A guide to the law on redundancy, December 2025

Handling a redundancy exercise requires considerably more than merely complying with the basics of statutory employment law. Employers are expected to operate within a well-defined procedural framework established by legislation and case law, which underpin good practice in a redundancy situation.

An employee who is dismissed shall be taken to be dismissed for redundancy if the dismissal is attributable wholly or mainly to the fact that:

• the employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed or has ceased, or intends to cease, to carry on that business in the place where the employee was so employed
• the requirements of that business for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where they were so employed, have ceased or diminished or are expected to cease or diminish.

(Section 139(1) Employment Rights Act 1996 (ERA))

Redundancy is one of the potentially fair reasons for dismissal (s.98 ERA). In the context of redundancy, a dismissal occurs if:

• the contract of employment is terminated with or without notice
• the individual is on a fixed-term or limited-term contract which ends without being renewed
• the employee resigns with or without notice due to a repudiatory breach of contract by the employer (for example if a resignation was in response to wholly unreasonable proposals put forward by an employer in a redundancy procedure).

(s.136(1) ERA)

Employers contemplating organisational changes will need to assess whether any changes they are proposing have the effect on any individual’s contract of employment of making that employee redundant.

Case law provides that there is a three-stage test to identify redundancy, which requires the court to ask:

• was the employee dismissed?
• if so, had the employer’s requirement for employees to carry out work of a particular kind ceased or diminished, or was it expected to cease or diminish?
• if yes, was the dismissal caused wholly or mainly by this reason?

The test, first set out by the EAT in Safeway v Burrell [1997] IRLR 200 (Advisory Bulletin 353), was later endorsed by the House of Lords in Murray & Anor v Foyle Meats [1999] IRLR 572 (Advisory Bulletin 403).

Therefore, where a dismissal is the result of workforce reductions, the employee will have been dismissed for redundancy. The test also means that ‘bumped’ or transferred redundancies (where an employee who was not in a redundancy situation is replaced by an employee who was) are potentially lawful.

Where employees have been ‘bumped’, tribunals will still look closely at the reason for dismissal and whether the actual reason was, for example, related to the employee’s capability or conduct.

Where a dismissal occurs due to the employer wishing to reduce the number of hours an employee works, because of a reduction in the amount of work to be done, this may also be a dismissal for redundancy. See Packman Lucas Associates v Fauchon (UKEAT/0017/12) (Advisory Bulletin 591).

The non-renewal of a fixed-term contract that was clearly to cover an absent employee, e.g. someone on sick or maternity leave, will not amount to a redundancy.

The duty to consult

Where it is proposed to dismiss 20 or more employees at one establishment within a period of 90 days or less, there is a duty to consult about potential redundancies with relevant recognised trade unions or elected employee representatives. The requirements of this duty are set out in s.188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULR(C)A). 

(The Employment Rights Bill includes provision for the duty to consult to also arise in cases where an employer proposes to dismiss a certain number of employees (the ‘threshold number’) across more than one establishment. The threshold number will be set out in regulations.)

Employers must consult the recognised trade union(s) about employees likely to be affected by the proposed dismissals or by measures taken in connection with those proposed dismissals. This covers not only those employees who are likely to be dismissed, but also those who might be affected, for example, by having to take on reallocated work. 

The requirement to consult applies even where those vulnerable to redundancy are not union members. If there is no recognised trade union(s), the employer can choose to consult existing employee representatives that can act in this capacity or arrange for employees to elect appropriate employee representatives for consultation purposes (see s.188(1B) TULR(C)A). 

What constitutes an ‘establishment’?

Although there is no statutory guidance, the European Court of Justice (ECJ) in Rockfon A/S v Specialarbejderforbundet I Danmark, acting for Nielsen & ors [1996] IRLR 168 (Advisory Bulletin 338), held that in defining the term ‘establishment’ the purpose of the EU Collective Redundancies Directive, namely to protect workers, should be the overriding factor. 

The ECJ gave further guidance in the case of Athinaiki Chartopoiia AE v Panagiuotidis & ors [2007] IRLR 284 (Advisory Bulletin 525). An establishment may consist of: 

A distinct entity: 

• with a certain degree of permanence and stability
• assigned to perform one or more given tasks
• which has a workforce, technical means and an organisational structure allowing for the accomplishment of those tasks.

