels may be considered but employers must take care to avoid discriminatory outcomes.
For example, absences related to pregnancy disability or medical treatment should not disadvantage an employee and selection criteria should not indirectly discriminate, for example in relation to flexible working.
What is Scoring and Selection?
When selecting employees for redundancy, employers may use a scoring system based on agreed criteria. These criteria can be weighed to reflect their importance but overly complex systems can increase the likelihood of disputes or challenges.
Employees may be scored against factors such as disciplinary records or attendance. However, employers must take care to ensure that the scoring process does not lead to discrimination. For example, absences linked to pregnancy, medical treatment or a disability should not disadvantage an employee.
Employees should ordinarily be given the opportunity to comment on their scores.
What are the entitlements on redundancy?
Employees facing redundancy may be entitled to certain financial payments including their notice period and redundancy pay which may be statutory or contractual.
If a business cannot afford to pay statutory redundancy pay, employees may be able to claim this through the Redundancy Payments Service (RPS).
Employers should also consider whether there are any suitable alternative vacancies available within the organisation. Priority must be given to employees on certain forms of parental leave, particularly those within the protected maternity period.
An alternative role should normally begin within four weeks of redundancy and employees are entitled to a four-week trial period. If an employee unreasonably refuses a suitable alternative role, they may lose their entitlement to redundancy pay.
Whether a role is suitable is assessed using both objective and subjective tests. The objective test considers factors such as:
- Pay
- Status
- Location
- Hours
- Skillset
- Terms and Conditions
The subjective test considers whether the role is suitable for the individual employee considering factors such as home life, medical circumstances and commuting distance.
Employment law experts
If you have any questions regarding this webinar, you can get in touch with a member of the team on 01202 499255 or by filling in the form at the top of the page. We offer all new clients a free initial chat.
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Chris’ next Coffee Break Briefing will take place on Wednesday 8th April where he will discuss Probation Periods and Changing Unfair Dismissal Rights.
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