What are the legal requirements for redundancy?

15 April 2021

Office full of people before restructure and redundancies

How to make someone redundant legally

Redundancy happens when a business has to dismiss an employee because it no longer needs someone to fulfil that role. This might be because the business:

  • is altering its business model.
  • is doing things in a different way thereby reducing the amount of resource required.
  • is changing location or closing down.

For a redundancy to be considered genuine and not simply cherry-picking certain individuals, the business must demonstrate that the employee’s job will no longer exist.

Office colleagues sat wondering about redundancy and company restructure

Redundancies can be voluntary or compulsory, but employees have certain rights. For example, employees under notice of redundancy have the right to not be unfairly selected for redundancy and the right to reasonable time off to look for a new job or arrange training.

Employers must also try to find suitable alternative employment within the business for employees made redundant. Employees can try out an alternative role for 4 weeks (or more if agreed in writing) without giving up their right to redundancy pay.

If it is decided to make compulsory redundancies, the business must identify which employees or functions will be made redundant and carried out without discrimination.

A fair process must be carried out and the reasons must include some or all of the following:

  • skills, qualifications and aptitude
  • standard of work and/or performance
  • attendance
  • disciplinary record

The business can choose employees based on their length of service but only if applied consistently and with justification. It could be indirect discrimination if it affects one group of people more than another. Relying on length of service as the only selection criteria may end up as age discrimination.

Some selection criteria are automatically unfair. The business must not select an employee for redundancy based on any of the following reasons:

  • pregnancy, including all reasons relating to maternity
  • family, including parental leave, paternity leave (birth and adoption), adoption leave or time off for dependants
  • acting as an employee representative
  • acting as a trade union representative
  • joining or not joining a trade union
  • being a part-time or fixed-term employee
  • age, disability, gender reassignment, marriage and civil partnership, race, religion or belief, sex and sexual orientation
  • pay and working hours, including the Working Time Regulations, annual leave and the National Minimum Wage.
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Employees who are affected by redundancy should always be consulted and the business should always provide written details of:

  • the reasons for redundancies
  • the numbers and categories of employees involved
  • the numbers of employees in each category
  • the plan to select employees for redundancy
  • how the redundancies will be carried out
  • how the redundancy payments will be worked out.

Is redundancy pay a legal requirement?

Yes, redundancy pay is a legal requirement if the criteria above is satisfied.

Employees will normally be entitled to statutory redundancy pay if they are an employee and have been working for their current employer for 2 years or more.

Their minimum financial compensation they are entitled to will depend on their age:

  • under 22 - half a week's pay for each full year of employment.
  • 22 or over, but under 41 - one week's pay for each full year.
  • over 41 - one and a half week’s pay for each full year (maximum of 20 years).

The employer must give employees notice and agree a leaving date once the redundancy consultations are concluded. Redundancy pay needs to be calculated accordingly (see below). Employees can leave earlier by accepting payment in lieu of notice.

The following applies.

Length of Service Notice Given
1 month 2 years At least a week
2 years to 12 years A week’s notice for every year employed
12 or more years 12 weeks

What is the legal minimum redundancy payment?

The employees are entitled to minimum notice pay - based on their pay and notice period - or make a payment in lieu of notice.

The employee’s notice pay is based on the average they earned per week over the 12 weeks before their notice period starts.

If the employee earned less than usual because the Furlough scheme was used, the business must work out their notice payments based on what they would have earned normally.

If there is ‘a payment in lieu of notice’ clause in the employment contract, the business can end the employment without notice. This allows the business to make a payment to cover the notice period that would have been worked. These payments must have tax and National Insurance deducted.

Is a redundancy letter legally binding?

Once a notice of redundancy has been issued to an employee, it is legally binding and cannot be unilaterally withdrawn by the employer, even if the employee is still working out their notice period. If the employer subsequently wishes to withdraw the notice because of a change in business or economic circumstances, the express consent of the employee is required.

John Davies
8th April 2021

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