Dismissal by reason of redundancy
is defined in the Employment Rights Act 1996 as being where the dismissal is attributable wholly or mainly to:
- the fact that the employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed by him, or has ceased, or intends to cease, to carry on that business in the place where the employee was so employed; or
- the fact that the requirements of that business for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where he was so employed, has ceased or diminished or are expected to cease or diminished.
The definition covers 3 basic situations:
- where the employer ceases to carrying on business (other than involving a transfer of an undertaking) on a permanent or temporary basis;
- where the employer ceases business in the place where the employee is employed; and
- where the employer’s business no longer requires any employees or as many employees to do a particular kind of work (whether generally or in the place where the employee was employed).
An employee’s rights in a redundancy situation
- Employees have the right not to be unfairly dismissed. In practice, this means the right to be consulted in accordance with the Polkey guidelines and the right to be offered suitable alternative employment where possible. However, the right not to be unfairly dismissed only applies to employees who have completed the qualifying period of service of 2 years.
- Regardless of an employee’s length of service, an employee has the right not to be selected for redundancy on certain prescribed grounds as the dismissal will be automatically unfair .
- In a “collective redundancy situation”, all affected employees have the right to be informed and consulted in accordance with Trades Union legislation.
- All employees with 2 years’ qualifying service have the right to time off to look for work or arrange training.
- All employees dismissed for redundancy have the right to contractual notice, subject to statutory minimum notice.
- Employees with 2 years’ qualifying service have the right to receive a statutory redundancy payment.
- An employee may also be entitled to a contractual redundancy payment, if there is an express or implied right to one.
- If the employer is insolvent or refuses to pay, the employee has the right to apply to the National Insurance Fund for unpaid “employer’s payments”, including their statutory redundancy payment and certain sums due under their employment contract.
Before consulting with employees or dismissing for redundancy, the employer must be satisfied that the statutory definition of redundancy (Section 139 Employment Rights Act 1996 (ERA Act 1996)) applies.
Where the employer is undertaking a re-organisation falling outside the definition of redundancy, it may be able to rely on “some other substantial reason” as a reason for any dismissals resulting from that re-organisation.
Redundancy pay and notice
An employee with at least 2 years’ service is entitled to a statutory redundancy payment in addition to any contractual redundancy payment or other benefits that their employer may provide. The amount of the statutory redundancy payment is increased each year. (Since 2014, the increase occurs in April each year.
There may be a contractual right to enhanced redundancy pay set out in the employment contract or in a collective agreement or redundancy policy that has been incorporated into the contract.
Employees who are dismissed without being given full notice in accordance with their contracts will also be entitled to payment in lieu of notice).
An employee has the right not to be unfairly dismissed by their employer (Section 94 ERA 1996). Generally, this right only applies after a qualifying period of service. Since 6 April 2012, the applicable qualifying period has been 2 years. Dismissal or selection for redundancy on certain prescribed grounds is deemed automatically unfair and employees do not need a qualifying period of employment. These include redundancy selection connected to pregnancy or childbirth, whistleblowing or asserting a statutory right.
For a dismissal to be fair, the employer must have:
- A potentially fair reason for dismissing the employee. There are five potentially fair reasons for dismissal set out in Section 98 of the ERA 1996, one of which is redundancy.
- Acted reasonably in treating that reason as sufficient to justify dismissing the employee.
Remedies for unfair dismissal in redundancy cases
If a redundancy dismissal is unfair, an employee will normally be entitled to (in addition to the redundancy pay and notice entitlements):
- An unfair dismissal basic award (however, this will be cancelled out by the amount of any statutory redundancy payment received).
- An unfair dismissal compensatory award, to compensate for financial loss arising from the unfair loss of their job (although this may be reduced in some cases by any ex gratia or contractual redundancy payment in excess of the statutory redundancy payment).
Occasionally, a tribunal will make an order for an employee’s reinstatement or re-engagement, instead of monetary compensation (although in that case compensation will be ordered to cover the intervening period between dismissal and reinstatement or re-engagement).
An employee can bring a claim for compensation for unfair dismissal
even after they have accepted their statutory or contractual redundancy payment, unless they have entered into a settlement agreement.