What is Redundancy?
“Redundancy is a dismissal due to actual or intended closure of a business for which the employee was employed or due to changes in the requirements of the business”.
Employment Law provides sufficient safeguards to financially compensate an employee who is made redundant. It ensures that the Dismissal is genuinely due to redundancy and meets the strict criteria set out under Employment Right Act 1996.
Reading Time: 5 Minutes
What is covered under Redundancy?
- Introduction to Redundancy
- Reasons for Redundancy
- Law on Redundancy
- Job Redundancy
- Place of work Redundancy
- Employee Redundancy
- Offers of Re-employment
- Redundancy Calculator
Reasons For Redundancy
Wider economic circumstances may cause the employer to shut down or reduce the size of the workforce, change the structure or nature of the work or sell all or part of the business enterprise. In this article, we will explore the legal consequences of jobs loses and remedies available to the dismissed employee.
The common questions asked are, how must people be selected for redundancy (Redundancy Selection Criteria), what responsibility does an employer have to notify and discuss alternatives; are the employees at the mercy of the employers? do the employees’ employment contract may continue to protect them or there is any protection available to employees? these are the few questions that employees may ask when made redundant or in fear of being made redundant.
Law on Redundancy
If an employer decides to make people redundant, he needs to ensure that the dismissals are fair. Whether redundancy is the principal reason for the dismissal, is not determined by what is claimed by the employer but by the definition provided under the Employment Right Act 1996 and the factual circumstances.
The s 139 (1) ERA 1996 criteria.
An employee is dismissed by the reason of redundancy if the dismissal is attributable and occurs in three main situations;
Cessation of business – ´job redundancy´
´Business´ is widely defined as including a trade or profession or any activity carried on by a body of persons, whether corporate or unincorporated.
An employee who is dismissed by reason of the closure of the employer’s business will be dismissed by reason of redundancy. This will be the case whether the cessation of business is permanent or temporary.
Reduction in work at the place of employment – ´place of work redundancy´
Here, the place where the employee is employed is being relocated. There were, in the past, difficulties in determining whether ‘place of work’ is where the employee could be required to work according to the contract of employment (the ‘contractual’ test), or alternatively where the employee actually works (the ‘factual’ test).
Under Employment Law an employee’s place of work, for the purposes of redundancy, is a question of ‘fact’.
(a) if an employee has worked in only one location, that is his place of work, regardless of any mobility clause in his contract;
(b) if an employee has worked from several locations, the place of work is still to be established by a factual enquiry, taking into account any contractual terms that might assist in evidencing his place of work, for example, a mobility clause.
Reduction in the requirement for employees to do work of a particular kind – ´employee redundancy´
If the nature of the work has changed fundamentally so that the work of a particular kind has ceased or diminished, even though it has been replaced by different work, this may also amount to redundancy
This will clearly cover the situations where the dismissed employee’s own job has disappeared through lack of work.
The employee must have two years´ continuous service/employment before he is eligible to claim compensation under redundancy.
Offer of Re-employment
If dismissed by reason of redundancy, the employee will lose his entitlement to a redundancy payment if he unreasonably refuses an offer of suitable alternative employment with the same or an associated employer.
The employee will not be entitled to any redundancy payments where he accepts the alternate job.
A redundancy payment is computed by applying a formula based on age, length of service and a ´week´s pay´
Working from the date of termination of employment, the employee is entitled to:
- one and a half weeks´ gross pay for each complete year of continuous employment in which the employee was 41 years old or over;
- one week´s gross pay for each earlier year in which the employee was 22 years old or over, but under 41 years old;
- half a week´s gross pay for each earlier year.
Pay is capped at £525 per week.
Length of service is capped at 20 years.
The maximum amount of statutory redundancy pay in 2019 is £15,750.
You must be employed in your present job for at least 2 years.
What would You receive?
• 0.5 week’s pay for each full year worked when you’re under 22.
• 1 week’s pay for each full year worked when you’re between 22 and 41.
• 1.5 week’s pay for each full year worked when you’re 41 or older.
The total number of weeks’ pay you are entitled to is subject to a pre-determined multiplier.
This article is written by our legal Writer Sergio Garcia and edit by Syed Aamir