Redundancy Q&A

The questions set out on this page are genuine enquiries that I have received from my clients. In some cases I have been asked the same question many times. I thought it would be useful to share these with you, as they may be relevant to you.

Please note that in most cases the answers given are summaries and relate to the specific circumstances of the employer and their situation. You should not rely completely on these answers in relation to your own circumstances and should always seek advice if you face a similar issue.

Q: Can I make an employee redundant if they are underperforming?

A: Redundancy should not be used as an excuse for dealing with underperformance, although an employee's productivity may well be a relevant factor when selecting whom to make redundant. If you need to make redundancies, you should bear in mind that it is the job that is redundant and the person to be selected is a secondary consideration. See the Redundancy Guide for further information

Q: Are employees entitled to bring a companion to consultation meetings?

A: Employees have no statutory entitlement to be accompanied at consultation meetings, although some firms do allow them to be accompanied. If the employee is very young or has learning difficulties, it would clearly be a good idea to relax this rule and to perhaps allow them to be accompanied by a family member.

Q: If I negotiate a pay cut with my employees and shortly after make them redundant, will their redundancy pay be based on their old salary or the new, reduced one?

A: This will depend on the contract of employment and whether your employees' pay varies from week to week in line with the hours they work. If they receive the same pay each week irrespective of actual hours worked (e.g. salaried workers), then it is likely that their statutory redundancy payment would be based on their new, lower salary. If their pay varies from week to week to reflect variations in hours worked, you would normally need to work out their pay based on an average of the 12 weeks preceding the date you serve notice (which could include some weeks when they were in receipt of their old, higher salary).

Don't forget that a week's pay for the purposes of calculating statutory redundancy pay is capped at £479 per week (with effect from 6th April 2016). So it may be that there will be no difference if their new annual salary is around £25,000 or higher.

Q: I have just announced to my staff that I need to make some of them redundant to cut costs and have explained to them the selection process that I intend using. I have told them that I will consult with them over my proposals and the process during the next two weeks before making a final decision. One of my employees has now said that she wants to take redundancy and has asked to go straight away. It is one of the employees that I would definitely be selecting, so can I just go ahead and make her redundant?

A: If you go ahead and make this employee redundant, it will still be considered a dismissal in law, even though she has requested it. You need to ensure, therefore, that you can demonstrate that you have followed a fair procedure.

The risk of cutting short the consultation period in her case is probably quite low. If she has clearly requested that you speed the process up then it is unlikely that you would be found at fault for complying with that request, but I would recommend that you ensure she makes it absolutely clear (preferably in writing) that she is making this request of her own free will.

Q: If I am making two positions redundant and creating a new post, which largely takes on the duties of the two redundant posts, do I have to offer the new post to the people being made redundant? Would I be better off getting them to apply for the job?

A: If the new post is very similar to the two redundant posts, it is likely that it would be considered a suitable alternative to redundancy for either of the two redundant employees. That means that you would need to offer it to them both as an alternative to redundancy. If they both indicate that they want to be considered for the post, it is not normally good practice to put them through a "recruitment process" - it could be considered insensitive and is often talked about as "having to apply for my own job".

If you can, it would be better to go through a selection process in the same way as you would if you were merely making one of the posts redundant and retaining the other (see the Redundancy Guide for further details). In this case, however, you would want to ensure that your selection criteria were based on the new post so that you select the best person for the new post.

Q: I am consulting with all 15 of my employees at the moment, as I need to reduce my workforce by 7. One of the employees has now approached me to say that all 15 of them have agreed that they would be prepared to take a 60% pay cut in order to avoid anyone being made redundant. Whilst that would resolve my cash flow problem, it would still mean that I had too many employees for the amount of work available and they would be twiddling their thumbs. Do I have to agree to their suggestion?

A: No, you don't have to agree to the suggestion. However, you would need to be very clear why you can't agree. It sounds like you have a valid reason but you may want to consider meeting them halfway - particularly if you hope that work will pick up again in the foreseeable future. Perhaps you could suggest a lower pay cut and a reduction in the number of staff that you would then need to make redundant. If you are worried about staff twiddling their thumbs, perhaps there is some way you could use the spare capacity productively. For instance, could you use them in marketing activities or to catch up on archiving, file management, etc.?

You would also need to ensure that all the employees are on board with taking a pay cut (and don't just take the spokesperson's word for it). You would be well advised to have each individual sign a variation to contract letter agreeing the reduction in pay.

Q: I have two Account Managers at the moment. One of them is on maternity leave and her position has been covered by the other Account Manager and me (the MD). We have found that we have covered the work easily, mainly because her leave has coincided with a downturn in business. She is due to return in a month. I know I have to allow her to return but I need to make one of the Account Managers redundant as there is clearly not enough work for both. Are there any issues if I select her for redundancy?

A: If you were planning on making her redundant while she was on maternity leave you would have a problem, as she has the legal right to be given any suitable alternative post ahead of any other comparable employee. In this case that would be the one remaining Account Manager position. However, that right only applies to women on maternity leave, not those who have recently returned.

You do need to tread very carefully, however, in how you manage the redundancy procedure after she returns. You need to ensure that your selection criteria are as objective as possible; are clearly designed to select the best person for the job in a non-discriminatory way; and do not place her at a disadvantage due to having taken maternity leave (e.g. if competence in using a new CRM database was one of the criteria, then she may be disadvantaged if she had not had the opportunity to become competent due to going on maternity leave shortly after the new database was introduced).

