Employment Knowhow: Redundancy and restructuring

There are times when an organisation may need to undertake a reorganisation for the needs of the business or may need to reduce staffing levels.

The closure of a business or of a particular worksite within a business generally gives rise to a redundancy situation. However, a redundancy situation can also occur where an organisation has a reduced requirement for employees to carry out work of a particular kind, for example, where technology has replaced a certain role or where customer demand for a service or product has dropped.

Business reorganisations, or restructures, can give rise to a redundancy situation if they result in a reduced requirement for employees in certain areas. However, a restructure may involve the redistribution of work among the same number of employees and therefore this may amount to a proposal to vary employees’ contracts rather than a redundancy situation at law (see Changing Terms of Employment).

Individual consultation

For both redundancies and restructures it is essential that the employer follows a fair process to avoid claims for unfair dismissal. The cornerstone of a fair process is consultation with employees before making any final decisions. Employers must consult with employees on an individual basis. This usually involves face to face meetings with employees to discuss the employer’s proposals. For redundancy consultation an employer should usually explain: the business reasons for the proposal, possible ways of avoiding redundancies, the proposed pool of employees at risk of redundancy, the selection process, for example, if this would be by competitive interview or by applying selection criteria, and any available alternative employment. The process used to select employees for redundancy should be objective and fairly applied. The organisation must also consider if there is any other suitable alternative employment that could be offered to the employee and should consider a recruitment freeze during any redundancy process, certainly in relation to roles similar to those at risk.

Collective consultation

Where organisations are proposing to make 20 or more employees redundant within a period of 90 days (which also includes terminating contracts and offering new terms as part of a restructure) the consultation must also be on a collective basis. This means that the organisation must consult with the recognised trade union(s) (if there is one or more) or must consult with employee representatives that are elected by the employees or are already in place for the purposes of such consultation. For between 20 and 99 proposed redundancies the consultation must begin 30 days before the first dismissal takes effect and for 100 or more proposed redundancies the period before the first dismissal takes effect must be 45 days. The employer must also notify the Secretary of State using Form HR1 and may be fined for a failure to do so. The organisation must provide certain stipulated information to the representatives to commence the consultation and the consultation should be with a view to reaching agreement (although agreement is ultimately not required). The organisation must also consult with employees individually alongside any collective consultation.

When an employee is dismissed for redundancy, providing that they have been employed for at least two years they will be entitled to receive a statutory redundancy payment. This is calculated using a formula involving a week’s pay (which is capped at a maximum level set by the government each year), the number of years’ service that the employee has with the organisation and their age.  A statutory redundancy payment calculator may be found at https://www.gov.uk/calculate-your-redundancy-pay.

This page was updated on the 1st August 2018.

This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.

All content on this page is correct as of October 24, 2018.