It need not have:

• legal autonomy
• economic, financial, administrative or technological autonomy
• management that can independently effect collective redundancies
• geographical separation from other parts of the undertaking. 

In USDAW and another v WW Realisation 1 Ltd (in liquidation), Ethel Austin Ltd and another (C-80/14) (Advisory Bulletin 625), the ECJ applied the same approach as in the Rockfon and Athinaiki cases and held that ‘establishment’ is the entity to which the workers are assigned to carry out their duties, rather than the employer as a whole.

To avoid risks of challenge around collective consultation, if 20 or more employees are to be made redundant in a 90-day period across the authority as a whole, the LGA would recommend formal consultation with the trade union(s), or elected employee representatives, if there is no recognised union.

What must the employer consult about?

The statutory requirement is that the consultation must be undertaken with a view to reaching agreement and include consultation about:

• avoiding the dismissals
• reducing the numbers of employees to be dismissed
• mitigating the consequences of the dismissals.

Information which must be given to the representatives

Under the statutory requirements, information as set out below must be given to the representatives in writing for the purpose of consultation:

• the reason for the proposals
• the number and descriptions of employees whom it is proposed to dismiss as redundant
• the total number of employees of the description employed at the establishment
• the proposed method of selecting employees for redundancy
• the proposed method of carrying out the dismissals including the period over which the dismissals are to take effect
• the proposed method of calculating the amount of any redundancy payments
• the total number of agency workers working temporarily for and under the supervision and direction of the employer
  • the parts of the employer’s undertaking in which those agency workers are working
  • the type of work those agency workers are carrying out. 

When should consultation commence?

Consultation must begin ‘in good time’ once the employer has a proposal to dismiss for redundancy. There is a statutory timetable for consultation which should be regarded as a minimum and is as follows.

Fixed-term contracts that are due to expire as agreed in the contract will not count towards the thresholds of 20 employees or 100 employees for consultation or notification to the Secretary of State (form HR1 – see ‘Notifying the relevant government department’ below).

There is no statutory requirement for collective consultation where the redundancies involve less than 20 employees, but the LGA recommends as good practice applying as a minimum the 30-day consultation period before dismissals take effect. 

To be a valid consultative exercise, trade unions must be approached at the time when the possible declaring of redundancies becomes a proposal, not a final decision.

Employers have a defence to complaints that they have not allowed sufficient time to hold meaningful consultations where they can show that it was not reasonably practicable to consult. This defence is difficult for local authorities to raise successfully. Therefore, if an authority is aware that certain decisions may lead to redundancies e.g. through budget information, authorities are strongly advised to keep recognised trade unions and/or elected employee representatives as fully informed as possible of developments.

Notices of dismissal should not be issued until the consultation requirements have been complied with. This does not necessarily mean that the employer has to consult for 30/45 days before they can issue notices of dismissal. However, the employer would have to be able to demonstrate that the consultation process had been thorough and was complete before notices were issued (see Junk v Kuhnel [2005] IRLR 310 (Advisory Bulletin 497)). 

In the context of a TUPE transfer, where redundancies may be planned after the transfer, it may be possible for pre-transfer consultation with transferring employees by the transferee on collective redundancies to count for the purposes of consultation duties under TULR(C)A. However, such consultation will only be allowed if the transferee employer elects for it by way of a written notice to the transferor employer, and the transferor then agrees to it.

Other circumstances where the duty applies

References to dismissal as redundant refer to dismissal for ‘a reason not related to the individual concerned’ (s.195(1) TULR(C)A). This means that dismissing and renewing the contract of employment to change terms and conditions triggers the requirement to consult collectively, if more than 20 employees in a 90-day period in one establishment are involved (GMB v Man Truck & Bus UK [2001] IRLR 636 EAT (Advisory Bulletin 421)). However, in this situation there would not normally be a right to a redundancy payment, as this is dependent on the definition of redundancy in the ERA (see ‘The definition of a redundancy payment’ in section 1).

The ECJ has also held that there will be a dismissal for the purposes of collective consultation where an employee resigns in response to an employer’s proposal to amend their terms and conditions (see the case of Cristian Pujante Rivera v Gestora Clubs Dir, SL and Fondo de Garantia Salarial (C-422/14) (Advisory Bulletin 632)).

