Whilst redundancies may be unavoidable, employers must think ahead when planning redundancies in order to avoid the additional burden of costly litigation and claims from employees. Employees in the UK have a number of rights in a redundancy situation and employers need to follow the correct procedures in order to avoid potential claims.

What is a redundancy?

In the UK redundancy is defined in statute. It covers three types of situation – the closure of a business, the closure of a workplace or the reduction in a workforce either throughout the business or just at the relevant workplace.

Where the reason for the dismissal of an employee falls into one of these three categories, it will amount to a redundancy dismissal.

What payments are due to a redundant employee?

  • statutory redundancy payments

Where an employee is made redundant, if he has completed at least two years’ continuous service with his employer, he will be entitled to a statutory redundancy payment which is calculated according to a statutory formula. It is roughly equivalent to one week’s pay for each year of service up to a maximum of 20 years’ service (although the payment will be slightly less for years of service when under the age of 22 and slightly more when aged 41 or over). There is also a cap on the calculation of a week’s pay which is reviewed each year. (The current maximum is £464 per week which means that even the longest serving employee will never receive more than £13,920 based on the current figures).

  • contractual redundancy payments

In addition to the payment due under statute, the employee may be entitled to an additional redundancy payment if this is due under the terms of his contract of employment.

  • payment in lieu of notice

When an employee is made redundant he is still entitled to notice of dismissal as set out in his contract of employment. If notice is not given, then he will be entitled to a payment in lieu of notice equivalent to the salary (and value of benefits subject to what is set out in the contract) which he would have received during the contractual notice period.

Redundancy and unfair dismissal

Even if the reason for an employee’s dismissal is a genuine redundancy, if a fair procedure is not followed by the employer, the employee will also have a claim for unfair dismissal. In addition to the statutory redundancy payment, compensation for unfair dismissal is capped at the lower of one year’s salary and the current statutory cap of £76,574.

What amounts to a fair procedure is not set out in the legislation but would involve a number of steps including a period of consultation with the employee about ways in which the redundancy may be avoided if at all possible.

Collective consultation

Employers have to comply with additional statutory obligations where they are planning a large number of redundancies.

Where at least 20 redundancies are planned within a period of 90 days’ or less, the employer must consult collectively with appropriate employee representatives about the redundancies. There are minimum time limits for such consultation and if the employer fails to meet these requirements he will be liable to pay a protective award of up to 90 days’ actual pay for each affected employee.