If the redundancy is not genuine, the correct process is not implemented or the reasons for an employee’s redundancy are deemed unfair, the dismissed employee may be able to bring a claim alleging that the dismissal was unfair and/or discriminatory.
In this guide for employers, we look at the fair reasons for redundancy which employers can rely on as part of a lawful dismissal procedure.
What is a genuine redundancy?
Employees should only be made redundant if there is no need for their job to continue to exist. Redundancy typically arises due to:
- workplace closure;
- relocation of the business;
- the work undertaken by the affected employees no longer being required because there is no longer a business need or new processes have been introduced;
- the work being completed by others; or
- transfer of the business to a new employer.
A redundancy that is not deemed ‘genuine’ would be considered an unfair dismissal.
Employees cannot be made redundant because of their own actions or relationship with colleagues, although certain actions could constitute reasons for their being selected for redundancy.
Before making redundancies, employers should have exhausted all other available options before pursuing redundancies. This would include considering changes to working arrangements, such as part time working. Employers need to take care that other actions do not negate a genuine redundancy situation, for example, taking on staff in one area while undergoing a redundancy exercise in another, or only making one employee redundant where the workforce is relatively large, could result in complaints that the redundancy is not genuine.
Assuming that the reasons for redundancy are genuine and that a redundancy pool has been fairly selected, an employer will need to determine which employees in that pool are to be made redundant. The reasons for making an employee redundant must fall under the thresholds to be deemed fair, and should certain specified reasons will be deemed to be automatically unfair.
What is the redundancy pool?
The redundancy pool is the group of employees who are at risk of redundancy. In some cases, this may be one employee or it may be the entire workforce. In other cases, it could be a specific project team or employees with a certain job title. The pool will depend on the reasons for the redundancies and which jobs are no longer required.
Determining the redundancy pool requires careful consideration as the redundancies themselves can be challenged if the make-up of the pool is unfair.
One option for employers is to make all employees in the redundancy pool redundant and request them to apply for new roles within the organisation. The alternative is for the employer to choose which employees in the redundancy pool are to be made redundant based on selection criteria or reasons.
What are fair reasons for redundancy?
The fair reasons for redundancy could include:
- attendance history and punctuality
- skills and experience
- performance level
- disciplinary history
The length of time for which an employee has worked for an employer may also be a redundancy criteria, although care should be taken with this, as a last in, first out policy could, for example, constitute age discrimination if it mainly affects younger employees. Length of service should not therefore, constitute the only reason for redundancy and employers must be able to explain its inclusion as a reason.
In addition, an employee’s qualifications may also be taken into account, but cannot be the only reason for redundancy.
Essentially, when considering the reasons for redundancy, an employer must act fairly, objectively and consistently. Subjective reasons will not be deemed to be fair reasons for redundancy. The above reasons can all be assessed objectively on the basis of written evidence, such as sickness records, performance appraisals and disciplinary records.
Usually, a list of criteria or reasons will be drawn up, with the employer scoring the affected employees against each of these. To be fair, everyone in the redundancy pool needs to be scored using the same method. Those employees with the lowest score will be those who are selected for redundancy. It is important to have at least two people determining each employee’s score and those people should know the relevant employee and their work.
Be aware that employees are entitled to ask to see their score and have it explained to them. It is, therefore, imperative that the employer is able to justify how they came to their decision. Although an employee may disagree with the scoring and could challenge the redundancy as a result, an employment tribunal will not hold a redundancy to be an unfair dismissal just because of a disagreement, provided that the employer has followed the correct process and acted objectively and fairly.
Using these reasons for redundancy may not, however, always be straightforward and discriminatory issues should be considered. For example, basing a redundancy selection on performance or sickness absence may discriminate against an employee with a disability.
Automatically unfair reasons for redundancy
Employers are not allowed to make employee redundant by reason of:
- age, gender, sexual orientation, gender reassignment, disability, religion or belief or marriage or civil partnership;
- where an employee has taken health and safety action or requested a statutory right, for example, minimum wage, maternity leave or annual leave;
- working on a part-time basis or on a fixed-term contract; and
- the employee being a trade union member, a trade union representative or an employee representative.
If an employee is made redundant because of one or more of the above reasons, the dismissal would be be deemed automatically unfair. These reasons cannot be relied on, whether wholly or in part, to dismiss an employee through redundancy.
Notwithstanding the automatic protections, employees who fall within the above categories can still be made redundant, provided that the grounds for doing so are fair reasons and that the relevant unfair reason is not taken into account in making the redundancy selection.
