Redundancy

An employee’s job is redundant if the business or organisation that employs them closes down, or closes down at the location where they work, or if they become surplus to the requirements of the business or organisation.

The Employment Rights Act 1996 Section 139(1) states that for the purposes of the Act “an employee who is dismissed should be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to:

(a) the fact that his employer ceased or intends to cease:

  1. to carry on the business for the purposes of which the employee was employed by him, or
  2. to carry on that business in the place where the employee was so employed,

or

(b) the fact that the requirements of that business:

  1. for employees to carry out work of a particular kind, or
  2. for employees to carry out work of a particular kind in the place where the employee was employed by the employer,

have ceased or diminished or are expected to cease or diminish.”

Redundancy is a potentially fair reason for dismissal.

Subject to a qualifying period of two years of continuous employment and certain exceptions, a redundant employee is entitled to a redundancy payment from their employer irrespective of whether or not they incur a loss.

Before making anyone redundant an employer should give as much warning as possible of considering redundancies.

A redundancy is a dismissal, so in order to carry out the dismissal fairly an employer has to follow a fair procedure. The expectation of fairness is that there will be consultation with the affected employees, and an objective selection process where there is a pool of employees from which those to be dismissed will be selected.

Where an employer is proposing the redundancy of 20 or more employees at the same establishment over a period of three months they must formally consult with any appropriate Trade Union or worker representatives within good time, which is usually at least 30 days before the first dismissal, or 45 days where 100 or more employees at the same establishment are to be made redundant.

At the same time notification must be given to the Department for Business.

Redundancy Pay

Statutory redundancy pay is based on age, weekly pay and number of years in the job.

There is a redundancy pay calculator on the gov.uk website.

Lay offs and short time

If an employer has contracted to provide an employee with work, then it will be a breach of contract to “lay off” the worker when there is insufficient work for him. The employee may choose to treat themself as constructively dismissed. If the employee and the employer treat the contract as continuing however the law may still entitle the employee to claim redundancy.

An employee is laid off if during a particular week they gets no pay under their contract because there is no work for them. If they get less than half pay, they are on short time.


Settlement Agreements

An employer who wants to agree terms for someone to leave their employment obviously does not want that employee to leave and bring a claim in an employment tribunal alleging they have been unfairly dismissed or a victim of discrimination.

For that reason many employers want to negotiate enhanced terms for redundancies or in other circumstances where there is a potential for the employee to later bring a tribunal claim.

In practice it is common for employers and employees to enter into a settlement agreement where the employer pays the employee a sum of compensation and the employee gives up their right to bring a tribunal claim or discontinues any proceedings that have been commenced.

More information about Settlement Agreements


Employment Lawyers

Bishopsgate Law

Bishopsgate Law employment lawyers provide independent legal advice about employment settlement agreements, and represent employees and employers at employment tribunals.

Bishopsgate Law