For your business

Redundancy and Restructuring

Any form of organisational restructure has the potential to expose a business to Employment Tribunal claims for Breach of Contract, Unfair Dismissal or even Discrimination. We can work with you at an early stage to minimise that risk, by ensuring that you take the necessary steps to protect the business. This can help drive decision making rather than hold you back.

Proposals for restructuring might involve fundamental changes to employees’ contracts: we can guide you through the process of consulting with employees to agree changes, considering unilateral changes or terminating existing Contracts of Employment and offering new Contracts. We will also advise on the risk of any claims for Constructive Dismissal or Unfair Dismissal and the merits of any defence that contracts were fairly terminated for a sound business reason.

If restructuring involves making redundancies, we can advise as to your obligations to your employees, help create a fair redundancy process or simply discuss any risks arising from your plans. To avoid Unfair Dismissal claims, you may need to devise a fair selection process and will always need to consult with affected employees. We can help you define pools, identify selection criteria and assist with consultation. If you decide to offer voluntary redundancy, we can help draft Settlement Agreements.

Where restructuring or redundancy leads to disputes with employees, we can advise on the merits of defending or settling those disputes.

Advice from Solicitors is privileged from disclosure to your opponent if there were to be any litigation as a result of the restructuring or redundancy process. This does not apply to Employment Consultancies or other advisors, whose emails and other communications would need to be disclosed to an employee who brought a claim.

It is usually possible to agree fixed fees for unbundled advice regarding redundancy or restructuring. Where fixed fees are not possible (such as when dealing with an open ended negotiation), we will provide the best estimate we can and keep you fully informed about the costs you are likely to incur.

Contact us on 020 7935 3522, lt@freemanssolicitors.net or using the contact form

FAQs about Restructuring and Redundancy

What is the notice period required to change a Contract of Employment?

Contracts of Employment can be changed or varied by agreement after consultation, in which case there is no need to give notice. If agreement cannot be reached, the employer has a choice of making a unilateral change to the Contract of Employment or terminating the existing Contract of Employment and offering new terms. If terminating the existing Contract of Employment, notice should be given as per that contract (or statutory notice if greater).

How does redundancy work?

Redundancy is where:

  • The employer is no longer carrying out the business for the purpose of which the employee is employed
  • The employer is no longer carrying out the business in the place in which the employee is employed
  • Requirements for the employee to carry out work of a particular kind is to cease or diminish either across the business or in the place where the employee is employed

A fair selection process must be followed if there is more than one employee doing work of a particular kind but no need to make all of them redundant. There should be consultation over possible alternatives to redundancy (such as relocation, an alternative job or reduced hours), the method of selection and choice of “pool” from which redundancies will be made, the criteria to be used, an employee’s scores against those criteria and any possible alternative employment.

What is bumping?

Bumping involves moving a potentially redundant employee into an alternative position, then making that second employee redundant. It is considered fair to do so, though not necessarily something an employer has to consider.

How long should a consultation period be?

There is no prescribed period for individual consultation with potentially redundant employees, but consultation must be long enough, and take place early enough, to be meaningful. Short meetings over a period of days before notice is given are unlikely to be adequate.

If an employer is proposing to make at least 20 redundancies within 90 days, collective consultation is required with appropriate employee representatives. That must last at least 30 days for between 20 and 99 redundancies, and 45 days for 100 or more redundancies.

How much notice should be given for redundancy?

Redundant employees should be given notice in line with their Contract of Employment, or statutory notice if longer. Notice must be given after consultation is complete. Many redundant employees are offered pay in lieu of notice, or placed on garden leave during their notice period. It is however possible to ask redundant employees to work through their notice period, though they should be offered time off to look for alternative employment.

How is redundancy pay calculated?

Statutory redundancy pay is calculated using the following formula:

  • For complete years worked aged 41 and over = 1 ½ weeks’ pay
  • For complete years worked aged 22-41 = 1 week’s pay
  • For complete years worked aged under 22 = ½ week’s pay

A week’s pay is subject to a statutory maximum, currently £508. A maximum of 20 years’ service is counted.

The easiest way to calculate statutory redundancy pay is to use the online calculator on gov.uk.

Are redundancy terms contractual?

Some employers offer enhanced redundancy terms, either by calculating payments using actual pay without the statutory cap or using larger multipliers. These enhanced terms may be set out in a contractual policy but may not. Enhanced redundancy terms may still be contractual if they are capable of being calculated with certainty and have been offered in the same form to such an extent that they have become custom and practice.

Are redundancy payments taxable?

The first £30000 of any compensation for loss of employment is tax free. This doesn’t mean that all payments made when making an employee redundant are tax free: money due to the employee under the Contract of Employment is taxable in the usual way. This applies to any pay owed up to the termination date, any bonus or commission due under the contract, accrued but untaken holiday and pay due in lieu of notice.

Why should we consider voluntary redundancy?

Asking for volunteers for redundancy can remove the need to carry out complex and potentially contentious selection and consultation exercises. The process required to carry out fair redundancies can be disruptive both to those involved and those not, affecting morale and performance. Alternatively, by offering enhanced redundancy payments as an alternative to formal selection and redundancy, the process can be significantly quicker and more amicable. We recommend that any employees offered enhanced redundancy payments are asked to sign a Settlement Agreement.

When is redundancy Unfair Dismissal?

Whilst redundancy is a potentially fair reason for dismissal, employees may claim Unfair Dismissal if the employer has not followed a fair consultation procedure, selection for redundancy was unfair or the employer failed to offer suitable alternative employment. Employees might also suggest that there was no redundancy situation, i.e. that the reason for dismissal was something else.

Can an employee be made redundant when pregnant or on maternity leave?

The short answer is “yes”, though care should be taken to ensure that there is no unfavourable treatment because of pregnancy, pregnancy related illness or maternity leave. Absences for ante-natal appointments and pregnancy related illness should be discounted when considering selection. Any assessment of performance over a period of time including maternity leave will need to be designed so as not to disadvantage the employee who took leave but equally not to award “maximum points” as that might disadvantage other employees. Employees on maternity leave have a right to be offered suitable alternative employment without being asked to make an application, interview or facing competition from their colleagues.

Can an employee be made redundant when off sick?

Employees on long term sick should be included in the selection pool for redundancy and the same “scoring” applied to them. It is possible to include absence as part of a scoring exercise, though care should be taken to make reasonable adjustments for disabled employees. An employee should not however be made redundant because they are absent with ill health: that is not a genuine reason for redundancy. Instead, a capability procedure should be followed before determining whether employment can be terminated.

How does TUPE affect redundancy?

If the reason for the drop in work is the loss of a contract or transfer of part of the business, TUPE may apply. This would automatically transfer the relevant employees to the new business or contractor unless they objected. Redundancy would only be possible if there were economic, technical or organisational changes entailing a change in the workforce. If the outgoing employer had a contractual redundancy policy, that would apply to any redundancies made by the new employer.