(Updated 8th August, 2020)
An employee who has 24 months of continuous service and who is made redundant by their employer may make Tribunal claims for a statutory redundancy payment, for unfair dismissal or wrongful dismissal, and in some cases bring a claim for a protective award if the employer failed to apply the collective consultation requirements appropriately, amongst other claims. Therefore, it is important that employers are aware of these risks when considering making an employee redundant, in order to alleviate the business exposure to these potential liabilities.
When does a redundancy situation arise?
In broad terms there are three main redundancy situations:
i. Closure of the business as a whole
A dismissal is deemed to be for reason of redundancy if the employer intends to cease business of the kind for which the employee was employed. The closure of the business may be temporary or permanent; for example, the closure of a restaurant for refurbishment.
ii. Closure of the particular workplace where the employee was employed
A dismissal is deemed to be for reason of redundancy if it is wholly or mainly due to the employer ceasing work in the place where the employee was employed.
If there is a mobility clause in the contract of employment an employer may decide to rely on that authority and require the employee to work at a different site that is remaining open. There are limits to the effect of such mobility clauses and an alternative work place sited an unreasonable distance from the initial workplace may result in the alternative role offered being determined to be outside of the effect of the mobility clause, so that the role offered would be likely to be determined by a Tribunal not to amount to an offer of suitable alternative employment. Such findings would likely result in an employee succeeding in their claim for a statutory redundancy payment, and most likely succeeding in any unfair dismissal claim.
iii. Reduced requirement for employees to do work of a particular kind
A dismissal will be deemed to be by reason of redundancy if it is wholly or mainly attributable to the diminishing requirements of the business for employees to carry out work of a particular kind (either in the place where the dismissed employee was employed, or within the business generally).
This type of situation occurs in a variety of ways and redundancy dismissals can frequently arise in these cases:
- A reduction in customer orders resulting in fewer employees being required to do the work; or
- There is the same amount of a particular kind of work but fewer employees are required to do that work, for example after a team reorganisation or restructure.
The requirements of the business will be taken by the Tribunal as having been judged by the business/employer, so that a Tribunal will not look behind the employer’s decision about its reduced requirement for employees to do work of a particular kind.
However, when making positions redundant the employer is best advised to gather documentary evidence, and so be in a position to show the Tribunal objective evidence, of a diminution of the requirement for employees carrying out work of a particular kind (either in one particular site or more generally within the business).
Restructuring teams and reorganising ways of working can often lead to a redundancy situation. Ensuring these processes are applied fairly and lawfully will reduce employees’ anxiety levels and other negative impacts at what is a stressful time for all involved. Applying appropriate and lawful procedures will also mitigate against the risks of employees bringing claims against their employer for a statutory redundancy payment, unfair dismissal and wrongful dismissal, and possibly a protective award. Tribunal claims are costly and time consuming and can be avoided with the right legal advice and support at the right time.
Some employers may identify redundancy as the reason for dismissal when in fact conduct or poor performance is the real reason for dismissal. Dismissing an employee for redundancy in circumstances where the definition for a redundancy situation does not exist, risks a Tribunal finding that redundancy was not the real reason for dismissal and that the dismissal was unfair. Compensation for a claim for unfair dismissal can include a basic and compensatory award including loss of wages, so can be costly for an employer. The compensatory award for unfair dismissal claims is currently capped at £88,519.00 (2020/2021).
Prior to the redundancy dismissal date, consultation will take place during which possible alternatives to redundancy should be explored. Should the employer offer the employee a role that is based on terms and conditions of employment that are objectively comparable to their current terms, such an offer may amount to an offer of suitable alternative employment. If the employee unreasonably refuses the employer’s offer of suitable alternative employment, such a refusal may negate the employee’s right to a statutory redundancy payment, and also to a contractual redundancy payment if applicable.
If the employer is proposing to dismiss for reason of redundancy between 20 – 99 employees within a 90-day period, the employer must consult with trade union or employee representatives for a minimum period of 30 days. If the employer is proposing to dismiss for reason of redundancy 100 or more employees within a 90-day period, it must consult with trade union or employee representatives for a minimum period of 45 days. In both circumstances, the employer must notify the Secretary for State for Business, Innovation and Strategy on Form HN1 of those proposed redundancies. Failure to comply with the collective redundancy procedure rules may lead to successful claims by employees for protective awards of up to 90 days gross pay wages per employee (without the statutory cap on the weekly wage applied).
