Redundancy is one of the ways in which an employer may lawfully terminate an employee’s employment contract . Very specifically it has to do with the employer’s need to reduce the workforce; therefore a genuine redundancy will arise when:
- the need to perform work has diminished partially or totally
- business costs need to be cut through reduction in employee numbers
- the business is moving premises or closing
Termination of employment (also called dismissal) is lawful providing the employer progresses a fair redundancy process.
A satisfactory redundancy process will include conducting a meaningful consultation. If the employer anticipates making less than 20 employees redundant in one place of work, consultation will be with individual employees. The consultation will consider ways to avoid termination, such as the opportunity for an employee to take up suitable alternative work elsewhere within the organisation. If the employer anticipates making 20 or more employees redundant in one place of work within a 90 day period, a collective consultation will take place with employee representatives.
To determine which employees are to be made redundant, employers should make their selection using a fair and objective scoring system.
Employees with two years’ continuous employment at the date of termination of employment are entitled to statutory redundancy pay. The amount depends on the individual’s age, length of service and salary.
If the employer handles this process incorrectly it will be vulnerable to claims of unfair dismissal. Employers seeking to minimise the risk of litigation will consider the benefits of offering a compensation payment that exceeds the redundancy payment, providing the parties enter into a settlement agreement. In the settlement agreement employees waive their rights to make any further claims against the employer. Our specialist Aeon Settlement Agreements site deals with the offer of settlement on termination of employment on redundancy grounds