Redundancy: The Employer’s Legal Guide

Redundancy is one of the most costly employment law mistakes an employer can make, and the mistakes are almost always avoidable. A poorly handled redundancy process costs more in tribunal compensation, management time, and reputational damage than the saving it was meant to achieve. This guide covers the legal framework, the timeline, the process, and where employers go wrong — with enough specificity to be genuinely useful.

What Redundancy Actually Is — and What It Isn’t

Section 139 of the Employment Rights Act 1996 defines redundancy precisely: dismissal is for redundancy if it is attributable wholly or mainly to either (a) the employer ceasing to carry on business at the place where the employee was employed, or (b) the requirements of the business for employees to carry out work of a particular kind having ceased or diminished.

The House of Lords confirmed in Murray v Foyle Meats Ltd [1999] UKHL 29 that the statutory test is purely functional: it asks whether the requirements of the business for employees to carry out work of a particular kind have ceased or diminished. It does not matter whether the employee was moved around to do different work, or what their job title was. The question is whether the business needs fewer people to do the relevant work. This was important because courts had previously applied over-complicated “function” and “contract” tests. Murray simplified it.

Practical examples of what IS redundancy: closing a branch office (cessation of business at a place); restructuring from 5 account managers to 3 because revenue has fallen; automating a production process so that 8 operators are needed instead of 12; outsourcing the IT function.

What is NOT redundancy: dismissing an employee because they are underperforming (that is capability or conduct); replacing a £50,000 employee with a £30,000 one doing the same job (unless you can show the role itself changed materially, which is hard to establish); dismissing someone because you don’t get on with them; changing terms and conditions and dismissing the employee when they refuse to accept. None of these are redundancy in the statutory sense. Label them as redundancy and you’ll face an unfair dismissal claim where you’ve already conceded that the statutory reason for dismissal doesn’t exist.

Exploring Alternatives Before You Start the Process

Employment law doesn’t require you to explore alternatives to redundancy before proceeding — but failing to do so can make a subsequent dismissal unfair, and it’s practically sensible anyway. You should be able to demonstrate at tribunal that you considered the alternatives genuinely, not as a tick-box exercise.

The alternatives typically worth exploring: a recruitment freeze (if you’re not backfilling other vacancies, why are you making people redundant?); short-time working or temporary lay-off (these are contractual rights if they exist in the contract — and you should check whether they do before invoking them); salary sacrifice arrangements across the team; voluntary redundancy or early retirement offers; redeployment to suitable alternative roles elsewhere in the business. None of these are always available, but the fact that you considered and ruled them out for documented reasons protects you in consultation.

The Redundancy Timeline: How Long Does the Process Take?

The answer depends on the number of redundancies proposed. This is one of the most Googled questions on the topic, so here is a clear answer.

Fewer than 20 redundancies at one establishment: There is no statutory minimum collective consultation period. Individual consultation is still required — the ACAS Code of Practice and case law require that it be meaningful, not cursory. In practice, most employment solicitors recommend a minimum of 2 weeks of genuine individual consultation. Add the employee’s notice period (minimum 1 week per year of service under ERA 1996 s.86, or the contractual notice period if longer) and a typical small redundancy takes 3–6 weeks from start to finish. Shorter processes are possible but carry more risk of an unfair dismissal finding.

20–99 redundancies at one establishment: Collective consultation must begin at least 30 days before the first dismissal takes effect. This is a statutory minimum under s.188 TULRCA 1992, not a target. Add individual consultation, notice periods, and administrative time: expect 6–10 weeks as a minimum. Trying to compress this is a false economy — the penalty for failing the collective consultation obligation is a protective award of up to 90 days’ pay per affected employee.

100 or more redundancies at one establishment: The minimum collective consultation period extends to 45 days. Total process: 10–16 weeks minimum. You must also notify the Secretary of State using the HR1 form at least 45 days before the first dismissal. Failure to notify is a criminal offence carrying an unlimited fine.

These timelines do not include any dispute resolution period (appeal stages, potential tribunal proceedings) and assume the process runs smoothly. They also don’t account for the time to do the preparatory work: defining the pool, designing the selection criteria, scoring employees, and preparing consultation documentation. In practice, the preparation phase often adds 2–4 weeks before the formal process even begins.

