What is Redundancy? A Detailed Definition to Help Employees

What is Redundancy?

Often the word ‘redundancy’ is used without a full understanding of what it means. Your employer may even use redundancy as an excuse to fire you when they have no right to do so.

It’s important to understand what redundancy means because:

  • Your employer can only dismiss you if they have a fair reason to do so. Redundancy is one of the potentially fair reasons.
  • If you’re dismissed by reason of redundancy, you’re entitled to a statutory redundancy payment
  • If you’re offered a settlement agreement as an alternative to redundancy, you need to consider whether the redundancy is genuine

The purpose of this article is to explain:

  • The definition of redundancy
  • When a dismissal falls within that definition
  • The difference between a redundancy and a restructure
  • How to challenge the fairness of a redundancy

Definition of Redundancy

There’s a technical definition of redundancy in section 139 of the Employment Rights Act 1996.

In summary, a redundancy situation exists if your employer:

  1. has stopped carrying on the part of the business for which you were employed
  2. is closing down the place where you worked
  3. is reducing head count because they no longer need as many staff as they used to

When does the dismissal fall within the definition of redundancy?

If your employer has told you that you’re being made redundant, you need to consider whether the termination of your employment really is a redundancy.

Let’s look at how the definition of redundancy applies in practice.

1. If your employer has stopped carrying on the part of the business for which you were employed

If your employer is closing a part of the business or intends to do so, they will probably need to let some employees go.

If the termination of your employment is wholly or mainly attributable to the fact that part of the business is closing, then that is a redundancy.

The employer doesn’t necessarily need to have already closed that area of the business. It is enough that they intend to do so. And the definition includes temporary closure, so it is still a genuine redundancy even if the company expects to re-start that part of the business in a few months’ time.

2. If your place of work is closing

Many businesses operate from more than one location.

If your employer is closing down the particular location where you worked, this can also give rise to a redundancy situation.

Even if your employment contract has a mobility clause that allows your employer to move you to another location, it is still a redundancy if you have only ever worked at the location that is being closed down.

If you’re a mobile worker (eg a delivery driver), then you will be treated as being based at the location with which you have the closest connection.

3. If your your employer is reducing head count

If the business is able to operate with fewer staff, this is likely to be a redundancy situation.

This may happen if, for example

  • There is a downturn in work.
  • Technology means that some work can be done without humans
  • Work is being outsourced rather than carried out within the business.

(If you work is being outsourced to a different company, you may have the right to transfer to that company under a set of regulations, known as TUPE. This is a complex area of law and you may need to get formal legal advice to understand how TUPE affects your situation)

The difference between a redundancy and a business restructure

Sometimes an employer may need to dismiss staff because of a business restructure. If the restructure hasn’t led to a need to reduce headcount, then that won’t be a redundancy.

Nevertheless, it could potentially still be fair to terminate an employee’s employment because the law allows employers to dismiss if they have a substantial reason to do so. However, if it’s not a redundancy, the employer won’t have to pay a redundancy payment.

Some employers choose to pay redundancy payments in these circumstances anyway because they feel there’s a moral duty to do so, even if the dismissal doesn’t come within the definition of redundancy.

How to challenge the fairness of a redundancy

You can’t challenge the business decision that led to the redundancy situation. However, there are various ways you can challenge the fairness of a redundancy.

1. The decision was automatically unfair

There are some decisions that are automatically unfair. That’s usually where the decision is:

  • connected with pregnancy
  • related to trade union activities
  • a response to you asserting your statutory rights (eg the right to a minimum wage)

Challenging a redundancy in this way is relatively unusual.

2. The employer used unfair selection criteria

Sometimes an employer will try to engineer the situation so that they can remove who they want to remove, irrespective of fairness. For example, they may choose selection criteria that are biased against a particular employee.

You will be able to challenge the fairness of the redundancy procedure if you can show that your employer had a hidden agenda and used the redundancy situation as a device to engineer your dismissal.

3. The redundancy consultation procedure was inadequate

Even if there is a genuine redundancy situation, the dismissal will be unfair if your employer fails to follow a fair redundancy procedure.

What amounts to a fair procedure will depend on the size and resources of your employer. However, usually an employer will be expected to:

  • warn and consult employees at an early stage
  • apply fair selection criteria
  • explore alternatives to redundancy, such as other employment within the organisation

Have you been offered a settlement agreement?

Your employer may offer you a settlement agreement as an alternative to being made redundant.

The benefit of this to you is that it is likely to include more money than if you were simply made redundant.

The benefit to the employer is that they avoid any dispute as to whether the redundancy is genuine or whether they’ve followed¬† fair procedure.

Contact Us For Advice on Your Settlement Agreement

If you have received an offer of a settlement agreement, you will need to make sure you receive legal advice on it.

We advise clients throughout the UK. We provide clear and prompt advice on a confidential basis.

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