Redundancy is one of the most challenging situations faced in the workplace. For employees, it can feel uncertain and personal. For employers, it is often a difficult but necessary business decision. Understanding what counts as a fair redundancy reason is essential for both sides, as getting it wrong can lead to disputes, tribunal claims, and unnecessary stress.
This guide explains what redundancy means in UK employment law, what situations are considered fair reasons for redundancy, and what both employees and employers should be aware of.
What is Redundancy?
In UK employment law, redundancy is not about an employee’s performance or conduct. Instead, it relates to the role itself no longer being needed.
Under section 139 of the Employment Rights Act 1996, a redundancy situation arises where an employer’s need for employees to do work of a particular kind has ceased or diminished. To be fair, redundancy must be based on a genuine business reason, not used as a way to remove an employee for unrelated reasons.
What are Fair Redundancy Reasons?
There are several commonly accepted fair redundancy reasons in law. These apply to organisations of all sizes and across all sectors.
- Business closure
One of the clearest examples of a fair redundancy reason is when a business closes down completely. This might happen due to financial difficulties, retirement of the business owners, or a strategic decision to cease trading. If the business no longer exists, there is no longer a need for employees. For example, a small retail shop closes permanently due to rising costs and declining customer footfall which the owner decides makes it no longer viable. In that case all roles within the business would be made redundant and the reason would be fair.
- Workplace or location closure
Redundancy can also be fair where a particular site or business location closes, even if the wider business continues to operate elsewhere. An example of this would be if a company shuts its Manchester office and relocates operations to London. Employees who cannot reasonably relocate may be at risk of redundancy. This would be considered a fair redundancy reason as the employer’s need for employees at that location has ceased.
- Reduced need for work or roles
A very common redundancy situation arises where there is a reduced requirement for employees to carry out certain work.
This may be due to:
- Reduced demand from customers
- Loss of a key business contract
A typical situation that many companies face is if the company loses a major client, there is then a significant reduction in work and they no longer need as many staff.
As GOV.UK states, “Your job can be redundant if your employer needs fewer employees to do the same work.”
- Organisational restructuring
Restructuring is another fair redundancy reason, provided it is genuine and not a disguise for performance or conduct issues.
This may involve:
- Merging teams
- Removing management layers
- Changing how work is organised
An example could be that a business restructures its management team, removing one layer of middle management to streamline decision-making.
ACAS notes, “Redundancy can happen when an employer reorganises the business and fewer roles are needed.”
- Introduction of new technology or automation
Technological change can also create a fair redundancy situation if technology reduces the need for certain roles.
In our ever developing world businesses are frequently updating their processes. For instance, a company might introduce an automated payroll software system which no longer requires the same number of payroll administrators to operate the process. This is lawful, provided redundancy is handled fairly and employees are properly consulted.
What is not a Fair Redundancy Reason?
It’s important to understand what redundancy should not be used for.
Redundancy is unlikely to be fair if it is actually about:
- Poor performance
- Misconduct
- Personality clashes
- Discrimination
The CIPD warns, “Redundancy should never be used as a substitute for managing performance or conduct.” Some employers are tempted to use redundancy for these purposes as it is often seen as a quicker, easier and sometimes less costly way of ending someone’s employment. If redundancy is used incorrectly though it may lead to an unfair dismissal claim and the time, complexity and cost of dealing with such a claim can be far greater than going through a proper process in the first place.
Fair Reasons vs Fair Process
Even if the reason for redundancy is fair, the process must also be fair. ACAS guidance emphasises that employers should:
- Consult meaningfully with employees
- Use fair and objective selection criteria
- Consider suitable alternative employment
- Follow a transparent and reasonable procedure
ACAS advises that, “An employer must follow a fair redundancy process. Even a genuine redundancy can be unfair if the process is not fair.”
What Employees Should Understand
For employees, knowing whether a redundancy reason is fair can help clarify their rights. Employees should:
- Ask for a clear explanation of the business reason
- Understand how selection decisions were made
- Check their entitlement to redundancy pay and notice
Further guidance is available from Citizens Advice.
What Employers Should Consider
For employers, clarity and evidence are essential. Even where redundancy feels unavoidable, documenting the business rationale is important.
Good practice includes:
- Clearly defining the redundancy reason, ACAS advise using a redundancy plan
- Communicating openly with affected employees
- Keeping written records of decisions
- Applying criteria consistently
The CIPD highlights that transparency helps maintain trust:
“How redundancy is handled can have a lasting impact on employee morale and organisational reputation.”
It is crucial to remember that redundancy is about the job, not the person. Fair redundancy reasons are rooted in genuine business needs. When handled properly, redundancy can be a lawful and fair process, even though it is never easy.
For employees, understanding what counts as a fair redundancy reason can provide reassurance and clarity. For employers, following both the right reasons and the right process is essential to staying compliant and avoiding disputes.
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