Defining the Selection Pool

The selection pool is the group of employees from which those at risk of redundancy are selected. Defining it correctly is one of the most important steps in the process, and one of the most commonly mishandled.

The pool should include all employees who are interchangeable for the roles being considered — not just those doing the exact job being cut. If you’re restructuring from 5 sales executives to 3, the pool should be all 5 sales executives, plus any other employees who do substantially similar work and could reasonably be considered for the remaining 3 posts. If a junior account manager could realistically step into a sales executive role, include them. If a sales manager is also doing sales executive work, consider including them too.

Murray v Foyle Meats is relevant here too. The House of Lords confirmed that the question is whether the business needs fewer employees to do work of a particular kind — not whether an individual employee happens to have been doing that work. You cannot artificially narrow the pool to include only the employee you want to dismiss. If you pick a pool of one — the person you’ve decided to let go — you’ve pre-determined the outcome and made a mockery of the selection process. Employment tribunals are alert to this, and if you can’t explain why the pool was defined as it was, you’ll struggle.

A worked example: a small marketing agency has 2 senior copywriters, 3 copywriters, and a content manager. Revenue falls and the business can only sustain 1 senior copywriter and 2 copywriters. The employer might be tempted to put all senior copywriters in one pool (so both are at risk and one is selected out) and to put all copywriters in another pool. But if the content manager also writes copy and could be redeployed to a copywriter role, they arguably belong in the second pool too. Getting the pool definition wrong invalidates the whole process.

Fair Selection Criteria

Once the pool is defined, you need a fair method of selecting who is dismissed. The leading authority remains Williams v Compair Maxam Ltd [1982] IRLR 83, where the EAT set out the principles a tribunal would expect to see applied in any fair redundancy selection: criteria should be as objective as possible, agreed with trade union representatives or employees where possible, consistently applied, and used to select those employees who can be spared with least damage to the employer and the remaining workforce.

In practice, selection matrices are the standard tool. Common criteria include: length of service, skills and qualifications, performance and appraisal history, attendance record, and disciplinary record. Each criterion is scored, the scores are weighted, and employees in the pool are ranked. The lowest-scoring employees are selected for redundancy.

Two criteria require particular care.

Attendance: Using raw attendance figures is dangerous. If an employee’s absences include periods of disability-related absence — sickness relating to a condition that meets the Equality Act 2010 definition of disability — and you include those absences in your scoring, you are at risk of indirect disability discrimination. In Metroline Travel Ltd v Stoute [2015] UKEAT/0302/14, the EAT confirmed that disability-related absences should be discounted when assessing attendance for redundancy selection purposes. Failure to do this can render the selection unfair and expose you to a discrimination claim on top of an unfair dismissal claim. The practical solution: split absence scoring into disability-related absence (excluded from scoring) and non-disability absence (included). This requires you to have reviewed absence records and flagged any disability-related periods — which requires HR records to be in good order.

Last In, First Out (LIFO): Length of service as the sole criterion was once common. It is now rarely appropriate. LIFO systematically disadvantages younger workers, who are likely to have shorter service, and this can constitute indirect age discrimination under the Equality Act 2010. LIFO can be used as one criterion among several — it has the advantage of objectivity and certainty — but it should be weighted appropriately and not used as the primary criterion.

Meaningful Consultation — What It Looks Like in Practice

Consultation is probably the step most often reduced to a formality, and it’s the step that most often leads to an unfair dismissal finding when it is.

The ACAS Code of Practice on handling large-scale workforce changes (and the general principles from unfair dismissal case law) require consultation to be genuine. That means: the decision to make redundancies has been reached but the pool, the selection criteria, and the identity of individuals at risk have not been finally determined when consultation begins. The employee must have a real opportunity to influence those decisions. You must consider their suggestions. You must address their concerns.

