Many companies will at some point need to implement redundancies, perhaps because of a downturn in demand or a need to relocate or restructure the business. This section of the Guide sets out the employment law framework for a redundancy exercise and also outlines the legal position if a company wishes to lay employees off or to put them on short-time working. Companies that are contemplating redundancies may wish to contact their Association (EEF Associations) for advice. A detailed guide to handling redundancies is also available ( Redundancy links ).
This section opens by discussing the legal definition of redundancy and then goes on to examine the steps that are involved in implementing redundancies lawfully. A checklist summarising these steps can be found elsewhere in this Guide (checklist for handling redundancies) .
There are several pieces to the legal jigsaw that need to be fitted together when implementing redundancies. An employer that is proposing to dismiss 20 or more employees has specific legal obligations to consult with its workforce at a collective level (collective consultation) and to notify the Department for Business, Enterprise and Regulatory Reform (notifying the dti). In addition, unfair dismissal law requires an employer that is implementing redundancies in some cases to follow the statutory minimum dismissal procedure (see below) and in all cases to act reasonably. Previous decisions of the courts and tribunals have confirmed that acting reasonably involves:
The Employment Act 2002 requires an employer to follow a minimum procedure before deciding to dismiss an employee. The procedure is explained elsewhere in the Guide. In summary, the employer must notify the employee in writing that it is proposing to dismiss him or her and explain why (for example, that business conditions have necessitated some redundancies, that a selection procedure has been carried out and that the selection has indicated that the individual's employment is at risk), invite the employee to a meeting to discuss the issue, notify the employee of the result of that meeting and give him or her the right to appeal if the dismissal is confirmed.
There is no obligation to follow this minimum procedure, however, if 20 or more employees are being made redundant at one establishment within a period of 90 days or less. The obligation also does not apply if the redundancies are a result of the employer's business suddenly ending for an unforseen reason, such as its premises being destroyed which means it can no longer employ anyone.
Discrimination legislation also needs to be borne in mind when making redundancies. The legislation that outlaws discrimination on the grounds of sex, race, age, religion and sexual orientation prohibits both direct and indirect discrimination, and this is particularly relevant when employers are deciding how to select individuals for redundancy. Likewise, a company needs to bear in mind the requirements of disability discrimination law. This means that disabled employees must not be treated unfavourably in the redundancy process because they are disabled, or for reasons see linked to their disability unless this can be justified, and the company must consider whether any reasonable adjustments should be made to the process to accommodate disabled employees.
Part-time workers and fixed-term employees are also protected from unjustified discrimination on the ground of their part-time or fixed-term status (part-time working) (equal treatment principle ). This covers both the way they are treated during the redundancy process and the redundancy payments they receive.
When it comes to terminating redundant employees' contracts, an employer must respect employees' contractual rights to notice of termination (terminating employment) and their statutory right to paid time off during their notice period to look for alternative work or be retrained (time off during notice period). Many employees who are made redundant will also be entitled to a redundancy payment under their contract of employment or under the statutory scheme or both (redundancy payments).
Different legal considerations apply when an employer responds to a downturn in business by laying employees off or putting them on short-time working, rather than making them redundant. An important preliminary issue is whether the company has the right under the employees' contracts of employment to lay them off or reduce their hours and earnings (contractual issues). In addition, the company needs to be aware that employees who are not provided with work or have their hours reduced may be entitled to a guarantee payment or to claim a redundancy payment (guarantee payment ), (claiming a redundancy payment ).
Sometimes redundancies are due to a company going into liquidation. This section ends with a summary of the legal protection that is given to employees who have not received their redundancy payment or other sums that they are owed because their employer is insolvent (redundancy and insolvent companies).
The employment implications of other aspects of business reorganisations are covered elsewhere in this Guide. These include the legal issues that arise when changing contracts of employment ( Changes to contracts ) and the situation where a company transfers all or part of its business to another employer through the sale or contracting-out of its operations ( Transfer of undertakings ).
The legal mechanics of how an employment contract ends and related issues such as the right to written reasons for dismissal are also covered elsewhere in this Guide (terminating employment), as are the general principles of unfair dismissal law (unfair dismissal ).