concept of redundancy

2.3.4 Redundancy – Why Reducing the Size of the Workforce May Be Necessary

Objective

To understand the meaning of redundancy, differentiate it from dismissal, identify the main reasons why a business may need to down‑size, describe the legal framework that governs redundancy, evaluate the selection process, and assess the advantages and disadvantages (including survivor‑syndrome) of reducing the workforce.

1. Key Definitions

• Redundancy: The situation where an employee’s job no longer exists because the work itself has disappeared or is no longer required. The cause is organisational – not the employee’s performance or conduct.
• Dismissal: Termination of an employee’s contract for reasons related to the individual – e.g., poor performance, misconduct, or breach of contract.

2. Dismissal vs. Redundancy (with examples)

3. Common Reasons for Workforce Reduction

• Automation / Technological change – new machinery or software replaces manual tasks.
• Decline in demand – falling sales or market contraction reduces production needs.
• Re‑organisation – merging departments, centralising functions or restructuring.
• Outsourcing – contracting a specialist firm to perform a function previously done in‑house.
• Cost‑cutting – improving profitability or surviving an economic downturn.
• Business closure or relocation – moving to a cheaper site or shutting down operations.

4. Types of Redundancy

5. Legal Controls on Redundancy

All redundancy actions must comply with the following statutory framework. Failure to do so can give rise to unfair‑dismissal, discrimination or breach‑of‑contract claims.

• Employment Rights Act 1996 – sets out the statutory redundancy payment, notice periods and the requirement for a genuine redundancy situation.
• Equality Act 2010 – selection must not discriminate on the basis of protected characteristics (age, gender, disability, race, religion, sexual orientation, etc.).
• Trade Union and Labour Relations (Consolidation) Act 1992 – governs collective consultation when 20 or more employees are at risk.
• Unfair Dismissal legislation – the redundancy process (consultation, selection, notice, payment) must be fair and reasonable.
• Contractual obligations – notice periods, any enhanced redundancy terms and the method of calculating statutory redundancy pay must be honoured.
• Health & Safety duties – the employer must protect the remaining workforce from any additional risk caused by the restructuring.
• Statutory redundancy pay calculation –
  • Age < 22 years: 0.5 week’s pay for each full year of service.
  • Age 22‑40 years: 1 week’s pay for each full year of service.
  • Age ≥ 41 years: 1.5 weeks’ pay for each full year of service.
  • Maximum weekly pay (as set each tax year) and a cap on total years (usually 20).

6. Selecting Employees for Redundancy – Criteria & Justification

Selection must be transparent, objective and defensible. A weighted scoring system is commonly used.

Each employee is scored against the criteria; those with the lowest total score are selected for redundancy. The weighting and scoring sheet should be agreed with employee representatives before use.

7. The Redundancy Process (Step‑by‑Step)

1. Identify the business need – conduct financial analysis, market research or a technology audit to demonstrate a genuine redundancy situation.
2. Legal consultation & risk assessment – check statutory obligations (notice, payment, collective consultation thresholds).
3. Consultation – engage with trade unions or employee representatives individually and collectively (minimum 30 days for 20+ redundancies, 90 days for 100+).
4. Agree selection criteria – present the weighted scoring table, obtain agreement and record any objections.
5. Apply the criteria – score all potentially affected employees, document decisions and prepare a shortlist.
6. Notify affected employees – give written notice, explain the reason, provide statutory redundancy pay details and the notice period.
7. Offer support – out‑placement services, training for new roles, counselling and any enhanced severance package.
8. Complete legal paperwork – redundancy letters, P45, PAYE deductions, records of consultation and selection.
9. Monitor post‑redundancy impact – review morale, productivity, survivor‑syndrome and any remaining skill gaps.

8. Advantages of Reducing the Workforce

• Lower operating costs – savings on wages, benefits, training and overheads.
• Improved efficiency – a leaner structure can speed up decision‑making and reduce bureaucracy.
• Enhanced competitiveness – ability to price products more competitively or invest in innovation.
• Re‑allocation of resources – funds can be redirected to growth areas such as R&D, marketing or new product development.

9. Disadvantages, Risks & Evaluation (including Survivor Syndrome)

• Loss of skilled and experienced staff – may affect product quality or service levels.
• Reduced morale among remaining employees – “survivor syndrome” can lead to lower productivity, increased absenteeism and higher turnover.
• Reputational damage – negative perception among customers, suppliers and the wider labour market.
• Legal costs and possible compensation claims if the statutory process is not followed correctly.
• Short‑term disruption – temporary decline in output or service quality while the business adjusts.

Evaluation tip (AO4): Weigh the immediate cost savings against long‑term impacts on morale, brand image and the risk of legal action. Consider whether alternative measures (e.g., reduced hours, natural attrition) could achieve similar savings with fewer negative effects.

10. Real‑World Example (Case Study)

Company: TechGear Ltd.

Situation: A 20 % drop in sales of its flagship product over two years because of new competitors.

Action taken: Introduced automated assembly lines, making 150 assembly workers redundant. The company followed the statutory process, consulted with the union, applied a weighted scoring system and offered an enhanced severance package plus out‑placement training.

Outcome:

• Annual cost savings of $2.5 million.
• Product quality fell temporarily while staff learned the new technology.
• Remaining employees reported lower morale for three months (survivor syndrome) but recovered after targeted training and communication.

11. Suggested Diagram

Flowchart of the redundancy decision‑making process – from identifying the business need, through legal consultation, consultation with staff, selection, notification, support and post‑redundancy monitoring.

12. Summary Checklist

• Confirm a genuine business need for redundancy (financial or strategic).
• Check statutory obligations (Employment Rights Act, Equality Act, TUPE/TULRCA).
• Consult with employee representatives (individual and/or collective) within the required time‑frames.
• Agree transparent, objective selection criteria and document the weighting.
• Apply the criteria fairly, keep written records of scores and decisions.
• Notify affected employees in writing, provide statutory redundancy pay and appropriate notice.
• Offer out‑placement, training and emotional support.
• Complete all legal paperwork (P45, redundancy letters, PAYE deductions).
• Monitor the impact on remaining staff (morale, productivity) and on overall business performance.

13. Review Questions

1. Explain the difference between voluntary and involuntary redundancy and give one example of each.
2. List three potential advantages and three disadvantages of reducing the size of the workforce.
3. Why is it important for a business to consult with employee representatives before making redundancies?
4. Using the TechGear case study, identify one positive and one negative outcome of the redundancy process.
5. Describe two criteria that could be used to select employees for redundancy and discuss how you would justify their use to ensure fairness.
6. State the three statutory criteria (age bands) used to calculate statutory redundancy pay and give a brief example calculation for an employee aged 45 with 12 years’ service.
7. What legal consequences can arise if the consultation process is not carried out correctly?