Redundancy 

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Redundancy

Summary

An employee who is dismissed by reason of redundancy is entitled to a redundancy payment and to be dismissed fairly provided he or she has sufficient continuous service.
There are statutory obligations on the employer to consult with the workforce/trade union in relation to proposed redundancies and, in certain circumstances, to notify the Department for Business, Innovation and Skills (BIS) where the redundancy dismissals involve 20 or more employees. The employer can be penalised if it fails to comply with these obligations.
If an employee is dismissed by reason of redundancy then a full and fair procedure must be followed.

Calculation of the payment
A redundancy payment is based on the employee's age, length of continuous employment and gross average wage, but is subject to a statutory cap, (£380 per week from 1 October 2009).
Many employers operate enhanced redundancy schemes (which may be contractual) which offer the employee sums considerably in excess of the employee's statutory redundancy entitlement.

The statutory amount is calculated as follows:
• 1½ week's pay for each year of employment which consists wholly of weeks in which the employee was not below the age of 41
• 1 week's pay for each such year of employment, not falling within the above category, which consists wholly of weeks in which the employee was not below the age of 22, and
• ½ week's pay for each year of employment in which the employee was under the age of 22.

These age bands remain in place despite the Employment Equality (Age) Regulations 2006.
The current maximum number of years to be taken into account is 20 and a previous redundancy payment will break continuity of employment for the purpose of subsequent redundancy payments (s.214(2) ERA 1996).
The current maximum statutory redundancy payment is £11,400.

Key Facts

• Employees must fulfil eligibility requirements to receive a redundancy payment.
• A redundancy situation as defined by s.139 of the ERA 1996 is a:
  • closure of a business
  • closure of the business in the place an employee works
  • reduction in the need for employees to do the kind of work carried out by employee.
• The statutory consultation procedures must be followed and BIS informed if necessary.
• A full and fair procedure should be followed to avoid a finding of unfair dismissal.
• Lack of consultation can lead to a protective award being made in respect of each employee, which can be significant as it has no statutory cap on "a week's pay".
• Consultation must take place before the decision to dismiss is taken.