Last reviewed 24 July 2015

Small and medium-sized enterprises (SMEs) are constantly concerned about the level of their staffing and to explore ways to reduce costs and overheads, which can lead to a redundancy situation. Redundancy can be a complex and difficult process. Stuart Chamberlain, Croner author and employment law specialist, sets out ten 10 tips to employers on small-scale redundancies — that is, where only a few people are affected — to enable them to avoid the legal pitfalls.

1. Ensure that there is an actual redundancy situation

The employer needs to be sure that the situation falls within the statutory definition of redundancy. Section 139 of the Employment Rights Act (ERA) 1996 provides the definition. In essence, redundancies are triggered by one of the following situations.

  • The closure of the business, workplace or part of the business where the employee works.

  • A reduced need for the employee — this could include a reorganisation (where employees are required to apply for new jobs within a restructured organisation) or a diminished need for employees to carry out “work of a particular kind”.

Redundancy can occur, therefore, either where the amount of work disappears completely, or where the amount of work reduces. It can be voluntary or compulsory.

Employers are reminded that redundancy is not the opportunity to get rid of unpopular or underperforming staff. In such instances, different procedures will apply.

Redundancy is a potentially fair reason for dismissal and only those employees who have worked continuously for the employer for two years are entitled to a redundancy payment.

2. Consider alternatives to redundancy

Employers should always consider alternatives before leaping into compulsory redundancies. In its guide on handling small small-scale redundancies (see the final section below), Acas suggests that the following alternatives could be considered.

  • Reduce or end overtime.

  • Stop recruiting and retrain staff.

  • Stop using contractors/casual staff/agency workers.

  • Offer flexible working — offering part-time working, job shares, etc can save money and avoid redundancies.

  • Offer voluntary redundancy/early retirement (remember, a voluntary redundancy is still a dismissal; if the most valuable members of staff volunteer, the employer does have to accept their requests for redundancy).

  • Temporarily lay off employees or temporarily place employees on short-time working. This is not the same as redundancy and the employer will need to obtain or have the agreement of the employees.

  • Changing the staff’s employment contracts — this is a complex and potentially problematic process for the employer and should only be used as a last resort.

3. Make a plan

The employer should draw up a draft plan of what is to be done and in what order, including briefings with the staff and consultation; indeed, all the elements outlined in this article.

An accompanying flow chart can show the timing of the consultation meetings and when those staff eventually chosen for redundancy will receive their redundancy payment and notice pay.

4. Choosing those staff to be made redundant

If redundancy does turn out to be the way forward, the employer needs to plan how to decide which jobs will go — and how to select people for redundancy from those posts.

The selection pool (those identified at risk of redundancy) and the objective (and independently verifiable) selection criteria need to be applied fairly and consistently. These points are considered in more detail below.

The selection pool

If the employer has no redundancy procedure or customary arrangement that specifies how a selection pool should be chosen, he or she will need to identify the employees whose work has either ceased, diminished, or is expected to do so, or is no longer required at that location.

The selection pool will include employees undertaking similar work in the same department or location. An employee’s inclusion in the pool should be consistent with the work they do.

An employee who is pregnant or on maternity leave can be included in the pool, but employers must exercise caution: employees on maternity leave selected for redundancy are automatically entitled to be offered a suitable alternative job where a vacancy exists.

An employer who incorrectly identifies that no pool is necessary risks a tribunal finding that dismissal unfair. A pool of one is potentially fair but a wider pool is usually more appropriate.

Selection criteria

When drawing up redundancy selection criteria, employers should try to use fair and objective criteria that have been precisely defined and that can be applied independently. Organisations also need to choose criteria which will help maintain a workforce that can best support their future needs, particularly experience and skills.

Suitable criteria

The following are all suitable starting points for deciding the selection criteria.

  • Attendance and disciplinary records (but avoid taking into account pregnancy and disability-related absences, or absence resulting from injury at work, as this could be deemed discriminatory).

  • Skills and experience, including those needed for the further development of the business.

  • Standard of work performance, provided the assessment of the performance is objective.

  • Aptitude for work.

The employer must ensure that these criteria are assessed objectively and applied fairly. “Last in, first out” (LIFO) may be used as part of the selection criteria but not on its own, as it is potentially discriminatory.

An appeals procedure (see below) should be established to deal with any employee complaints that he or she has been unfairly selected for redundancy.

5. Consultation

Proper consultation is the key to avoiding employment tribunals. In small small-scale redundancies (ie when the employer is making fewer than 20 redundancies), there is no legal requirement to consult with the trade union or employee representatives, unless a policy or agreement states this. However, meaningful individual consultation is required (see below).

The financial penalties for getting this consultation wrong can be considerable. Above all, the employer/manager must avoid implying that a final decision on the redundancies has already been reached.

6. Individual consultation

There is no fixed period of consultation. The consultation must be “meaningful”; it must not be a “‘sham”. The employee should be provided with details of the selection criteria and how they operate, and with details of his or her redundancy notice and pay. He or she should be given the chance to suggest alternative courses of action, including how his or her redundancy might be avoided. The employee should be allowed to bring a work colleague or union representative to these meetings.

The employer could also use these meetings to ask for volunteers for redundancy.

More than one meeting with each employee may be necessary. Most importantly, the affected employees should not be told that they are redundant until the end of the final meeting — up to this point, they should be referred to as “at risk” from or “provisionally selected” for redundancy. Otherwise, it indicates that the selection process is a “sham” and that the employer has already decided to dismiss.

7. A right of appeal

Although there is no statutory obligation to have an appeal process (and remember the Acas Code of Practice does not apply to redundancies), it is best practice to offer an appeal. The employee should be afforded the right of accompaniment (by a work colleague or union representative) at this meeting.

8. Consider suitable alternative employment

The employer is under an obligation to offer “suitable alternative employment” within the organisation, provided there are such vacancies. Failure to do so could render the dismissal unfair.

Whether a job is suitable depends on:

  • how similar the work is to the employee’s current job

  • the terms of the job being offered

  • the employee’s skills, abilities and circumstances in relation to the job

  • the pay (including benefits), status, hours and location.

The employee has the right to a four four-weeks’ trial period for any alternative employment offered. He or she must also be allowed a reasonable amount of time off to look for another job or arrange training.

An employee may lose the right to statutory redundancy pay if he or she unreasonably turns down suitable alternative employment. He or she could also lose the right to this payment if he or she is dismissed for misconduct during the notice period.

9. A “fair” dismissal

As explained already, redundancy is a potentially “fair” reason for dismissal under the Employment Rights Act 1996. A failure to follow any elements of the procedure outlined in the points above may render the dismissal unfair.

10. Prepare for the future

Redundancy is meant to help get the organisation/ business back on track. The original plan (see above) should indicate how the business will operate after the redundant staff leave. The employer needs to communicate a vision for the future of the business to the staff that will be staying. This can boost morale at a difficult time.

New Acas guide

Finally, Acas has published a new guide to small small-scale redundancies, designed to provide step-by-step guidance for employers on dealing with redundancies of fewer than 20 employees. The guide elaborates and expands on the essential points listed above.