As a business owner, rising employment costs are likely putting significant pressure on your bottom line. Increased wages in the form of employer’s NI and increases to the NMW, inflation, and other operational expenses may leave you wondering how to keep your business sustainable. For many, the idea of redundancies looms as an unavoidable option. But here’s the catch: mishandling redundancies can result in costly legal claims, damaged employee morale, and harm to your company’s reputation.
So, when are redundancies lawful? And how can they be managed without exposing your business to unnecessary risks? In this guide, you’ll learn when redundancies are appropriate, the legal requirements involved, and how to handle the process fairly and compliantly.
What Are Redundancies and When Are They Lawful?
Redundancy occurs when a business no longer needs a particular role or type of work to be carried out. This could happen for several reasons:
- Reduced Workload – There isn’t enough work to justify certain roles which may be by reason of the introduction of new technologies or the need to increase efficiencies.
- Business Restructure – Your organisation needs to reorganise to remain efficient which may involve removal and/or amalgamation of posts.
- Closure – A part of the business, or the entire organisation, is shutting down.
For redundancies to be lawful, the situation must include one of the above. Employers cannot use redundancy as a way to dismiss an employee for performance-related issues or other non-business reasons. If redundancy is misused or the process is unfair, you could face a successful employment tribunal claim for unfair dismissal.
Planning Redundancies the Right Way
The key to lawful redundancies is following a clear and fair process. Here’s what you need to know:
- Clearly Identify the Business Need
The first step is to establish why redundancies are necessary. Be specific about the reasons driving the decision, whether it’s financial pressures, technological changes, or a drop in demand. Document this reasoning, as it may be required to defend your decision if challenged.
- Fair Selection Process
When making redundancies, you’ll need to decide which employees are affected. If there is stand alone role that is effected there will be no need to apply a selection process. If however there is a group of employees conducting similar work that are effected, you will need to apply a fair selection criteria to the group of employees to select those with the lowest score to be at risk of redundancy.
The selection criteria and the selection process must be fair and non-discriminatory. Employers may use the following selection criteria:
- Skills and Qualifications: Retaining the employees who are most qualified or skilled for the remaining roles.
- Performance Records: Using documented performance metrics as a basis for selection.
- Length of Service: In some cases, "last in, first out" is used, though this approach can carry risks if it disadvantages younger or older employees and shouldn’t be used as alone criterion..
It’s essential to avoid criteria that could be deemed discriminatory because of a protected characteristic such as age, gender, or disability.
- Employee Consultation
Consultation is a legal requirement in redundancy situations. The consultation process allows employees to understand the reasons for redundancy, voice their concerns, and explore alternative solutions.
The rules differ depending on the number of redundancies planned:
- Fewer than 20 employees: There’s no set redundancy timeframe, but consultation must be meaningful and fair.
- 20 or more employees within 90 days: A collective consultation is required, with a minimum consultation period of 30 days (or 45 days for 100+ redundancies).
Failure to consult properly can lead to costly tribunal claims.
- Consider Alternatives
Redundancy should always be a last resort. Before proceeding, explore alternatives such as:
- Reducing hours across teams.
- Redeploying employees into other roles within the organisation.
- Voluntary Redundancy Schemes to reduce the number of compulsory redundancies needed.
Offering alternatives not only protects your business from legal claims but also demonstrates fairness and transparency.
The Legal Requirements of Redundancy
To avoid claims of unfair dismissal, employers must also meet their legal obligations during the redundancy process:
- Notice Periods
Employees are entitled to a notice period before their redundancy takes effect or they may be paid in lieu of notice if there is a contractual right to do so. The statutory minimum notice periods are:
- 1 week for employees with 1-2 years of service.
- 1 week per year of service for employees with 2-12 years.
- 12 weeks for employees with 12+ years of service.
There may however be longer notice periods that are detailed in an employee’s contract of employment.
- Redundancy Pay
Employees with two or more years of continuous service are entitled to statutory redundancy pay. The amount is calculated based on their age, length of service, and weekly pay (currently capped at £700 per week).
Some employers may offer enhanced redundancy pay.
- Written Explanation
Provide employees with a written explanation of the redundancy decision, including the reasons, selection process, and any alternative measures considered.
Common Pitfalls to Avoid
Even with the best intentions, redundancies can go wrong if the process isn’t carefully managed. Here are some common mistakes that employers should avoid:
- Failing to Consult Properly
Skipping or rushing the consultation process is one of the most frequent causes of tribunal claims. Employees must have the opportunity to raise concerns and suggest alternatives.
- Using Discriminatory Criteria
Selection criteria that directly or indirectly discriminates against certain groups (e.g., based on gender, age, or disability) are unlawful. Ensure your criteria are objective and consistently applied.
- Not Considering Alternatives
Tribunals expect employers to show they’ve considered alternatives to redundancy. Exploring options like reduced hours or redeployment can strengthen your case.
How to Protect Your Business During Redundancies
Taking the time to plan and execute a fair redundancy process can save your business from legal claims, reputational damage, and workplace disruption. Here are three key ways to protect yourself:
- Get Expert Advice
Employment law is complex, and redundancy processes can be fraught with legal risks. Consulting a legal professional ensures that your decisions comply with current legislation and best practices.
- Communicate Transparently
Employees deserve clear and honest communication about redundancies. Be upfront about the reasons, timeline, and any available support. A transparent approach builds trust and minimises resentment.
- Document Everything
Keep detailed records of every step in the redundancy process, from the business case to consultation meetings. This documentation will be invaluable if your decision is challenged in a tribunal.
Moving Forward After Redundancies
Redundancies are never easy, but how you handle them sets the tone for your organisation’s future. A fair, lawful process not only protects your business but also demonstrates respect for your employees.
Once redundancies are complete, focus on rebuilding trust and morale among your remaining staff. Open communication and support are key to fostering a positive and resilient workplace culture.
Rising employment costs may feel like a daunting challenge, but with the right approach, you can navigate redundancies legally and ethically, ensuring your business emerges stronger on the other side.