Care should be taken to ensure there is consistent implementation of clear, objective and fair selection criteria when identifying employees at risk of redundancy. Employers should also assess circumstances which may potentially give rise to allegations of automatically unfair dismissal, for example, where an employee is made redundant soon after becoming a trade union representative or returning from maternity leave, or where an employee has previously asserted their right to minimum wage and is selected for redundancy whereas other employees who do a similar job have not been selected.
In addition, the reasons for redundancy should not be subjective, for example, because a line manager does not like an individual or because an employee does not participate in social events. Employers are advised to also consider reasons which could potentially constitute indirect discrimination as these will also be deemed unfair reasons for redundancy.
An employee who feels that the redundancy process or the reasons for their redundancy were unfair may seek to appeal against the redundancy decision.
As an employer, you can accept or reject an appeal. If you accept their appeal while they are still employed, you can offer them back their job and they will continue in employment under their original contract of employment.
If you accept their appeal once their employment has terminated, they can return to work on their original contract of employment and must be paid for the period that they were not working although they must also repay any redundancy payments made to them.
If you choose to reject their appeal and proceed with their redundancy, an assessment should be conducted to understand the risk of a claim being brought.
Employment tribunal claims & compensation
If a redundancy is alleged to be unfair, the affected employee could potentially bring an unfair dismissal and/or discrimination claim against the employer in the employment tribunal.
In order to claim compensation for unfair dismissal, an employee needs to have two years of continuous service with the employer.
Importantly, this requirement does not apply to claims for automatically unfair dismissal or discrimination.
If an employment tribunal finds that there has been an unfair dismissal, the employee will be entitled to a basic award payment and possibly a compensatory award payment from the employer. The basic award is calculated in the same way as redundancy pay and the employee is unable to benefit twice from this, so they will not be entitled to it if they have already received statutory redundancy pay. The compensatory award aims to place the employee in the position they would have been had they not been unfairly dismissed, subject to the relevant maximum limit. The affected employee must also show that they have attempted to mitigate their loss, for example by looking for another job.
If the employment tribunal finds that there has been discrimination, the employer will be required to pay a discrimination award. There is no cap on this amount, and it may also include an amount to compensate for injury to feelings. As such, this can be a costly exercise.
How can an employer avoid allegations of unfair dismissal?
The most obvious way for an employer to avoid allegations of unfair dismissal is to ensure that the reasons for redundancy are fair, objective and can be justified and that the correct redundancy procedure is followed. If there is any risk that a reason could be considered directly or indirectly discriminatory, unfair or subjective, it should not be a factor when making a redundancy selection.
Key points for employers include:
- only use objective reasons for redundancy which can be explained and evidenced, and assess all employees in the redundancy pool consistently and fairly;
- keep written records of all discussions and decisions regarding the reasons for redundancy, how these were measured and how employees were scored against them;
- ensure that all employee records are kept up-to-date and include sufficient detail, for example, sickness records and disciplinary records;
- ensure that the people involved in the assessment process know the affected employees well and are directly involved in their work;
- follow any written redundancy procedures that you have in place and use any selection criteria set out in those procedures;
- ensure that the entire redundancy process is undertaken fairly and properly;
- communication with the affected employees throughout the entire redundancy process is key. Ensure that you provide them with as much information as possible and explain each stage and thedecision-making process;
- put in place an appeals procedure to enable disgruntled employees to air their grievances and appeal the redundancy decision;
- be absolutely certain that your redundancies are genuine; and
- take legal advice as soon as possible and before the redundancy exercise begins.
DavidsonMorris’ employment lawyers can help with all aspects of the redundancy process, including advice on fair reasons for redundancy, and how these impact fairness of the redundancy selection procedure. Working closely with our specialists in HR, we provide comprehensive guidance on managing the legal risks of dismissing employees, including more complex cases involving settlement agreements. For help and advice, speak to our experts.
Fair reasons for redundancy FAQs
What are the fair reasons for redundancy?
Fair reasons for redundancy must be objective and able to be measured. For example, attendance history, punctuality, skills and experience, performance and disciplinary history are all considered as fair reasons for redundancy. Length of service and qualifications may also be considered.
Do you have a to give a reason for redundancy?
Yes, employers need to be able to explain and justify the reasons for making an employee redundant. If the employee considers these to be unfair, they could lodge an appeal and/or bring an employment tribunal claim for unfair dismissal and/or discrimination against the employer.
What are the criteria for redundancy?
In order for a redundancy to be genuine, the job must no longer be needed. This is usually because of a downturn in business, closure of the workplace, relocation, others doing the job instead or the implementation of new processes.
Last updated: 25 August 2023