Redundancy

Definition

An employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to:

  1. The fact that his employer has ceased or intends to cease -

    1. To carry on the business for the purposes of which the employee was employed by him, or
    2. To carry on that business in the place where the employee was so employed, or

  2. The fact that the requirements of that business –

    1. For employees to carry out work of a particular kind, or
    2. For employees to carry out work of a particular kind in the place where the employee was employed by the employer

have ceased or diminished or are expected to cease or diminish.


Statutory Redundancy Pay ("SRP")

In order to be eligible for SRP, an employee must have at least 2 years’ continuous employment. Unless a qualifying employee has a right to contractual redundancy pay, they will only be entitled to SRP.

The following formula is used to calculate the amount of SRP that is due:-

Work out the no. of complete years of continuous employment in which the employee was aged:-

18-21  ½ week’s pay for each year worked
22-40  1 week’s pay for each year worked
41+     1½ weeks’ pay for each year worked

A "week's pay" is capped and is reviewed annually. Only the most recent 20 years of employment are counted.

Procedure

It is vital that an employer follows the correct procedures when dismissing an employee by reason of redundancy. Redundancy is recognised as a fair reason for dismissal, but a failure to adopt the correct procedure will automatically turn a fair dismissal into an unfair one.

A reasonable redundancy procedure should include the following steps:-

  • A warning to all employees who could be affected (i.e. who are in the pool of employees from which the redundant workers will be chosen) at an early stage.
  • Consultation with trade unions where they are recognised or employee representatives, if any.
  • Establishing fair and objective criteria for selecting the employees to be made redundant.
  • Making the selection by applying the selection criteria fairly and reasonably.
  • Considering possible suitable alternative employment, either within the business, or within any associated companies and offering this to the employee where possible.
  • If there is no suitable alternative employment, following the correct dismissal procedure.

If an employee makes a successful claim for unfair dismissal on the grounds of redundancy, they will not receive the basic award for unfair dismissal and SRP. One will be set off against the other on the basis that they essentially amount to the same thing. For further information on unfair dismissal generally – see Unfair Dismissal.

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