Types of redundancy

Introduction

It's important to establish whether a dismissal falls within the legal definition of redundancy.

The Employment Rights Act 1996 (or Employment Rights (Northern Ireland) Order 1996) sets out the definition of redundancy. However some situations are not clear.

A redundancy situation is usually clear where an employee's job will disappear through lack of work, such as if their place of work is closing or being relocated, or because the need for the work they are doing has ended or reduced.

This section lists some circumstances where redundancy situations may exist. However, the facts of each individual situation will decide if an employee has truly been made redundant. In most cases, there's no dispute about it, but sometimes claims are made on the grounds that there was a redundancy situation (and therefore a redundancy payment should have been paid).

If your employee refers the matter to an Employment Tribunal, the tribunal can presume that the employee was made redundant unless you can prove otherwise. E.g. they were not dismissed due to redundancy but for some other reason, such as misconduct.

Closure of a whole business

If an employee is dismissed due to this, 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).

Note: the sale of a business is not usually a redundancy situation. This is governed by the Transfer of Undertakings Regulations 2006, better known as TUPE. For more on TUPE, see How is the employee affected?.

Place of work closing or being relocated

Though this appears to be an obvious redundancy situation, there can be situations where it may be difficult to apply. You need to determine whether the place of business being closed or relocated is where an employee works or could be required to work according to their contract.

To establish this, the following rules usually apply:

• If an employee has only ever worked in one location then that is the place of work, regardless of any mobility clause (see below) in their contract.
• If an employee has worked in several locations, the place of work must be established by a factual analysis about where they actually worked. Considering any contractual terms might help in determining this, but it may not always be a true reflection of where they truly worked.

Mobility clauses

A mobility clause in an employee's contract requires them to relocate if required because of business needs.

You can use it to require an employee to relocate instead of proposing their redundancy. Doing this will mean you won't have 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've done this you must follow the redundancy procedures.

If an employee refuses to obey a lawful request from you to relocate due to the mobility clause in their contract, any resulting dismissal can be due to the employee's misconduct as opposed to redundancy. As a result, 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 (if the wording is unclear or ambiguous, a tribunal will usually interpret it in favour of the employee)
• When and in what circumstances you have used the clause
• Whether this would result in a breach of your duty of trust and confidence to the employee.

Reduced need for a particular kind of work

If the nature of the work you do has changed so much that the work the employees used to do has stopped or reduced, it will usually amount to a redundancy situation.

This applies even though it may be replaced by different work, but not if there's a relocation of duties or introduction of new working methods.

If an employee has been dismissed, the legal test to establish whether a redundancy situation exists involves asking:

• Had the requirements of the business to carry out the work stopped or diminished, or were they expected to stop or diminish in the future?
• Was the dismissal caused wholly or mainly by that situation?

Outsourcing

If you decide to outsource the work being done, it technically creates a redundancy situation, as you'll stop carrying on that particular work. However, TUPE regulations mean that the affected workers and employees might automatically transfer from you to the outsourcing organisation.

They can object to the transfer, but it will mean they have resigned from their job. In most cases, this means they have no right to a redundancy payment or to claim unfair dismissal, as they won't have been dismissed.

However, if they resign 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.

Also, if you dismissed them because of the of the (TUPE) transfer, for example because the new employer didn't want them, it will automatically be an unfair dismissal unless you can show that the sole or main reason for dismissing them was due to an economic, technical or organisational reason that required changes in the workforce.

Less work needs to be done

If the same work is still being done by employees, but there is less to do, this will usually be considered a redundancy. For example, initial over-staffing means 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 employees.

Bumping

Bumping occurs when Employee A is at risk of redundancy but is moved to Employee B's job, meaning Employee B is dismissed instead of Employee A. In these circumstances, the dismissal of employee B is a redundancy. This usually happens when Employee A is more skilled or experienced than Employee B and so is more valuable to the business.

You should consider 'bumping' an employee that you intend to make redundant as, depending on the circumstances, failing to do this may result in an unfair dismissal.

Partnerships: change of employer

If a business closes down because of the dissolution of a business 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, workers and employees are protected and should automatically transfer to the new business. A worker or employee who has transferred to a new employer will not be entitled to a redundancy payment.

See the Department for Business, Energy & Industrial Strategy guide for more information on TUPE, or for TUPE in Northern Ireland see the Labour Relations Agency's guide (PDF).