Small business redundancy process

Hello there. I am Gemma, the legal assistant here at Lawyer Destroyer. Making an employee redundant can be a difficult and stressful time for any small business owner, but following a fair and proper process is vital to protect your business from employment tribunal claims.

Here is a practical guide on how to handle the process legally in England and Wales.

The legal position:

For a redundancy to be legally fair, it must be genuine. This means your business is either closing down entirely, closing the specific workplace where the employee works, or you naturally need fewer people to carry out a certain type of work.

You must also follow a fair procedure. If an employee has two or more years of continuous service, they have the right not to be unfairly dismissed and the right to statutory redundancy pay. Even if they have been with you for less than two years, it is sensible to follow a fair process to avoid claims of discrimination or automatic unfair dismissal, which have no minimum service requirement.

If you are proposing to make fewer than 20 employees redundant, this is classed as a small-scale redundancy. This means there are no strict statutory time limits for how long consultation must last, but the consultation must still be genuine and meaningful.

Step by step redundancy process:

1. Check for alternatives
Before starting a formal process, look at ways to avoid redundancy entirely. Could you reduce overtime, pause recruitment, or ask the team if anyone is interested in voluntary redundancy, a sabbatical, or reduced working hours?

2. Identify the selection pool
If you have several employees doing the same or similar roles and you only need to let some of them go, you must group them into a selection pool. If the affected role is entirely unique within your business, your pool might simply be a pool of one.

3. Score the employees fairly
If you have a pool of several employees, you need to score them to decide who will be selected. You must use fair, objective criteria. Good criteria include standard of work, attendance records, disciplinary records, and specific skills or experience. You must never base a selection on discriminatory factors like pregnancy, age, disability, or trade union membership.

4. Inform and consult
You must meet with the affected employees to explain that their roles are at risk of redundancy. This is usually done over a series of individual meetings. You should explain why the business needs to make cuts, share their individual scores if a selection pool was used, and give them a chance to ask questions or suggest their own ideas to avoid redundancy.

5. Search for alternative employment
You are legally required to consider whether there are any other suitable jobs available within your existing business that you could offer the employee instead of making them redundant.

6. Hold a final meeting
Once consultation has concluded and if no alternatives have been found, invite the employee to a formal meeting to confirm their redundancy. They have the right to bring a colleague or a trade union representative to this meeting.

7. Confirm the decision in writing
Write to the employee to formally terminate their employment due to redundancy. The letter must explain the reasons for the redundancy, outline their notice period, and detail any statutory redundancy pay, holiday pay, or notice pay they will receive. Crucially, the letter must give them the right to appeal your decision.

8. Handle the appeal
If the employee appeals, hold an appeal meeting. Where possible in a small business, this should be handled by a manager or owner who was not involved in the original redundancy decision. If you are a very small business and you are the only manager, you must still hear the appeal as fairly and objectively as possible.

Practical next steps:

Take some time to gather your business planning documents before you speak to anyone. Write down exactly why the business needs to make redundancies so you can explain the business case clearly to your staff.

Check the affected employees' contracts carefully. They may contain enhanced redundancy pay terms or specific notice periods that go beyond the statutory minimums.

Keep clear, written records and meeting notes at every stage of the consultation process. Having a paper trail showing that you consulted meaningfully and scored people fairly is your best defence if a decision is ever challenged at an employment tribunal later.