Redundancy Payment
An employee, who has 2 years of continuous service at the date of termination of their employment and whose role is made redundant, is entitled to receive a statutory redundancy payment.
The employee risks losing their right to receive a statutory redundancy payment if is dismissed for a reason other than redundancy (for example gross misconduct) or if the employee unreasonably refuses an offer of suitable alternative employment made by the employer to the employee before their employment had terminated for reason of redundancy.
The calculation of a statutory redundancy payment is based on the employee’s weekly gross salary, subject to the statutory cap on a week’s wage of £538 (2020/2021), age at the time of dismissal and number of complete years of employment.
To calculate statutory redundancy payment entitlement visit https://www.gov.uk/calculate-your-redundancy-pay
The statutory redundancy payment is the statutory minimum level of compensation that an employee should receive if they are dismissed for reason of redundancy and is currently capped at £16,140.00.
The employee may have a contractual entitlement to receive a contractual redundancy payment, set out as an express term of the contract of employment. The employee may have a contractual entitlement to receive a contractual redundancy payment that is implied into their contract of employment by the custom and practice of their employer. In both of these circumstances non-payment of a contractual redundancy payment may lead to claims by the employee in the Tribunal or County Court for breach of contract against the employer.
Notice Period
An employee is entitled to receive notice from the employer of their dismissal. The employer should serve the employee with a written Notice of Dismissal for Reason of Redundancy that sets out in writing the date the notice was served on the employee, the period the notice will cover, the reason for the dismissal being redundancy, and the effective date of termination of employment. Having satisfied this step, the employer will be best placed to avoid a Tribunal claim by the employee for failure to provide a written reason for the dismissal.
The Employment Rights Act 1996 provides for a statutory minimum period of notice, one week’s notice for the first 2 years of continuous employment, with an additional week notice for each additional continuous year of employment up to a maximum of twelve weeks’ notice for twelve years continuous employment.
The contract of employment may contain extended periods of notice – it is common for contracts to include 3-6 month notice period requirements – so that the employer must comply with the express terms of the contract in respect of the notice rights of the employee. Failure to make proper payment of the contractual notice period may give rise to claims in the Tribunal or County Court for wrongful dismissal and breach of contract by the employee against the employer.
The contract of employment may provide the employer with authority to make a payment in lieu of the notice period (a PILON), in which case the employer can terminate the contract without allowing the notice period to elapse and must make a payment in lieu of the notice period on termination. The contract of employment may also provide the employer with authority to place the employee on gardening leave, when the employee will remain employed but will not attend work and will remain at home as directed, during which time the employee must receive their notice period wage payments in the usual way.
Accrued but Untaken Holiday Pay
An employer is obliged to pay to the employee all of their accrued but untaken annual leave at the termination of their employment. This would include any statutory minimum paid leave entitlement carried over from a previous year if the employee has not been able to take that statutory minimum paid leave, due to sickness absence for example.
An employee may be entitled to statutory minimum paid leave (28 days per year) or a higher level of annual paid leave under the terms of the contract of employment. To calculate an employee’s statutory paid leave entitlement please visit https://www.gov.uk/calculate-your-holiday-entitlement
An employer may direct that the employee must take their accrued paid leave during the notice period. The employer must give the employee double the period of notice for the amount of paid leave that it is directing must be taken. For example, if the employer directed that the employee should take 2 days of paid leave, the employer must give the employee four days’ notice of that direction.
Risks of Employees bringing Tribunal or County Court Claims
i. Unfair dismissal
An employee may bring a Tribunal claim against an employer for unfair dismissal if they can show evidence that the employer:
- Dismissed the employee for reason of redundancy when there was not a genuine redundancy situation in existence at the date of dismissal;
- Dismissed the employee without following a fair procedure;
- Dismissed the employed for reason of redundancy when it was not reasonable in the circumstances – for example if the employee was unfairly selected by applying unfair selection criteria.
ii. An employee may also have a claim against the employer for automatic unfair dismissal – dispensing with the 24-month continuous service requirement and removing the statutory cap on the compensation award – if the dismissal for reason of redundancy was in fact for the primary reason of the employee having made a whistleblowing disclosure, or the dismissal was for a health and safety reason.
iii. The employee may bring a Tribunal claim for a statutory redundancy payment if an incorrect rate was paid or if the employer has failed to pay a statutory redundancy payment altogether.
iv. The employee may bring a claim for wrongful dismissal, that is a claim for wages related to the notice period, if the employer has failed to make appropriate payment of the notice period or of a payment in lieu of notice.
v. Potentially, the employee may also bring a claim for automatic unfair dismissal and discrimination on the basis of one of the protected characteristics within the Equality Act 2010: race, religion or belief, sex, pregnancy or maternity, sexual orientation, gender reassignment, marital or civil partnership status, disability or age. To succeed the employee would be required to show that they had been selected for redundancy because of a protected characteristic in breach of the Equality Act 2010. You can find more information on discrimination and whistleblowing by clicking on the links.