Employers should consider the provisions of the statutory Code of Practice on Dismissal and Re-engagement when proposing changes to contracts which may result in dismissal. 

Penalty for failure to consult – protective awards

The trade union or, in their absence, elected employee representatives or, in their absence, the employees themselves, have three months from the date of dismissals in which to complain to an employment tribunal that the employer has failed to comply with its statutory duty to consult. If the tribunal so finds, it will make a declaration that the consultation was inadequate and may make a protective award requiring the employer to make payments to those employees who it has dismissed or whom it proposed to dismiss in respect of whom adequate consultation was not carried out.

If the complaint is made by a trade union representative, payment will be made to each relevant employee (as above), whether they are a trade union member or not.

The award is for a specified period (‘the protected period’), starting on the date on which the first of the dismissals to which the claim relates takes effect, or the date of the award (whichever is the earlier) and continuing for as long as the tribunal considers appropriate. The maximum limit on the protected period is currently 90 days in all cases. (This will increase to 180 days when the provision in the Employment Rights Bill takes effect, which is expected to be in April 2026.) There is no set-off against other payments already made for an employer’s breach of contract e.g. a payment in lieu of notice. 

An employee is entitled to a week’s gross pay for each week (pro rata for part of a week) of the protected period. There is no cap on the amount of a week’s pay for these purposes (section 189(1) TULR(C)A).

Individuals should be warned of, and consulted about, impending redundancies at the earliest possible date, given details of compensation and offered support. This always applies, including where collective consultation takes place. 

The duty to consult is separate from the obligation to warn of the redundancies. Consultation must be ‘meaningful’ and occur while the redundancies are still at the proposal stage. 

The regime on discipline and dismissal, i.e. the Acas code of practice and the 25 per cent adjustment to awards, which replaced the statutory dismissal procedures, do not apply to redundancy dismissals. However, authorities should still ensure that individuals are informed and consulted over their selection for redundancy, which should include providing information about how they were selected, to avoid a finding of unfair dismissal. A right of appeal against selection for redundancy should also be provided. 

In addition to consulting the trade union(s) or elected employee representatives (and individuals), it is necessary to notify the Secretary of State at the Department for Business and Trade on form HR1 of proposed redundancies involving twenty or more employees at any one establishment in a 90-day period. Failure to do so can incur an unlimited fine.

Sections 193(1) and (2) of TULR(C)A require form HR1 to be provided before any notice of dismissal is issued and, where 20 – 99 employees are to be made redundant, at least 30 days before the first dismissal takes effect (i.e. when notice expires) or 45 days in the case of 100 or more employees. 

At the same time, a copy of the HR1 form must also be given to the trade union(s) or other employee representatives who are to be consulted (s.193(6) TULR(C)A). 

For the purposes of selecting for redundancy, there are two sorts of redundancy situation. The first is where there is a specific decline in the need for the workforce in certain functions or locations. The second is where there is a general need to reduce the workforce as a whole.

As the question of who to select for redundancy is a major item on which employers have to consult employee representatives, authorities should be clear as to the selection process they intend to use, well before consultation begins. This will not only ease the consultation process, but will also give the authority time to consider fully the implications which selection can have on future performance.

Local authorities will often have a locally agreed protocol or process for dealing with reorganisation and redundancy and therefore need to make sure they are applying the provisions of any such process. 

Pool for selection

As part of the requirement to act reasonably when dismissing for redundancy, the employer must give careful consideration to the pool from which employees are to be selected. 

Generally speaking, employers have a wide degree of discretion in determining the pool, providing they have good reasons for acting as they do. 

Where a reduction in the need for employees to carry out work of a particular kind leads to the redundancies, the pool for selection will usually be determined by the kind of work that employees do. Therefore, consideration needs to be given to which employees within the organisation do this kind of work and, where the pool does not include all employees carrying out such work, the reasons for this i.e. in case there is a need to show that it was reasonable to limit the pool. See the case of Capita Hartshead Ltd v Byard (UKEAT/0445/11) (Advisory Bulletin 587) where the EAT upheld a tribunal’s decision that a selection pool of one, where the reduction in work related to that employee’s allocated clients, was unfair where there were other employees carrying out the same type of work for other clients. 

