For the purposes of notifying BERR (the Department for Business, Enterprise and Regulatory Reform) and collective consultation with recognised trade unions or employee representatives, redundancy is defined broadly as a dismissal for a reason or reasons not related to the individual concerned. For the purposes of individual statutory employment law such as entitlement to a redundancy payment and unfair dismissal, the legal definition of redundancy provides that redundancy can arise in several different ways. According to the Employment Rights Act 1996, an employee is dismissed for redundancy if his or her dismissal is wholly or mainly due to one of the circumstances described below.
Closing the business
An employee is redundant if he or she is dismissed because the employer has stopped, or plans to stop, running the business in which the employee was employed. This would cover a dismissal that was due to the winding up of an entire company; it would also apply to a dismissal that was due to the closure of one business within a company that ran several separate businesses.
An employee is redundant if he or she is dismissed because the employer has stopped, or plans to stop, running the business in the place where the employee was employed. This would cover an employee who was dismissed because the operation carried on at his or her workplace was closed. It would also cover a dismissal that was due to the employer relocating its operation from one site to another.
A company that closes one site may have the power to move employees to a different site, if there is a term in their contract allowing for this. If an employee refused to move, the company could deal with that as a disciplinary issue. If the employee were eventually dismissed, the reason for the dismissal would be misconduct, not redundancy.
An employer need not use a power to relocate an employee if it does not wish to do so. It can dismiss the employee instead. Provided the relocation or closure of the workplace is the real reason for the employee's dismissal, he or she is redundant. A company that took this route might find, however, that it faced a claim for unfair dismissal, on the basis that it was unreasonable not to offer the employee work at the other site before deciding to dismiss (considering alternative employment). In practice, therefore, the company would need to be able to show why it was reasonable not to offer the employee relocation.
An employee is redundant if his or her dismissal is due to the fact that the business needs fewer employees to carry out 'work of a particular kind', or expects to do so. This applies whether the business needs fewer employees to do that work overall, or only in the place where the employee was employed. This type of redundancy would therefore cover the situation where work of a particular kind is transferred from one site to another, leading to redundancies at one site and recruitment at the other. (The company's power to ask employees to follow the work and the consequences if it does not do so are discussed above in the context of relocation (closing or relocating the workplace ).
It does not matter whether the business's requirements for employees to do a particular kind of work have fallen permanently or temporarily. Indeed, a company may implement redundancies in one month because of a fall-off in business and find that it needs to recruit soon after because it has obtained a new customer. Provided the company made the dismissals because it genuinely believed at that time that it needed fewer employees, the dismissals were for redundancy. From a practical perspective, however, companies should avoid recruiting shortly after implementing redundancies whenever this is practical, in order to avoid the possibility of employees who were made redundant bringing unfair dismissal claims on the basis that they could not have been genuinely redundant.
An employer does not need to justify why it has changed its requirements for employees. It is free to set its requirements as it sees fit, to meet the demands of the business. A company is entitled to conclude, for example, that it needs to reduce headcount in order to meet cost targets, even though the volume of work to be done has not fallen. Or the company may decide that it wants to have certain jobs done by an external contractor rather than by its employees.
There are two points worth noting in relation to this latter example. If a company decides to contract out a part of its operation, that may be a transfer covered by the Transfer of Undertakings (Protection of Employment) Regulations 2006. If it is, the employees involved in that part of the business should be transferred to the contractor, rather than being dismissed for redundancy (transfer of employees). The second point relates to tax. If a company dismisses an employee for redundancy and offers the same individual re-employment on a self-employed basis, the Inland Revenue may question whether the individual is genuinely self-employed. This type of arrangement may also prejudice the tax exemption that would normally apply to the employee's redundancy payment (tax), since the Revenue may take the view that the payment was not genuinely due to redundancy.
An employee may be redundant if his or her dismissal was due to the fact that the company required fewer employees to carry out work of any particular kind, even if not the particular kind of work that the employee did. This explains how an employee can be 'bumped' into redundancy: the employee is dismissed to make way for another employee, who does work that the company no longer requires but whom the company wishes to retain. Bumped redundancies can arise on a voluntary basis, where a company invites volunteers for redundancy from all parts of the business and moves the employees whose work is no longer needed into the vacancies that are created.
Because the employees who are being dismissed are not the ones doing the work that is no longer needed, compulsory bumped redundancies are often perceived by the workforce as unfair. Companies that are considering implementing bumped redundancies may therefore wish to contact their Association for advice.
It is not uncommon for employees whose work performance is poor or who are unable to get on with their colleagues or manager to be 'made redundant'. Using this approach has practical advantages for both employer and employee, since it means that the employee leaves the organisation without having to be taken through any disciplinary or performance management procedure and without any blame attached. From a legal perspective, however, it is unhelpful. If the employee later claims that his or her dismissal was unfair, it will be up to the company to establish the reason for the dismissal. Since the reason was not in fact redundancy, it will become apparent that the company did not adopt the appropriate procedure for dealing with the case fairly.
A company that is considering dismissing an employee as redundant in these circumstances may wish to contact its Association for advice.
In the context of a business reorganisation or restructuring, a company may need to change the terms on which employees work. If the changes affect job content, it may be necessary to examine how substantial those changes are, in order to decide whether the definition of redundancy applies.
If, for example, a company decides to restructure 10 jobs within a department so that the content of the job changes substantially, it may in fact be deciding that it needs 10 fewer employees to do work of one 'particular kind' and 10 more employees to do work of a different 'particular kind'. If any of the existing 10 employees is not offered, or chooses not to accept, the new job, he or she is dismissed for redundancy and may be entitled to a redundancy payment (unreasonably refusing alternative work ). If the employee was offered the new job and it amounted to suitable alternative employment, the employee could lose the right to a redundancy payment if he or she unreasonably refused it. If, on the other hand, the new jobs are not sufficiently different to amount to work of a different 'particular kind', then an existing employee who rejects or is not offered the new job is dismissed for a reason connected with the business reorganisation rather than redundancy. This means that they are not entitled to a redundancy payment.
Regrettably, neither the legislation nor the previous decisions of the appeal courts or tribunals gives any useful guidance on how much a job must change before it becomes work of a different 'particular kind'. Companies who are altering job content but are unclear as to whether redundancy payments may be due should contact their Association for advice. For the purposes of unfair dismissal law, a company that follows the procedure suggested below when restructuring jobs is likely to be able to show that it has acted reasonably if dismissals prove necessary, whether the situation falls within the definition of redundancy or not.