Redundancy is one of the five potentially fair reasons for dismissal and is defined in the ERA 1996. To summarise, the definition envisages 3 possible circumstances in which a genuine redundancy situation can arise, as follows:
- the business is shut down altogether;
- the place of business where the employee works is shut down; or
- there is a reduction in the need for employees.
This last situation is perhaps the most common example of redundancy. If there is a genuine redundancy situation, employees will be entitled to a statutory redundancy payment (in addition to their proper notice entitlement) provided they have been continuously employed for at least two years. The redundancy payment is calculated in the same way as the basic award for an unfair dismissal claim.
If there was a genuine redundancy situation, then the employee will have no claim against the employer, provided:
- the correct redundancy payment was made (including any notice payment); and
- a proper procedure was followed and the employer acted reasonably in carrying it out.
In deciding on the second element (whether or not a proper procedure was followed and the employer acted reasonably in carrying it out), the Tribunal will consider a number of factors:
- The employer’s reason for redundancy. However an employer’s reasons for wishing to reduce staff levels will generally not be closely scrutinised by the Tribunal unless it is claimed that the redundancy is a sham.
- Consultation. The Tribunal will consider whether the employer consulted with the employees about the redundancy situation and how the selection process would work. Individual consultation is always required. There are additional requirements for collective consultation where 20 or more redundancies at one establishment are to be made within a 90 day period.
- The selection process. The Tribunal will look closely at the selection process in deciding which individuals were to be made redundant. It will look at the pool (the precise area(s) of the business where the redundancies are likely to take place) used from which to select individuals for redundancy. It will also look at how the employer selected from that pool. An employer seeking to reduce the headcount must use objective criteria, e.g. qualifications, skills, attendance and experience in selecting employees for redundancy. The Tribunal will also consider whether employees were properly assessed in accordance with those criteria.
- The employer must consider the possibility of offering the redundant employees suitable alternative employment if there are vacancies in other departments.
- Whether the employer allowed employees to appeal the selection for redundancy decision.