In Polkey v AE Dayton Services Ltd [1988] AC 344, the House of Lords confirmed that a failure to follow a fair procedure — including meaningful consultation — will generally make a dismissal unfair, even if the employer had a good commercial reason for the redundancy. The tribunal will not ask whether the dismissal would have happened anyway. However, the Polkey decision also introduced what is now called the “Polkey deduction” in compensation — where the employer can show that a fair procedure would have made no difference to the outcome, the tribunal can reduce the compensatory award significantly, or even to nil. We deal with this under compensation below.

Practically: consult at the “at risk” stage (before the final selection decision), hold individual meetings with each at-risk employee, take notes, give them the selection matrix scores and allow them to challenge the scoring, consider any alternatives they raise, offer them time to seek advice. For each consultation meeting, appoint a manager who genuinely has authority to reconsider — not someone who has been told the decision is final and is just going through the motions. Employment judges are very good at spotting a sham process.

Collective Consultation Under TULRCA 1992

When 20 or more employees are proposed for redundancy at one establishment within a period of 90 days or less, the obligations under s.188 Trade Union and Labour Relations (Consolidation) Act 1992 are triggered. This is the collective consultation regime.

The 20+ threshold is by establishment, not by company. If you are proposing 12 redundancies at one site and 10 at another, collective consultation is not triggered at either site — even though the total is 22. Post-Brexit, UK courts follow the domestic interpretation of “establishment” rather than the EU case law that had previously led to the argument that all group-wide redundancies should be aggregated. The Employment Appeal Tribunal confirmed this position in Usdaw v Tesco Stores Ltd [2020] UKEAT. Count by workplace.

Where collective consultation is triggered: you must consult with appropriate representatives — either trade union representatives (if recognised) or elected employee representatives. The minimum consultation periods are 30 days (20–99 redundancies) and 45 days (100+). You must also submit an HR1 form to the Insolvency Service — the notification to the Secretary of State — at the start of the consultation period. This is a statutory obligation regardless of whether there is a recognised trade union.

The consequences of getting collective consultation wrong are severe. In USDAW v Ethel Austin Ltd [2013] IRLR 686, the EAT confirmed that a protective award of up to 90 days’ gross pay per affected employee is the remedy for breach of s.188. On a restructuring of 50 employees each earning £30,000 per year, 90 days’ protective award per employee is approximately £3,700 per person — a total of £185,000. That is a material risk, and it is entirely avoidable by following the process correctly.

Alternative Roles and the Duty to Offer Suitable Alternatives

Before dismissing an at-risk employee, you must consider whether there is any suitable alternative employment available within the business (or, in a group context, within associated employers). This is both a legal obligation and a key factor in whether the dismissal is fair.

“Suitable” means broadly equivalent — comparable terms, skills required, and nature of work. It does not mean identical. You do not have to offer a senior manager a junior position as an alternative (unless they want it). But you do have to identify vacancies and draw them to the employee’s attention.

Under ERA 1996 s.138, if the employee accepts an offer of suitable alternative employment, they have a 4-week statutory trial period in the new role. If after the trial period the employee decides the role is unsuitable, and that decision is reasonable, they retain their entitlement to statutory redundancy pay. If they unreasonably refuse a genuine offer of suitable alternative employment — or unreasonably resign during the trial period — they lose their statutory redundancy pay. “Unreasonably” is the key word; employees are given some latitude, particularly if the new role involves a significant change of location or working pattern.

Calculating Statutory Redundancy Pay

Statutory redundancy pay is calculated by reference to age, length of service (capped at 20 years), and weekly pay (capped at £643 per week for dismissals in 2024/25). The multiplier is: 1.5 weeks’ pay for each full year of service over 41; 1 week’s pay for each full year of service between age 22 and 40; 0.5 weeks’ pay for each full year of service under age 22.

A worked example: an employee aged 45, with 12 years’ continuous service, earning £700 per week gross. Weekly pay is capped at £643.

Years of service aged 41+: 5 years (age 40 to 45). Multiplier: 1.5. Calculation: 5 × 1.5 × £643 = £4,822.50.

Years of service aged 22–40: 7 years (the remaining 7 of the 12-year total, going back from age 40 to age 33). Multiplier: 1. Calculation: 7 × 1 × £643 = £4,501.

Years under age 22: none in this example.

Total statutory redundancy pay: £9,323.50.

