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Redundancy – A Simple Guide

When does redundancy occur?

A redundancy takes place when a dismissal relates wholly or mainly to:

  • The employer ceasing, or intending to cease, carrying on business at the place the employee was employed or for the purpose which the employee was employed, or
  • The requirements for the employer’s business having ceased or diminished for employees to carry out work of a particular kind or in the place that the employee was employed

Who is eligible for redundancy?

An eligible employee dismissed for redundancy will be entitled to receive from his employer a statutory redundancy payment. An employee is eligible if:

  • They have two or more year’s continuous employment since the age of 18; and
  • The employee is offered an alternative position and it is reasonably refused on the grounds of suitability relating to salary, location and status and other individual circumstances. It is not common for employees to lose a redundancy entitlement for this reason.

The advice of any experienced employment solicitors to employers is to take care and sticking to the proper redundancy procedures and, if redundancies are to be made, be sure to adopt and clear and fair selection criteria.

Failure by an employer to follow correct procedure or to establish fair selection criteria can lead to an employee bringing a claim for unfair dismissal compensation. Such a claim, if successful, can result in an award for damages for breach of his employment contract. Employees automatically have the right not to be unfairly dismissed once they have completed one year’s continuous employment. The employer must establish that any dismissal by way of redundancy is a fair dismissal.

Redundancy can, for example, be an unfair dismissal if:

  • There is no genuine redundancy: i.e. the position has not truly disappeared – this could be established if say a new employee is recruited for the same role
  • No consultation before redundancy: The consultation process can become involved when numerous redundancies are planned.
  • Unfair selection process: employees being made redundant must be selected through fair and transparent criteria. It is advisable to agree selections with any union and/or employee representatives.
  • Employer did not offer suitable alternative employment.

How long does an employee have to make a claim?

Employees have three months within which to bring an Employment Tribunal claim.

How do you calculate a redundancy payment?

Employees dismissed for redundancy reasons must be given a written statement from their employer, showing a breakdown of how their redundancy pay was calculated.

In order to calculate statutory redundancy, you should use the following amounts:

  • 0.5 week’s pay for each full year of service where age during year less than 22
  • 1.0 week’s pay for each full year of service where age during year is 22 or above, but less than 41
  • 1.5 weeks’ pay for each full year of service where age during year is 41+

The maximum length of service that can be applied is 20 years. For statutory redundancy purposes, weekly pay is capped at a maximum of £380 [as at 1 February 2010]. Therefore, the current maximum statutory redundancy payment available is £11,400. The majority of redundancy payments up to £30,000 are not liable to income tax.

The important thing to remember is that just because your employer says your dismissal is due to redundancy, that it is not necessarily so. Depending on your circumstances, you may find you have other employment law claims against your employer. Your dismissal which may be worth considerably more than the redundancy pay being offered — so it’s always good advice to check your position with experienced employment solicitors.

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