Failure to Consult Employees
The collective consultation requirements are not engaged if the employer is making less than 20 employees redundant within a 90 day period.
Despite the collective consultation requirements not being engaged, an employer is still legally obliged to individually consult with any employee who may be affected by redundancy. The consultation process and length must be effective and reasonable.
The consultation process should include notifying the employee in writing that their role is at risk of redundancy, meeting with the employee individually to consider any possible alternatives to redundancy and the employee’s individual position, notifying the employee in writing of their selection for redundancy, and service of the Notice of Redundancy that particularises the reason for dismissal being redundancy, the notice period and effective date of termination.
An employee has a legal right to be accompanied by their trade union representative or a colleague at any formal consultation meeting held by the employer that may result in their employment being terminated. Though the legal right to appeal the decision to dismiss for redundancy is not clear, it would be considered best practice for an employer to offer an appeal stage to the redundancy dismissal procedure, in order to provide evidence of a fair procedure and mitigate any other allegations of unfairness.
Once given Notice of Redundancy, employees with two years’ service have the right to reasonable paid time off work during working hours to look for alternative employment or arrange training.
Time limits
Employees have three months less one day (subject to ACAS Early Conciliation stop the clock provisions) to submit a claim to the Tribunal for unfair dismissal, wrongful dismissal, breach of contract, discrimination and whistleblowing claims. Employees have 6 months less one day (subject to ACAS Early Conciliation stop the clock provisions) to submit a claim to the Tribunal for a statutory redundancy payment.
Employees must notify ACAS of their claim within the ACAS Early Conciliation process – within the prescribed Tribunal claim submission time limits above – as the first step in the legal process of bringing a Tribunal claim. The Tribunal applies the claim submission time limits strictly and failure to notify ACAS of the claims within the Tribunal claim submission time limit may prejudice an employee’s rights to progress the claim in the Tribunal.
Employee Rights in Redundancy Situation
- Employees who an employer proposes to make redundant should be given reasonable paid time off to look for alternative employment or arrange training once served with Notice of Redundancy and during their notice period;
- An Employee who is put on short time working or laid off without pay may resign and claim a statutory redundancy payment if the employer does not have the contractual right to direct short time working or lay off, if the employer does not follow the correct procedure, or leaves the employee on short time working or lay off for an unreasonable length of time;
- An employee is entitled to receive their statutory notice period or contractual notice period if this is greater, before the redundancy dismissal takes effect. The employer may make a payment in lieu of notice, yet can only do so if the contract of employment provides for such a payment to be made;
- An employee may have a claim for ordinary unfair dismissal if the employer failed to apply a fair procedure and consult reasonably with the employee, or if the employer selected the employee for redundancy unfairly or failed to offer a suitable, alternative role when one was available;
- An employee may have a claim for automatic unfair dismissal if they can show they were dismissed for a health and safety reason or principally for making a protected disclosure rather than for reason of redundancy. In these circumstances the employee does not need 2 years of continuous service and the statutory cap on the compensatory award is not applied;
- An employee may also have a claim for automatic unfair dismissal if they are dismissed for certain proscribed grounds – for example for having asserted a statutory right, or on the ground of an employee’s part time or fixed term status.
- An employee may have a claim to the National Insurance Fund for the statutory redundancy payment and other contractual payments if the employer becomes insolvent.
What should an employer do when making an employee redundant?
Throughout the redundancy procedure, the employer should:
- Generate, and keep safely, copies of all minutes, notes and memoranda of meetings at which the redundancy situation was discussed;
- Generate, and keep safely, records of the procedures applied in the re-organisation and restructure of the business, the reasons and objectives for those processes and outcomes;
- Formulate a fair and reasonable selection criterion for use in selecting staff at risk of redundancy
- Hold individual – and if necessary collective – consultation meetings to discuss possible alternatives to redundancy, suitable alternative roles, redundancy rights and time off for job searches and arranging training;
- Provide a list of all vacancies in the company, and group of companies, and generate evidence of applying the vacancy list to the individual employee.
James Collier is a Senior Associate in the Employment Team at Hanne & Co. LLP
