Redundancy

What is redundancy?

An employee is dismissed by reason of redundancy if their dismissal is wholly or mainly attributable to:
1) the employer ceasing or intending to cease carrying on the business for the purpose of which the employee was employed by the employer
2) the employer ceasing or intending to cease carrying on that business in the place where the employee was so employed
3) the requirements of the business for employees to carry out work of a particular kind, either generally or in the place where the employee was employed, ceasing or diminishing

Employees, who lose their employment because of redundancy and have worked for the employer for at least 2 consecutive years, have some rights, such as:

• Redundancy payment
• A fair selection procedure
• Reasonable time off work to look for an alternative position, including 2 paid days

Redundancy is a fair reason for dismissal and takes place in circumstances where:

• The employer closes the business, where the employee has been working, or
• The employer closes the branch, where the employee has been working, or
• The business needs fewer people (for any reason)

Redundancy payment

The purpose of the payment is to compensate the employee for dismissing them not through their fault. If an employee has been employed at least for 2 consecutive years, he (or she) must be paid at least the statutory redundancy payment. If his written contract of employment makes a provision for additional payments, this must be considered as well.

The payment is due even if the employee volunteers to take redundancy. To calculate the redundancy payment, the employer needs the person’s age, gross weekly pay and the number of years of continuous service. The formula used for calculation is as follows:

A x B x C = redundancy payment

A = depends on the person’s age, it is 0.5 for employees between 18 and 22 years old, 1 for employees between 22 and 40 years old, and 1.5 for employees over 40 years old

B = the employee’s gross earnings per week with a maximum of £538.00 per week (as of April 2020)

C = the number of whole continuous years worked by the person with a maximum of 20

However, the employee would lose his right to the payment if he is reinstated or if he unreasonably refuses an offer of a suitable alternative position.

Also, if the employee is offered his old job back or a suitable alternative position within 4 weeks of redundancy, he is not considered to have been dismissed, therefore he will not receive the redundancy payment.

Redundancy process and unfair dismissal

A fair procedure must be followed when selecting persons for redundancy, otherwise the dismissal may be unfair, which would attract compensation in the Employment Tribunal.

A fair procedure must include:

• Warning and consultation if the employer is proposing to dismiss at least 20 employees in any 90-day period
• Fair basis for selection
• Consideration of alternative employment
• Right to appeal

Trial period

If the person is offered an alternative position, he can try the new arrangement for a 4-week period. If he then reasonably decides that the alternative is not suitable, he should receive redundancy payment.

What if the employer is insolvent?

An employee may apply online to receive the statutory redundancy payment out of the state guarantee fund (the National Insurance Fund) if he is unable to obtain the payment from their employer because:

• the employer refuses to pay, or
• the employer is insolvent