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What is redundancy?

Redundancy has a clear legal definition under UK employment law. A redundancy situation occurs when a business closes, a site closes, or the employer’s need for employees to do work of a particular kind has diminished or ceased. Redundancy is one of the five potentially fair reasons for dismissal set out in the Employment Rights Act. A dismissal will only be lawful if the redundancy situation is genuine and a fair process is followed.

When redundancy applies

Redundancy can apply in three main situations:

  • Business closure
    The employer ceases, or intends to cease, carrying on the business.
  • Workplace closure
    The employer closes, or plans to close, a particular site or location.
  • Reduced need for employees
    The employer’s need for employees to carry out work of a particular kind has diminished or ceased.

It is the reduction in the requirement for work, not the performance of an individual employee, that creates redundancy.

What makes a redundancy genuine?

For redundancy to be fair, there must be a genuine redundancy situation.

A dismissal is unlikely to be fair if:

  • The role still exists in the same form.
  • Another person is recruited into a substantially similar position.
  • The real reason for dismissal relates to conduct or performance rather than reduced business need.

Employers must be able to demonstrate that the redundancy reason is the true reason for dismissal.

Redundancy consultation

Even where a genuine redundancy situation exists, employers must follow a fair process.

This usually includes:

  • Consulting with affected employees.
  • Applying fair and objective selection criteria where relevant.
  • Considering alternatives to redundancy.
  • Allowing the right of appeal.

Where 20 or more redundancies are proposed within a 90-day period, as well as individual consultation, there will be a need to undertake collective consultation.

Redundancy pay

Employees with at least two years’ continuous service are generally entitled to statutory redundancy pay.

The amount is calculated based on:

  • Age
  • Length of service
  • Weekly pay (subject to a statutory cap)

Some employers offer enhanced redundancy payments in addition to statutory entitlements.

How redundancy fits within wider employment law

Redundancy is a potentially fair reason for dismissal, but fairness depends on both:

  • The existence of a genuine redundancy situation; and
  • A fair and reasonable process.

Redundancy dismissals can still give rise to claims, including unfair dismissal or discrimination, if the process or selection is flawed.

You may also want to read:

  • What is redundancy consultation?
  • What is collective consultation?
  • How should a business decide who is at risk of redundancy?
  • What are the rules around continuous service and redundancy?

Support with redundancy processes

If your organisation is considering redundancies, practical HR advice can help ensure the situation is managed lawfully, fairly and with appropriate documentation and consultation.