Making Employees Redundant: The Legal Process Explained

Making employees redundant is a sensitive yet sometimes necessary process for UK small business owners. Understanding the correct legal steps is crucial to avoid claims of unfair dismissal and to ensure compliance with employment law. This guide explains the key legal requirements involved, from consultation to notice periods and redundancy pay.

Understanding Redundancy and When It Applies

Redundancy occurs when an employer needs to reduce their workforce because the employee’s role is no longer required. This can happen for several reasons, including business closure, workplace closure, or a diminished need for employees to carry out work of a particular kind. The Employment Rights Act 1996 defines redundancy and sets out the legal framework for this process.

It is important for employers to differentiate redundancy from other dismissals such as performance-related or misconduct dismissals. Redundancy must genuinely relate to the job role and business needs, not the individual employee’s characteristics.

The Consultation Process

Consultation is a vital part of the redundancy process designed to inform and engage employees and, where applicable, their representatives. The approach varies depending on the number of redundancies:

• Fewer than 20 redundancies: Employers must consult individually with each affected employee about the redundancy.
• 20 or more redundancies: Collective consultation is required, involving employee representatives or trade unions and the Redundancy Payments Service.

During consultation, employers must provide clear information about the reasons for redundancy, selection criteria, and any alternative options to avoid redundancy. This process should be genuine and give employees the chance to ask questions or suggest alternatives.

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Fair Selection Criteria for Redundancy

Choosing which employees to make redundant must be based on objective, fair, and non-discriminatory criteria to avoid claims of unfair dismissal or discrimination under the Equality Act 2010. Commonly used criteria include:

• Attendance and disciplinary records (used cautiously)
• Skills, qualifications, and experience relevant to current and future business needs
• Performance history
• Length of service (sometimes used as a “last in, first out” basis)

Employers should avoid criteria that indirectly discriminate against protected groups unless objectively justified. Documenting the selection process thoroughly is recommended to demonstrate fairness if challenged.

Steps to Apply Selection Criteria Legally

1. Identify the pool of employees at risk of redundancy.
2. Agree on objective criteria relevant to the business needs.
3. Apply the criteria consistently to all employees in the pool.
4. Review results to check for any unintended discriminatory impact.
5. Consult affected employees individually and provide feedback.

Notice Periods and Statutory Redundancy Pay

Once redundancy decisions are made, employers must give employees the correct notice as per their contract or statutory minimum, whichever is greater. The statutory minimum notice period is:

• At least one week’s notice if employed between 1 month and 2 years
• One week’s notice for each year if employed between 2 and 12 years
• 12 weeks’ notice if employed for 12 years or more

In addition, employees with at least two years’ continuous service are entitled to statutory redundancy pay. The amount is calculated based on age, weekly pay (capped at the current government limit), and length of service, up to a maximum of 20 years.

Statutory redundancy pay is separate from any contractual redundancy entitlement, which may be more generous.

Handling Redundancy Fairly and Legally

To reduce the risk of legal challenges, employers should follow a fair redundancy process aligned with ACAS guidelines. Key points include:

• Providing clear, timely communication throughout the process
• Consulting with employees and their representatives
• Considering alternatives to redundancy, such as redeployment or reduced hours
• Applying selection criteria fairly and documenting decisions
• Offering support such as references and outplacement services

Employers should also be mindful of the UK GDPR when handling employee data during the redundancy process, ensuring confidentiality and secure processing.

In complex or large-scale redundancies, seeking professional legal advice is strongly recommended to ensure compliance with the Employment Rights Act 1996, Equality Act 2010, and other relevant legislation.

Further Resources

For more detailed guidance, employers can refer to the GOV.UK redundancy pages and the ACAS redundancy advice. For data protection requirements, see the ICO’s guide to data protection.

Read more about employee termination procedures and employment contracts on Small Business Guide.