Redundancy & Restructuring: Legal Perspectives

In the UK, redundancy & restructuring are common occurrences in the business landscape, particularly in times of economic downturn, technological advances, or market realignments. For businesses, restructuring may be a way to streamline operations, reduce costs, or refocus on core services, often leading to redundancies—dismissals where an employee’s role is no longer needed. However, such processes are not merely business decisions; they are also governed by a complex body of legal regulations designed to ensure fairness to employees.

UK employment law provides a structured framework for employers navigating redundancy and restructuring. Lawyers play an essential role in advising both employers and employees on their rights and obligations. Here we explore redundancy and restructuring in the UK from a legal perspective, examining the relevant legislation, case law, and best practices for ensuring compliance.

The Legal Framework Governing Redundancy and Restructuring

Definition of Redundancy

Under UK law, redundancy occurs when an employer reduces its workforce because a specific role or function is no longer required. This could be due to the closure of a business, downsizing, relocation, or technological changes that make certain jobs obsolete. Section 139 of the Employment Rights Act 1996 (ERA 1996) provides the legal definition of redundancy, identifying three key scenarios:

Business closure: Where an employer ceases to carry on the business for which the employee was employed.
Workplace closure: Where the employer ceases to carry on business in the location where the employee was employed.
Reduced need for employees: Where there is a reduced requirement for employees to carry out work of a particular kind.

Statutory Rights and Redundancy Process

Employees facing redundancy in the UK are entitled to specific protections. These include:

Redundancy Pay: Employees with at least two years of continuous service are entitled to statutory redundancy pay, which is calculated based on age, length of service, and weekly earnings. The statutory maximum for weekly pay is updated annually.
Notice Period: Employees are entitled to a notice period based on their length of service, usually stipulated in their employment contract but also governed by statutory minimums.
Consultation: The law requires employers to engage in a meaningful consultation process with affected employees or their representatives. Failure to consult properly can lead to claims for unfair dismissal.
Alternative Employment: Employers must consider suitable alternative roles within the organisation and offer these to affected employees where possible.

Lawyers advise clients on these statutory entitlements and help ensure that redundancies are handled in accordance with the law to avoid costly claims.

Fair Selection Criteria

A critical aspect of a lawful redundancy process is ensuring that the selection criteria used to determine which employees are made redundant are fair, objective, and non-discriminatory. Employers should use measurable factors such as attendance records, performance appraisals, qualifications, and skills. The selection process must not be influenced by factors such as age, gender, disability, or any other characteristic protected under the Equality Act 2010.

In cases where selection criteria are unfairly applied, employees may have grounds to bring claims for unfair dismissal or discrimination. Lawyers often guide businesses in crafting transparent and defensible selection methods, minimising the risk of legal challenges.

Collective Redundancies and Consultation Obligations

Where an employer is proposing to make 20 or more employees redundant at one establishment within 90 days, the process becomes a “collective redundancy,” triggering additional legal obligations. Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) requires employers to engage in collective consultation with appropriate representatives of the affected employees, which may include trade union representatives or employee-elected representatives.

The consultation process must start at least 30 days before the first dismissal takes effect (or 45 days for 100 or more redundancies). During this process, employers must provide detailed information about the reasons for redundancies, the number of employees affected, and how dismissals will be carried out.

Failure to follow the collective consultation rules can result in claims for a “protective award” of up to 90 days’ gross pay per affected employee. Lawyers are instrumental in ensuring that collective consultation processes are robust, properly documented, and compliant with TULRCA requirements.

Voluntary Redundancies

Many employers offer voluntary redundancy as part of their restructuring efforts, seeking to minimise the need for compulsory redundancies. Voluntary redundancy often comes with enhanced financial incentives to encourage employees to opt out of their employment. Although voluntary, it is important to note that accepting voluntary redundancy does not waive an employee’s rights, and they may still claim unfair dismissal if the redundancy is not properly managed.

Lawyers frequently negotiate enhanced redundancy packages on behalf of employees, ensuring they are fully compensated and that their rights are protected.

Settlement Agreements

In some cases, employers and employees may agree to part ways through a settlement agreement. These agreements are legally binding contracts that settle claims an employee might have against their employer, typically in exchange for financial compensation. A settlement agreement usually requires employees to waive their rights to bring claims in the future, so it is a common feature in restructuring scenarios.

For a settlement agreement to be valid, the employee must receive independent legal advice on the terms and implications. Employment lawyers often act in this capacity, ensuring employees are fully aware of their rights before signing the agreement. Employers also benefit from having their settlement agreements drafted or reviewed by lawyers to avoid potential legal pitfalls.

Restructuring and Its Legal Implications

While redundancy is one aspect of restructuring, the broader concept often involves more extensive changes, such as reorganising departments, altering job roles, or merging companies. Lawyers play a key role in navigating the legal implications of these changes, especially regarding employment contracts, TUPE transfers, and potential disputes.

Contractual Changes

Restructuring may require altering employees’ terms and conditions of employment. Such changes could involve modifying job roles, changing working hours, or reducing salaries. However, unilateral changes to employment contracts are generally not permissible unless the contract includes a flexibility clause or employees consent to the changes.

Where an employer imposes changes without consent, employees may claim constructive dismissal, arguing that they have been forced to leave their job due to a fundamental breach of contract. Lawyers often advise employers on how to negotiate contractual changes with employees and ensure they are implemented lawfully.

TUPE and Business Transfers

If restructuring involves a transfer of business or services from one entity to another, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) may apply. TUPE provides protection for employees when their employer changes as a result of a merger, acquisition, or outsourcing arrangement. Under TUPE, employees’ contracts are automatically transferred to the new employer, and their terms and conditions must be preserved.

Employers must inform and consult with affected employees about the transfer, and dismissals related to the transfer may be considered automatically unfair unless they are for an “economic, technical, or organisational” reason. Lawyers provide essential guidance to ensure compliance with TUPE regulations during business transfers, helping to avoid disputes and unfair dismissal claims.

The Role of Employment Lawyers in Redundancy and Restructuring

Lawyers specialising in employment law serve as both advisors and advocates in redundancy and restructuring processes. For employers, legal advice ensures compliance with employment legislation and reduces the risk of costly tribunal claims. For employees, legal representation can help secure fair treatment, compensation, and protection of their rights.

Advising Employers: Employment lawyers assist companies in planning and executing redundancies and restructuring, ensuring that all legal requirements are met. This includes drafting appropriate policies, managing consultations, and advising on alternatives to redundancy. Lawyers also help employers avoid discrimination claims by ensuring selection criteria are fair and objective.
upporting Employees: For employees, redundancy can be a stressful experience. Lawyers help employees understand their rights, negotiate settlements, and challenge unfair dismissals. They also advise employees on whether to accept voluntary redundancy or negotiate improved terms.
Dispute Resolution: In cases where redundancy or restructuring leads to disputes, lawyers represent clients in employment tribunals or negotiate out-of-court settlements. They provide expert advocacy to protect their clients’ interests and ensure a fair outcome.

In conclusion, redundancy and restructuring are necessary tools for businesses to adapt to changing market conditions, but they carry significant legal responsibilities. The role of employment lawyers is crucial in guiding both employers and employees through the complexities of redundancy law, ensuring that processes are handled fairly and transparently. With the proper legal advice, businesses can avoid potential disputes, while employees can protect their rights and receive appropriate compensation for their loss of employment. As the UK economy continues to evolve, the need for skilled legal advice in redundancy and restructuring will only grow.

For more information on redundancy and restructuring contact Blake-Turner LLP.