What Is Redundancy

| General

What Is Redundancy?

The recent global pandemic and the war in Ukraine have exposed businesses to the difficult decision of making all or a proportion of its staff redundant. But what is redundancy and how can employers avoid getting stung?

Defining Redundancy

There has been much confusion surrounding what constitutes redundancy. Many people interpret it as being sacked, laid off and perceive it as being thrown on the proverbial scrapheap. However, the concept is not new and it is important to both define a redundancy and identify when it arises. The most helpful starting point to assess a redundancy situation is section 139 of the Employment Rights Act 1996 which provides a useful guide. This first issue is addressed in section 139(1) of the Employment Rights Act 1996 which states that if an employee’s employment contract is terminated because the respective employer has stopped trading, intends to stop performing business activities in which the respective person was engaged in and could be expected to do, then this is potentially a redundancy situation. Alternatively, if an employee’s employment contract is terminated because the need for the employer to engage employees to carry out work of a particular kind has reduced or stopped in the place where such employees are employed then this is also a potential redundancy situation. If identified, then affected employees may be entitled to a redundancy payment to provide compensation whilst they are experiencing the fall-out, uncertainty and loss of employment rights caused by the termination of their employment.

Are All Employees In This Situation Entitled To A Redundancy Payment?

Most employees in this situation will be entitled to a redundancy payment subject to two exceptions. Firstly, the requirement for affected employees to have two years continuity of service. In the absence of this such persons may not be entitled to any redundancy payment unless agreed in writing. Another factor potentially preventing affected employees from receiving redundancy payments would be where the person declined an offer of reasonable suitable alternative employment.

If A Redundancy Situation Is Identified What Do The Decision Makers Within Businesses Need To Do to Comply With The Rules?

If an employer gets this wrong their actions may be frowned upon by an Employment Tribunal. Both situations as set out above could potentially entitle an employer to terminate an employee’s contract of employment. However, for this type of redundancy situation to be deemed as fair employers are under various legal duties. They should:

  • carry out a clear and non-discriminatory consultation process
  • provide clear selection criteria which is not open to interpretation (such as ‘attitude’)
  • identify a pool of employees for selection
  • find reasonable suitable alternative employment
  • allow affected persons to use an appeal process (if applicable); and
  • make the required redundancy payment (if any)).

However, a word of caution should be sounded here. If employers are to avoid triggering an employment tribunal claim the process should be carried out in a clear and just way to mitigate against the risk of employees submitting employment tribunal claims for unfair dismissal and discrimination on the grounds of:

  • age due to cost cutting
  • disability
  • sex
  • maternity and
  • family matters.

The consequences may be serious, and an employer may find themselves subject to a potentially expensive and unlimited Employment Tribunal compensation pay out.

The Selection Criteria Has To Be Objective, Right?

Many erroneously believe that the selection criteria for redundancy needs objectivity. However, Nicola Clarke from Glaisyers Solicitors suggests for employers to be as transparent as reasonably possible to mitigate the risk of affected employees submitting successful employment tribunal claims.

The Legists Content Team

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THE ARTICLE WAS WRITTEN USING THE FOLLOWING SOURCES

[1] Clarke, Nicola – Getting your redundancy selection criteria right – 28 March 2022 – People Management - Getting your redundancy selection criteria right (peoplemanagement.co.uk)

[2] Redundancy Payments Act 1965

[3] Section 139 (1)(a) Employment Rights Act 1996

[4] Section 139 (1)(b) Employment Rights Act 1996

[5] Section 155 Employment Rights Act 1996

[6] Section 156 Employment Rights Act 1996

[7] Section 163 Employment Rights Act 1996

[8] Wynes v Southrepps Hall Broiler Farm Ltd [1968] 3 ITR 407

[9] Thomas v Jones [1978] ICR 274

[10] Marsland v Francis Dunn 2 ITR 353

[11] Saunders v Ernest A Neale Ltd (1974) ICR 565

[12] UK Atomic Energy Authority v Claydon (1974) 9 ITR 185

[13] Amos v Max-Arc Ltd (1973) ICR 46

[14] O’Neill v Merseyside Plumbing Co Ltd (1973) ICR 96

[15] Murphy v Epsom College (1984) IRLR 271

[16] Haden v Cowen (1982) ICR 1

[17] Nelson v BBC (1977) ICR 649

[18] Murray v Foyle Meats Limited (1999) IIRLR 562

[19] Shawkat v Nottingham City Hospital NHS Trust (1999) IRLR 340

[20] High Table v Horst (1997) IRLR 513

[21] Honeyball, Simon – Textbook on Labour Law – 9th edition

[22] Section 5 Equality Act 2010

[23] Section 6 Equality Act 2010

[24] Section 8 Equality Act 2010

[25] Section 9 Equality Act 2010

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