You need to be aware that making a woman redundant shortly after her return from maternity leave will look suspicious no matter how reasonable a step it is. For that reason you need to follow the process set out in the Redundancy Guide to the letter and ensure that you can demonstrate that you have acted fairly and impartially throughout.

Q: What do we need to pay staff who are being made redundant?

A: Any employees being made redundant are entitled to notice - either to work it or to receive pay in lieu (although check you have the contractual right to make pay in lieu first). Employees with more than two years' service are also entitled to a statutory redundancy payment which is based on their age and length of service (complete years only):

  • 0.5 week's pay for each complete year of service when aged under 22

  • 1 week's pay for each complete year of service when aged 22 to 40 (inclusive)

  • 1.5 weeks' pay for each complete year of service when aged 41 or older

It can be quite tricky calculating the payments by hand, so you are advised to contact us for help with this.

You would also need to pay your employees for any holiday entitlement outstanding at the point of dismissal.

Q: Our company has been operating for nearly 40 years. When we have had to make redundancies in the past we have been quite generous and given all staff 1½ weeks' pay for each year of service (and we don't put the statutory cap on a week's pay). Somebody has told me that this is now illegal as it is age discrimination but I don't understand how that could be the case. Is it true?

A: This is a complex question, which I am afraid needs quite a lengthy answer.

At first sight the suggestion that a redundancy scheme which is more generous to everyone than the statutory scheme could be unlawful does look odd, but what you need to consider is that any benefit that an employee receives which is based on length of service, could be considered indirectly discriminatory on the grounds of age. That is because fewer younger people are able to acquire long service, as they may have only entered the employment market a few years previously. 

The Equality Act makes it unlawful to discriminate in employment on the grounds of age but includes various caveats and exclusions from that basic rule. One of the exclusions is the provision of length of service benefits as long as they only applied within the first 5 years of service. In other words it is OK to give someone an extra day's holiday on reaching 5 years' service, but not to give them an additional day when they reach 10 years' service. However, you may be able to do this if you can successfully argue that it reasonably appears to you that this benefit fulfils a business need by, for example, encouraging loyalty, motivating staff or rewarding experience.

Another exclusion is in relation to enhanced redundancy payments. When introducing age discrimination legislation, the Government kept the age-related bandings for statutory redundancy pay, arguing that there was justification for doing so. The Act states that employers can make enhanced redundancy payments as long as they are kept in proportion to the statutory age bandings (see previous question for details of the statutory scheme and age bandings). So you could choose to remove the cap on a week's pay across the board (or set a higher cap); apply a different multiplier to the age bandings as long as you keep the same age bandings and ensure the multipliers keep the same ratio as the statutory ones (e.g. 1 times, 2 times, 3 times; instead of the statutory ½ times, 1 times, 1½ times); or apply a multiplier to the total payment (e.g. 1.5 times statutory redundancy pay).

If you have an enhanced redundancy scheme that does not comply with the rules set under the Regulations, it makes it possible for younger employees to bring age discrimination claims on the basis that longer serving employees will have a larger redundancy payment than shorter serving employees, who would tend to be younger. The fact that what you are giving them is better than the statutory scheme would be of little significance. Without the protection afforded by the Act in respect of enhanced redundancy payments, you would have to rely on the argument that your scheme is a reasonable means of fulfilling a business need (e.g. encouraging loyalty or rewarding experience). As this legislation is still relatively new, this sort of argument is untested and it is difficult to say how successful it would be.

In short, it would be best to alter your scheme so that it complied with the allowable schemes set out in the Equality Act. However, if your scheme is contractual you would need to take advice on how to change it without running into breach of contract claims.

Q: I don't have time to consult with my staff. I need to make 5 of them redundant by the end of the week or else the company will have to be put into administration. If I do it now we should be able to survive but if we have to fight tribunal claims and pay out compensation that may break the company at a later date. What should I do?

A: The rule of thumb for consultation, when making fewer than 20 employees redundant is to consult for at least two weeks before serving notice. However, that timescale is not set in statute and all you are actually required to do is to act reasonably when dismissing employees. It may be, therefore, that you could justify having a much reduced consultation period - perhaps only a couple of days. But you would need to do all you can to make it meaningful consultation, particularly if you need to select staff from a pool. That means ensuring they have all the information they need in order to be able to question your proposals and pretty much clearing your diary so that they have plenty of opportunity to consult with you. Whether or not a dismissal in these circumstances would be found fair is impossible to say - employment law is not an exact science and a lot would depend on the tribunal panel and how much sympathy they had with your predicament.

However, if you were subsequently found guilty of unfair dismissal, it is quite likely that any compensation you had to pay your ex-employees would be quite low. Any redundancy pay would be taken into account, so it may be that you would only have to pay one or two weeks' pay to reflect the extension to their employment that would have applied had you consulted for longer. It is likely you could successfully argue that they would have been made redundant anyway, had you been able to consult fully, so that there would be no compensation due for loss of earnings. In order to run that argument, however, it would be best if there were clear differences in the scores on your selection matrix - if the scores were very close between those selected for redundancy and those kept in employment, the "no difference" argument would carry much less weight.

If you were to face a claim being aware of the above in regard to possible compensation would put you in a good position to settle it for a reasonable figure. Acas (who would contact you after the claim was lodged to assist in settlement), would understand your argument and would convey it to the other side on your behalf.