Alan McCormack | Senior Associate

An employee’s rights in a redundancy situation

A redundancy situation occurs where:

  • A company closes/relocates, or an employer decides to shut down its business;
  • A specific workplace closes/relocates, or an employer decides to close a specific workplace, such as one of its offices, stations, or factories;
  • An employer no longer needs as many employees to carry out a particular type of work.

The fairness of a redundancy dismissal will depend on whether the employer followed a fair procedure, and whether it was for the employer to dismiss, taking into account all circumstances including the size and administrative resources of the business.

In an employment tribunal, the judge will decide whether an employer has acted reasonably in dismissing the employee (applying the general test of fairness in s98(4) of the Employment Rights Act 1996).

An employer should begin the selection process by identifying the group of employees at risk of redundancy, known as the “redundancy selection pool”, before applying to decide which employees should be retained and which will be provisionally selected for redundancy.

For a redundancy dismissal to be fair, the employer should:

  • Identify an appropriate redundancy selection pool (i.e. a group of employees at risk of redundancy);
  • Apply objective selection criteria to those in the pool;
    • (e.g., performance, length of service, skills/qualifications/training, attendance record, time-keeping, disciplinary record)
    • Your employer will need to be able to justify different weighting to each criteria as fair in the circumstances.
    • The selection criteria must be applied in a fair way, by an appropriate manager(s), with reference to accurate and up-to-date information and documentation.
    • Your employer cannot apply redundancy criteria that discriminate. This will render the dismissal automatically unfair.
  • Consult with individuals in the pool;
    • At the end of the consultation period, your employer will confirm whether it is making you redundant, or whether an alternative to redundancy has been found
  • Consider suitable alternative employment where appropriate, subject to a trial period.
    • Your employer is obliged to consider you for any suitable alternative vacancies that become available in the business or in any associated companies.
    • You can accept an alternative role on a four-week trial basis to decide whether it is suitable for you.

Employees with two years’ qualifying service have the right to receive a statutory redundancy payment. An employee may also be entitled to a contractual redundancy payment, if there is an express or implied right to one.

What to do if your employer is insolvent?

An insolvency situation gives rise to significant concerns for all parties involved, including the employees of the business who may find themselves at risk of redundancy and/or unable to recover all sums due to them from their employer under their contracts of employment or statute.

Whether the onset of an employer’s insolvency automatically terminates employment contracts will depend on the particular insolvency procedure involved. Compulsory liquidation automatically terminates all employee contracts with immediate effect from the date of publication of the winding up order. On the other hand, employment contracts do not automatically cease in the event of:-

  • members’ and creditors’ voluntary liquidation;
  • appointment of an administrator to promote the rescue of the company;
  • appointment of a fixed charge receiver;
  • company voluntary arrangements.

In the event of redundancy, your employer must have a consultation about why redundancies are happening and if there are any alternatives. The person who is dealing with the insolvency (the ‘insolvency practitioner’) must tell you how your job is affected and what to do next. They’ll also give you a RP1 fact sheet and a case reference number to use when you apply for money you’re owed.

You can apply to the government for:

  • a redundancy payment
  • holiday pay
  • outstanding payments like unpaid wages, overtime and commission
  • money you would have earned working your notice period (‘statutory notice pay’)

You can also apply for compensation if you think you were dismissed unfairly or not consulted properly. You’ll be claiming against the Secretary of State for Business, Energy and Industrial Strategy and your former employer.

If you have been made redundant and have questions about your process, please contact the Employment Team at Jackson Boyd as soon as possible. There are strict time limits for employment claims (usually three months less a day from the payment date or date of termination), so it is important to seek advice without delay.

Alan McCormack

Alan McCormack

Employment Law Team

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