BLOG
Are you in a redundancy situation?
Written by Danielle Scott on 9 January 2023
The UK economy is on course to shrink in 2023, forcing UK businesses to make some difficult decisions regarding their workforce. With labour costs accounting for as much as 70% of total business costs, many employers will be forced to reduce their headcount in an attempt to stay afloat.
Redundancy is a particularly complex area of employment law, and those who find themselves facing a redundancy situation may be confused about the legalities involved. First and foremost, it can be hard for organisations to establish when redundancy applies.
So, are you actually in a redundancy situation?
The business case
When contemplating making redundancies, the first item on the agenda for employers should be to give thorough consideration to the practicality, viability, and necessity of it. While many businesses are facing financial hardship in 2023, and redundancy may seem like the only viable way forward, this is still a consideration that should always take place.
More specifically, every redundancy situation should start with a plan. Employers must consider necessity, what alternatives have been considered or implemented, how many redundancies are needed, where will they come from, how people will be selected, and what the timeline is.
Many of these points may well be flexible and, as part of a proper consultation process, may be liable to change following discussion with employees. That said, it is still vital to start with some kind of plan of what you are trying to achieve and why. As employment lawyers, we will always want to see a client’s redundancy rationale as a first port of call to make sure their business case is robust, and to better understand what they are trying to achieve.
While an Employment Tribunal won’t look behind the decision to make redundancies or judge whether or not they were commercially sound (instead being concerned about the process, the consultation, the pooling, the selection criteria and the search for alternatives), having a sound business case is still important for your own planning requirements, as well as to explain the ‘why’ to your workforce. The latter will be crucial to avoiding disputes.
Do you need support?
Speak to us for an honest, no obligation chat on:
0345 226 8393 Lines are open 9am – 5pm
When is redundancy an option?
Employers must also understand what constitutes a redundancy situation.
Under the Employment Rights Act 1996, there are three situations in which an employee may be dismissed due to redundancy. These are:
- If the employer has ceased, or intends to cease, trading (i.e a total business closure);
- If the employer has closed, or intends to close, a particular site; or
- If there is a reduced requirement for employees to carry out work of a particular kind.
In order to legitimately issue a redundancy, one of these scenarios must apply. In other words, redundancy cannot be used as a way to evade a problem or as a convenient workaround to get rid of a troublesome or underperforming employee; these situations must be dealt with through the correct route, i.e. via the disciplinary or performance management procedure.
Total versus temporary closures
The ‘total closure’ scenario is self-explanatory. If a business is due to close completely, then that will amount to a redundancy situation. Here there is no issue about pooling, selection, or alternative employment, as it’s likely everyone will be made redundant.
However, this can include temporary closures too, which is where it gets complicated. A common example of this would be if the site was closed for refurbishment. Whether this sort of situation would provide grounds for redundancy would be fact-specific and determined on a case-by-case basis.
When it appears that the employer is replacing one business with another, a Tribunal may have to decide whether the new business is sufficiently different in nature from the original one. If so, the dismissal of the employer’s original employees will be for redundancy. Again, this will come down to a question of fact.
A site or workplace closure is, again, relatively self-explanatory. For instance, if a company owns a series of factories and closes one of them, then that is likely to be a redundancy situation.
One caveat that often arises is the question of which site the employee actually works at and if they should even be affected at all. The general consensus here is that the Tribunal will largely ignore what the contract says and instead look at the reality of the situation.
When considering this type of redundancy, the starting point is the requirements of the business. This implies a commercial judgement, on the employer’s part, about the priorities of the business and about which kind of work has become surplus to requirement.
TUPE
When it comes to a business closure, employers must also be mindful of the Transfer of Undertakings (Protection of Employment) Regulations, also known as TUPE.
With business closures, especially those being instigated as part of a pre-pack administration, TUPE will apply and the workforce will transfer to the new owner rather than being made redundant.
These situations can be very fact specific, so you always want to run any sales/takeovers past your legal advisers to be sure that you don’t accidentally make employees redundant, when they are legally entitled to something else.
Related Content
FREE WEBINAR
Redundancy and Restructuring | People, Process and Protecting Your Business
Get redundancy right with WorkNest
From determining whether your organisation is in a genuine redundancy situation to understanding redundancy pay and settlement agreements, we assign named experts who will help you transform complex legislation into a series of manageable steps. Learn more about our redundancy support.
Sign up for the latest news & insights
Resources
Latest News & Insights
TUPE update | Court confirms share incentive plans CAN transfer across
BLOG Written by Lesley Rennie on 5 September 2023 During a TUPE transfer, the new employer effectively steps into the old employer’s shoes. This includes
Responding to the RAAC concrete crisis | Safety measures for schools and other sectors
BLOG Written on 1 September 2023 More than 100 schools in England have been ordered to close buildings following the discovery of crumbling aerated concrete
Bullying bosses | Spotting the problem and potential strategies
BLOG Written on 24 August 2023 Bullying in the workplace can be a pervasive issue that affects the mental health and productivity of employees, as
Ready, set, match | Your gameplan for workplace harmony during the Women’s World Cup final
BLOG Written on 17 August 2023 With the Women’s World Cup final taking place this Sunday, employers across various industries, particularly those in the hospitality
Proving the problem | How to evidence poor employee behaviour
BLOG Written by Andrew Moore on 11 August 2023 Navigating toxic behaviour within the workplace can be challenging for employers, particularly when it comes to
Flexible Working Act 2023 | A fundamental shift or a fuss over nothing?
BLOG When the government announced proposals to reform flexible working back in 2021, many envisioned a transformative shift in their work-life balance. Fast forward two
How to manage sickness absence during an ongoing HR process
BLOG Written by Gerard O’Hare on 26 July 2023 Managing sickness absence can be difficult at the best of times, but when an employee suddenly
Crumbling classrooms | Watchdog report shines light on unsafe school buildings
BLOG Written on 14 July 2023 Ensuring the safety of students within school premises is a paramount responsibility for education leaders. However, a new watchdog
HSE’s fatal injury statistics 2022/23 suggest workplaces are no safer than in 2016
BLOG Written on 6 July 2023 New statistics from the Health and Safety Executive (HSE) highlight a disheartening stagnation in the ongoing efforts to reduce