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Types of redundancy

Contents

Introduction

If an employee is dismissed because the work they are doing has stopped or diminished, or because their place of work is closing or being relocated, then the employee is dismissed by reason of redundancy.

This will clearly cover the situation where the job has disappeared through lack of work. You must carefully consider the provisions of the Employment Rights Act 1996 (or Employment Rights (Northern Ireland) Order 1996), which sets out the definition of redundancy, because some situations are not as clear. We discuss some of these below.

Surplus employees

If the same amount of work is still being done by employees, but there is less need to do the work, this will be considered redundancy under the Act (or the Order). For example, initial over-staffing may mean that certain employees are superfluous as their workload can be absorbed by fellow employees, or reorganisation of work methods may produce a more efficient system, requiring fewer staff.

Bumping

'Bumping' occurs when an employee ('employee A') loses their position in the business and is moved to another employee's job ('employee B'), thus displacing the less retainable employee and causing the dismissal of employee B. In these circumstances, the dismissal of employee B is a redundancy and they will be entitled to a redundancy payment so long as they have worked for the employer for 2 continuous years.

Employers should consider 'bumping' an employee that they intend to make redundant as, depending on the circumstances, a failure to consider it may result in an unfair dismissal.

Work of a particular kind

If employees are dismissed because the nature of the work their employer does has changed so much that the work those employees used to carry out has stopped or diminished, even though it has been replaced by different work, those dismissals will amount to redundancy. A mere relocation of duties or introduction of new methods will not amount to redundancy.

The accepted test to establish whether a redundancy situation exists in the scenario described above is a 3-stage process:

1) Was the employee dismissed?

If so:

2) Had the requirements of the business to carry out work of a particular kind stopped or diminished, or were they expected to stop or diminish in the future?

3) Was the dismissal caused wholly or mainly by that state of affairs?

Outsourcing

If an employer decides to outsource the work being done by a particular group or class of employees, this technically creates a redundancy situation, as the employer will stop carrying on that particular type of work. However, TUPE regulations mean that the affected employees might automatically transfer from the employer to the outsourcing organisation.

An employee can object to the transfer and, in doing so, will have resigned from their job. In most cases, this means that the employee has no right to a redundancy payment or to claim unfair dismissal, as they have not been dismissed. If the employee resigns because the transfer to the new job would result in a substantial and detrimental change to their working conditions, they might have a claim for constructive or wrongful dismissal.

Note that if an employer dismisses an employee because of a TUPE transfer, it will automatically be an unfair dismissal unless the employer can show that the sole or main reason for the dismissal was economic, technical or organisational, which required changes in the workforce.

See the Department of Business, Innovation and Skills (BIS) guide (PDF) on TUPE for further information.

Closure of business

If an employee is dismissed due to the closure of a business, it is a redundancy. This will be the case whether the closure of the business is permanent or temporary (although temporary closures can be more complex).

Change of employer - for a partnership

If a business closes down because of the death or dissolution of the partnership, then although the employee's contract of employment may be 'frustrated' (a serious and unexpected event that is beyond you and your employee's control that fundamentally changes the way the employment contract can be carried out), it will be treated as a redundancy.

However, if the employee continues in the employment, or if there is effectively only a change in the partners despite the partnership being dissolved, the employee will not be dismissed and there will be continuity of employment. If the employee is re-employed by an associate employer, this will be a re-engagement.

Where a business is sold as a going concern, this will technically give rise to a redundancy situation, as the employer will stop carrying on the business. However, under TUPE regulations employees are protected and should automatically transfer to the new business. An employee who has transferred to a new employer will not be entitled to a redundancy payment.

See the government guide (PDF) for more information on TUPE.

Place of work redundancy

In this situation the place of employment is either closing or being relocated. As simple as this may appear, difficulties do arise. You need to determine whether the place of business that is being closed or relocated is where an employee works or could be required to work under their contract. In order to establish what the position is, certain tests are applied:

  • If an employee has only worked in one location, then that is the place of work, regardless of any mobility clause in the contract.
  • If an employee has worked from several locations, then the place of work must be established by a factual inquiry, taking into account any contractual terms that might help in determining the place of work.
Mobility clauses

A mobility clause in an employee's contract requires them to relocate if required as a result of business needs and cannot be ignored when considering whether an employee is entitled to a redundancy payment.

You can use a mobility clause to require an employee to relocate instead of proposing redundancies. This gives you the advantage of not having to comply with legal redundancy procedures, including the duty to consult. However, you should decide whether you want to rely on a mobility clause before making any announcement to the workforce about proposed redundancies, as once you have done this you will be obliged to follow redundancy procedures.

If there is a mobility clause in the contract, but an employee refuses to obey a lawful request from the employer to move in accordance with it, then the dismissal may be due to the employee's misconduct as opposed to redundancy. In such circumstances, the employee would not be eligible to receive a redundancy payment.

Factors such as the following need to be considered:

  • The wording of the mobility clause used in the employment contract
  • When and in what circumstances an employer has used the clause
  • Whether this would result in a breach of the employer's duty of trust and confidence to the employee
If the wording used in the clause is unclear or ambiguous, a tribunal will usually interpret it in favour of the employee.

Presumption of redundancy

The facts of each particular case will decide whether or not an employee has been made redundant.

In many cases, there will be no dispute as to whether or not your employee is redundant, although sometimes claims are made on the grounds that there was no redundancy situation.

However, if you do not accept your employee's claim that they have been made redundant (and are therefore due a redundancy payment), and your employee refers the matter to the Employment Tribunal, the tribunal is entitled to presume that the employee was made redundant, unless you are able to prove otherwise – that the reason was not redundancy but some other reason, such as misconduct.