Statutory redundancy pay is the minimum. Many employers offer enhanced redundancy terms, either because it is contractual or as a goodwill gesture to facilitate clean departures. Enhanced terms offered consistently to multiple employees can become implied contractual terms — be careful about creating an expectation that a particular enhancement will always be available.

Discrimination Risks in Redundancy

Redundancy is one of the highest-risk areas for discrimination claims because selection criteria can indirectly disadvantage protected groups in ways that are not obvious until challenged.

Disability: As covered above, disability-related absences must be excluded from any attendance scoring. The same logic applies to performance criteria calibrated against periods when an employee was unwell due to a disability. If an employee’s performance dipped during a period of disability-related absence and that performance is now feeding into their selection score, you need to consider whether that scoring is indirectly discriminatory.

Age: LIFO disadvantages younger workers — straightforward indirect age discrimination risk. Less obviously, performance standards calibrated against career milestones can operate as a proxy for age discrimination. If your scoring asks whether an employee has “managed a team for more than 5 years” and this filters out younger workers, consider whether this criterion is genuinely necessary and justifiable.

Pregnancy and maternity: This is the highest-risk area. Section 99 of the ERA 1996, read with the Maternity and Parental Leave Regulations 1999, gives employees on maternity leave (and in related protected periods) automatic unfair dismissal protection if redundancy is the reason for their dismissal, unless: there is a genuine redundancy situation, and the employer has offered any suitable alternative vacancy to them in priority over other at-risk employees. This priority offer requirement is absolute — not a factor to be weighed, but an obligation to be fulfilled. Failure to offer a suitable vacancy to a person on maternity leave before offering it to others is automatically unfair dismissal (and likely pregnancy discrimination). The size of the award in such cases is uncapped for the discrimination element.

Part-time workers: Criteria that result in a disproportionate number of part-time workers being selected may constitute indirect sex discrimination (given that part-time workers are disproportionately female) or breach of the Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000. Pro-rata application of criteria, and careful review of selection outcomes by protected characteristic, should be built into the process.

Common Employer Mistakes

The list of things that go wrong is remarkably consistent across reported tribunal cases. The most common mistakes: defining the selection pool too narrowly to include only the target employee; treating consultation meetings as announcement sessions rather than genuine discussions; failing to give employees their selection scores or the opportunity to challenge them; ignoring alternatives to redundancy raised by employees; applying attendance criteria without adjusting for disability; not offering an appeal against the redundancy decision; failing to check whether the 20+ threshold has been reached across a period of 90 days; not filing the HR1 form when collective consultation is required; and making the decision before the consultation process has formally begun.

The appeal right deserves a specific mention. There is no statutory right to appeal a redundancy decision — but the ACAS Code of Practice recommends offering one, and failing to do so can result in an uplift of up to 25% to the compensatory award if the dismissal is found to be unfair. An appeal also gives the employer a chance to correct procedural errors before a tribunal claim is filed. Always offer an appeal, run it properly, and make sure the person hearing it has not been involved in the original decision.

Settlement in Redundancy

Settlement agreements are commonly used in redundancy to provide certainty for both parties. The employee receives an enhanced payment (above the statutory minimum) and waives any claims against the employer. For the employer, the certainty of a clean break — no tribunal claim, no reference dispute — often justifies a modest enhancement.

The legal route to a protected conversation in redundancy is the “without prejudice” principle, where a genuine dispute exists, or (for unfair dismissal only) the s.111A ERA 1996 pre-termination negotiation process. Under s.111A, an employer can have a protected conversation with an employee offering enhanced terms without that conversation being admissible in tribunal proceedings — but only in respect of an ordinary unfair dismissal claim, not if discrimination is also in issue.

In practice, many settlement agreements in redundancy are negotiated before formal dismissal. A common structure: redundancy is announced, at-risk employees are identified, and individual settlement negotiations begin. The employee takes independent legal advice (mandatory for a settlement agreement to be valid), the employer typically pays a contribution towards the legal costs (£350–£500 + VAT is standard), and the agreement is signed before the formal dismissal date. Handled well, this resolves the matter quickly and with minimum disruption.