Making redundancies - your legal responsibilities

Laying off staff is not a decision that any employer will take lightly. However, in these difficult economic times many companies have no choice. If you are a struggling employer, it is likely that you have considered redundancies at some point.

If you cannot afford to keep staff on, you are entirely within your rights to begin redundancy procedures. However, you must ensure that you understand your responsibilities, and the rights of your staff - and that you fulfil these responsibilities at every point. Failure to do so will leave you vulnerable to tribunal proceedings.

In the first instance, it is important to understand that there are two distinct types of redundancy in law. The first entitles the employee to a redundancy payment, while the second entitles a group of employees to collective consultation. The first definition applies when fewer than 20 employees are being made redundant, while both definitions apply when 20 or more redundancies occur within a 90 day period.

Redundancy payments

Amongst your primary concerns will probably be employees’ entitlement to redundancy settlements. If you are laying off staff because the business is closing down in whole or in part (for example, if you are closing one of your offices), or because there is simply less need for the employees in question, they are likely to be entitled to such a payment.

Redundancy payments will apply when the employee fulfils all the criteria required by the Statutory Redundancy Payments scheme. On a basic level, the employee must have had at least two years’ continuous service with the company, and they must not have been offered a different job with the same company or with another company that takes over your business. Furthermore, there must have been a contract of employment in existence in the first place, whether written or spoken. As such, contractors are not entitled to redundancy pay, but workers on fixed term contracts who do not have their contracts renewed should receive payment - as long as the failure to renew is attributable to one of the two factors outlined earlier.

Calculating the payment owed to each employee is fairly simple, and involves multiplying the number of years’ service by a specific figure. You should bear in mind that, for the purposes of redundancy payments, the maximum period of service is twenty years. You can calculate redundancy payments in this way:

  • If the employee is less than 22 years old, multiply the number of years’ service by 0.5 week’s pay
  • If the employee is aged between 22 and 41, multiply the number of years’ service by 1 week’s pay
  • If the employee is aged 41 or over, multiply the number of years’ service by 1.5 weeks’ pay.

Redundancy payment is not optional; if the employees in question are entitled to payment, you must provide it. The only exception to this is insolvency. If your business is insolvent and there are insufficient assets available to make the redundancy payments, your employers will be covered by the Statutory Redundancy Payment Scheme which is paid for by the government.

Collective consultation

Effective consultation is an important element of good business practice, regardless of the number of redundancies you are considering. However, if you are making 20 or more people redundant within a 90 day period, you have a legal responsibility to engage in a proper consultation process.

Collective redundancies are deemed to have occurred when the dismissal of the employees in question has taken place for reasons that are not related to individuals. As such, employers frequently make collective redundancies without actually realising it; for example, if you make structural changes to your organisation which result in you sacking 20 workers while hiring 20 others, you will still be subject to the rules governing collective redundancy.

Regardless of the reason for the redundancies, you have a responsibility to consult an “appropriate representative” of the affected employees. This will normally be trade union representatives where applicable. If the relevant part of your workforce is not unionised, the workers may choose to appoint a representative for this purpose.

The consultation process must begin at least 30 or 90 days before the proposed date of redundancies, depending on the number of employees you are proposing to make redundant. The process need not actually take that long, but if it continues past the end of the 30 or 90 days it must be continued. The consultation should include discussion of: the reasons for the proposed redundancies; the number of employees you propose to make redundant; the total number of individuals employed at the company with a similar description to those at risk; your proposed method of redundancy (including notice periods and so on); and the proposed redundancy payments over and above the statutory minimum.

You should also bear in mind that you must notify the Department for Business Enterprise and Regulatory Reform (BERR) of the proposed redundancies. Information on the notification procedures is available on the BERR website.

Even if you are proposing to make fewer than 20 employees redundant you must “warn and consult” the affected individuals. You must decide who is to be made redundant in a fair and appropriate way (you may not use criteria such as gender, marital status, disability or age), and you must make reasonable provision for their re-employment. If you do not fulfil these responsibilities you again leave yourself vulnerable to action through an employment tribunal.

Redundancy proceedings can be stressful for all involved, and will generally presage a difficult period for the employees in question. As such, regardless of the financial state of your business, it is important that you approach the process in a tactful and appropriate manner. Doing so can result in a constructive dialogue between employer and employees, and will ultimately help to mitigate any ill will that those individuals may harbour against your organisation.

Finally, if you have more detailed questions regarding individual circumstances in your organisation, you may wish to use the BERR Redundancy Helpline on 0845 145 0004.