There may be reasons why an employer decides that the pool should be wider than just the employees that do the kind of work in the area that is being reduced. It may include other employees with the same skills, but in different areas of the organisation for example. Again, the employer should ensure that it has good reasons for acting as it decides. 

In the case of Contract Bottling Ltd v (1) Cave and (2) McNaughton  (UKEAT/0525/12) (Advisory Bulletin 604) the EAT overturned the tribunal’s finding that the claimants had not been dismissed for redundancy, as the employer had not identified ‘the employees who carried out work of a particular kind nor that that particular kind of work had ceased or diminished or was expected to cease or diminish’. A wide range of posts had been included in the pool for selection, with the employer taking the view that it would retrain employees where necessary i.e. it would ‘bump’ a person from a post where the work had not diminished and replace them with an employee whose post was being deleted. Although the EAT did decide that the claimants had been dismissed for redundancy, as their selection satisfied the test in Murray v Foyle Ltd [1999] IRLR 562, the EAT did comment that there was a ‘rather surprising pool’. However, the EAT did uphold the tribunal’s finding of unfair dismissal in this case due to the way the selection criteria had been applied.

See also the ‘Pool of One’ section below for issues arising with those pools.

Selection criteria

Selection criteria:

• must be clear, objective and precisely defined. The pool for selection and the selection criteria should be clear and understood by managers, employees and employee representatives
• must be applied in a reasonable, fair and objective manner
• should not discriminate against staff on the grounds of age, sex, race, disability or any of the other protected characteristics under the Equality Act or on the grounds of part-time or fixed-term status
• must not be indirectly discriminatory. Indirect discrimination may occur when a provision, criterion or practice is applied which puts those with a particular protected characteristic, including the individual concerned, at a particular disadvantage and which cannot be justified. 

In Rolls Royce v Unite [2009] EWCA Civ 387 (Advisory Bulletin 553) the Court of Appeal held that the use of length of service as a criterion in a scheme agreed with the trade unions was not indirectly discriminatory on the grounds of age as it was justified. However, this case has to be treated with caution as length of service was one of a number of criteria. It is likely that in many cases the use of ‘last in, first out’ by itself could disadvantage younger workers and would not be justified. 

Pool of one

In the case of Mogane v Bradford Teaching Hospitals NHS Foundation Trust [2022] EAT 139 (see Advisory Bulletin 706), the EAT found that the selection criteria resulted in a pool of one, which resulted in the inevitable selection of the employee concerned for redundancy. The employer had not carried out any consultation prior to deciding to use this approach, therefore the employee had had no opportunity to influence the decision regarding their selection. The EAT held that the dismissal was unfair. 

In Valimulla v Al-Khair Foundation [2023] EAT 131 (see Advisory Bulletin 725), the employer’s decision to use a pool of one, despite there being other employees who did similar work, was challenged. Also, as in the above case, the failure to consult with the employee prior to the establishment of the pool meant that the redundancy dismissal was unfair. 

Interviewing as a method of selection

Many local authorities will often, as part of an agreed way of handling redundancy and reorganisation, use interviewing as a way of selecting employees for redundancy. This may be the case whether there is a reduction in posts, or if new posts are created in a reorganisation. 

There is a surprising lack of case law on this point. However, in Morgan v The Welsh Rugby Union (Advisory Bulletin 574), two individuals were interviewed for a more senior post which was replacing their positions. The employer failed to adhere to its own procedures. Mr Morgan was dismissed on the grounds of redundancy. The EAT held that an employer was allowed to introduce an element of subjectivity to its decision on appointment since this was a new post and the employer had to be more forward-looking than in a straightforward redundancy selection exercise. Whether the process is fair or not will depend on the facts in each particular case. In this case Mr Morgan failed in his claim of unfair dismissal. 

This case did not deal with the situation where an interview process is used to reduce posts where the job functions remain the same. Local authorities are advised to take care to ensure that the interview process is objective. In particular, interview questions should relate properly to the job specification. If there is a locally-agreed protocol, care should be taken that it is followed. 

