Redundancy

Due to a variety of reasons, an employer may need to make changes to the workforce in order to meet the needs of the business.  This can include a redundancy situation.

A redundancy situation will arise when:

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• the employer has ceased, or intends to cease, to carry on the business overall or in a particular place where the employee works or is based

• the employer’s requirement for employees to do ‘work of a particular kind’ has ceased or diminished, or is expected to cease or diminish overall or in a particular place where the employee works or is based.

A dismissal for redundancy may be unfair on the grounds that:

• the employer has failed to give the employee as much warning or opportunity for one-to-one consultation as is reasonably practicable (unless the employer can reasonably conclude, at the time, that such consultation would be futile)

• the selection criteria used are unreasonable in themselves or have been applied unreasonably

• the employer has failed to consider and, if appropriate, offer the employee any alternative employment that was available.

Lay-off and short-time

An employee can claim a redundancy payment if laid off or on short-time for four consecutive weeks, or for a broken series of 6 weeks in any 13 weeks.  For this purpose:

• lay-off is no work and no pay of any kind from the employer for the week in question

• short-time is shortage of work and less than half pay for that week.

The employee must initiate the process by giving the employer, within four weeks of the latest week of lay-off or short-time, written notice of intention to claim a redundancy payment.  Entitlement then depends on whether the employer serves counter-notice within seven days, contesting the claim because there is a reasonable prospect of a sustained resumption of full working.  If so, the employment tribunal decides.

This statutory right is only needed if the contract of employment allows the employer to lay the employee off and/or to implement short time.  Without this right, the employee would be unable to claim a redundancy payment, regardless of the length of the lay-off or short-time.  In contrast, if the contract does not contain lay-off/short-time provisions, an employee experiencing lay-off or short-time can resign and assert ‘constructive’ dismissal by reason of redundancy in order to get a statutory payment.  The statutory lay-off/short-time rules are not needed.

Redundancy payments

The employee must have continuous service of at least two years to be eligible for a statutory redundancy payment.

The calculation for a statutory redundancy payment is based on a scale, working back from the date of dismissal:

• for each year of reckonable service from age 41 1½ weeks’ pay

• for each year of reckonable service from age 22 to 40 1 week’s pay

• for each year of reckonable service below age 22 ½ week’s pay.

The maximum service taken into account is 20 years (a ‘year’ being 12 complete calendar months).  A weeks pay is capped at £508 (an amount reviewed every April).  Therefore the maximum overall payment will be £15,240.

An employee’s entitlement to a redundancy payment is only maintained if the employee does not unreasonably refuse any offer of suitable alternative work that the employer makes before the contract terminates.  For this purpose:

• an offer on the same terms in the same place disqualifies the employee from payment

• an offer on different terms or in a different place raises questions of flexibility, suitability, and also the reasonableness of refusal, where the focus is on factors such as travelling time and parental commitments that are specific to the individual.

There is provision for a trial period of at least four weeks in any new job that is offered.  The expiry of the trial period is regarded as acceptance of the new job.  If, during the trial period, the employee terminates the employment for whatever reason, or the employer terminates it for a reason arising out of the change, then the employee is treated for redundancy payment purposes as dismissed from the original job.  The employee therefore receives a redundancy payment, unless the new job was suitable and termination unreasonable.

Claims for redundancy payments

A claim for a redundancy payment must be made within six months of the termination of the contract (unless a claim for unfair dismissal is made within three months).  The employment tribunal can hear a time-barred claim within a further six months, if that is just and equitable in the circumstances.  If the tribunal awards an ex-employee a statutory redundancy payment, it may also award compensation for any financial loss caused by the employer’s non-payment.

Consultation on, and notification of, large-scale redundancies

There is a duty to consult representatives of employees. At the same time as representatives are being consulted, there is also a duty to notify the Department for Business, Innovation and Skills (DBIS) on Form HR1 of the proposed number of redundancies. Failure to notify can result in criminal proceedings and a fine not exceeding £5,000 against the company and/or its officer.

Transfer of employment (TUPE)

In certain circumstances, an employer can 'acquire' employees when there has been a ‘relevant transfer’ of a business or undertaking, or part of it, to a new employer. 

The Transfer of Undertakings (Protection of Employment) regulations (commonly known as TUPE) safeguards employee's rights when there has been either:

• a transfer (not necessarily by sale) of all or part of a business or undertaking if that ‘economic entity retains its identity’, or

• a ‘service provision change’ (contracting-out by a ‘client’, change of contractors after retendering, and contracting-in by a ‘client’), where the service is provided by an ‘organised grouping of employees’.

Transfers by acquisition of shares are normally excluded, because there is no change in the legal personality of the employer.  However, actions by the new owner of the shareholding might result in a TUPE transfer in certain circumstances.

Informing and consulting employee representatives

Before a transfer, the current employer (transferor) and the new employer (transferee) should each inform representatives of their own employees affected by the forthcoming transfer.  The transferee only needs to do this if there are implications for its own employees.  The consultation will address what, if any, measures are proposed to be taken following the transfer.  There is also the option for the transferee, before it becomes the new employer, of undertaking pre-transfer ‘collective consultation’ when there are 20 or more proposed post-transfer redundancies.  A failure to properly inform or consult can allow each affected employee to make a claim for compensation in the employment tribunal for up to 13 weeks' pay.

Employee liability information for the new employer

The transferor must supply the transferee with ‘employee liability information’ in writing at least 28 days before the transfer or, otherwise, as soon as reasonably practicable.  This regulations specifies what information must be provided.  The information must be accurate to a specified date and notification must be given of any subsequent changes.  A failure to comply with this obligation can allow the transferee to claim compensation in the employment tribunal, which is normally a minimum of £500 for each employee in respect of whom relevant information was not given or was deficient.

Normal automatic continuation of employment contracts

An employee can object to transferring to the new employer and, unless there is redeployment by the current employer, the employee is taken to have resigned.  If the employee objected to the transfer because of the transferee’s proposal or intention to make detrimental changes to terms and conditions, then there could be legal liability.

In the absence of an objection, the contract of employment of someone employed at the time of a transfer automatically continues as if it had been made with the transferee.  With notable exceptions, the transferee takes over the employment/contractual liabilities of the transferor.  This ‘automatic continuation’ effect applies to an employee who was dismissed before the transfer but for a transfer-related reason that is unfair.  Here, the liability for the unfair dismissal passes to the new employer.

Pension scheme arrangements

Liability for occupational pension scheme provisions, so far as they relate to benefits for old age, invalidity or survivorship do not transfer under TUPE.  However, arrangements under a Group Personal Pension Plan and, in certain circumstances, others rights under an occupational pension scheme transfer to the transferee.

Changes to terms and conditions of transferred employees

Changes to the terms and conditions of transferring employment contracts can be made in certain circumstances.  However, if the changes are made for the sole or principal reason of a transfer, then the changes will be void unless they are:

• by agreement and for an ‘economic, technical or organisational reason entailing changes in the workforce’ (change in number of jobs, content of jobs or location of jobs)

• permitted for the employer to make by a term of the contract, or

• to terms incorporated from a collective agreement, put into effect more than one year after the transfer and, following that, the employee’s ‘package’ is no less favourable to them overall.

If the change involves both a breach of contract and the loss of a financial amount (for example, a reduction in pay), the employee will have the right to sue for any lost amount(s) while the contract continues.  The employee’s action might be either for damages in the County or High Courts or for one or more unlawful deduction from ‘wages’ in the employment tribunal.  A breach of contract will, if sufficiently serious, also entitle the employee to resign and to claim constructive dismiss.

Termination of employment

If an employee is dismissed, and the sole or principal reason for the dismissal is the transfer, then the dismissal will be automatically unfair.  However, if the dismissal is for an economical, technical or organisational reason entailing changes in the workforce, then the dismissal may be fair.

Where the underlying reason for the change resulting in a dismissal is a decline in the employer’s need for a particular type of work, the employee may be entitled to a redundancy payment.

Changes that might affect 20 or more employees

If the change is intended to affect 20 or more employees (currently, only if they are at a single ‘establishment’), there will be the requirement for the employer to consult with employee representatives about proposed dismissals for redundancy.  The definitions of ‘redundancy’ and ‘proposed dismissal’ under this particular law are sufficiently wide to include almost any wide-scale change to contracts of employment, regardless of its underlying reason.