However, as the case of Mental Health Care (UK) Ltd v (1) Biluan (2) Makati (UKEAT/0248/12) (Advisory Bulletin 605) demonstrates, excluding all subjective elements from a selection exercise can result in a finding of unfair dismissal. In this case, Mental Health Care (UK) Ltd had in effect based its decisions on recruitment-style, competency-based assessment and had not taken into account such things as length of service, appraisal records and the opinion of managers who knew the employees concerned. The tribunal considered this to be grossly unfair and the decision was upheld on appeal by the EAT. 

When dealing with redundancy situations, authorities need to ensure that all staff, including those who may be absent from work on the various types of family leave are consulted and kept informed. 

It will be an automatically unfair dismissal if an employee is selected for redundancy on the grounds of pregnancy or due to taking maternity, paternity, adoption, parental, shared parental, parental bereavement or neonatal care leave. 

Where an employee on these types of leave is part of the pool for selection, the criteria to be used must not be such that they are put at a disadvantage due to their absence, as the ECJ case of Riežniece v Zemkopības ministrija and Lauku atbalsta dienests (C-7/12) (Advisory Bulletin 604) demonstrates. Criteria may therefore have to be adjusted or removed to compensate for any disadvantage. However, employers have to be careful not to go too far in their attempts to achieve this aim. In Eversheds Legal Services v De Belin (UKEAT/0352/10) (Advisory Bulletin 577), the EAT held that automatically inflating the score of a woman for a particular criterion to the maximum available was discriminatory against Mr De Belin. An employer should only do what is proportionate to compensate for potential disadvantage. 

An employee who is pregnant or is on maternity, adoption, shared parental or neonatal care leave whose post is to be made redundant must be offered any suitable alternative vacancy available in preference to other employees. A woman who miscarries before 24 weeks of pregnancy (and therefore does not qualify for maternity leave) continues to have the right to be offered a suitable alternative vacancy for the two weeks following the miscarriage. (Section 14 has further information on suitable alternative employment.) Failure to comply with this requirement will result in a finding of automatic unfair dismissal. The case of Sefton Borough Council v Wainwright (EAT/0168/14) (Advisory Bulletin 620) confirmed that the point at which the obligation arises is not when a woman has been issued with notice of redundancy, but at the point when, in a restructure, her post has been deleted or proposed for deletion. In the case of Carnival PLC v Hunter [2024] EAT 167 (Advisory Bulletin 730), which involved a reduction in posts, the EAT held that the right to be offered suitable alternative employment only applied at the point when the selection process has been completed. A woman on maternity leave was not entitled to be offered one of the posts that were being competed for. She was only eligible to be offered any other suitable alternative employment once she had been selected for redundancy. (Further information on this area is available in the Acas guide Redundancy protection for pregnancy and new parents.)

The right to be offered a suitable alternative vacancy also applies during an additional protected period in the case of maternity and adoption leave, and in cases where six consecutive weeks of shared parental or neonatal care leave have been taken. In these cases, the right applies for 18 months from the date of birth or placement of the child. 

Redundancy during these types of leave will end any contractual obligations to both occupational pay and the right to return. The payment of statutory maternity, adoption, paternity, shared parental, parental bereavement and neonatal care pay will not be affected and will continue until the end of the relevant statutory pay entitlement (e.g. 39 weeks for statutory maternity pay) or until the employee starts work for a new employer.

Any payments made to the employee in respect of sick pay or holiday pay, or maternity, adoption, paternity, shared parental, parental bereavement or neonatal care pay go towards meeting the employer’s obligation to pay full pay during the statutory notice period under s.87 ERA.

If an employee who is pregnant or on maternity or adoption leave is dismissed they are entitled to a written statement of the reason for dismissal regardless of their length of service. This does not have to be requested by the employee. 

A dismissal can be found to be unfair without the courts considering the reasonableness of the decision, as required by s.98(4) ERA, i.e. it will be automatically unfair if: 

• the reason (or principal reason) for the dismissal is that the employee was redundant,
• it is shown that the circumstances constituting the redundancy applied equally to one or more other employees in the same undertaking and that those in a similar position were not so dismissed and
• it is shown that the employee’s selection for redundancy was for one of a number of specified reasons. Some of the more common of those reasons are set out below.
  • asserting a statutory right (s.104 ERA)
  • enforcing the right to the national minimum wage (s.104A ERA)
  • applying for flexible working (s.104C ERA)
  • a health and safety reason (s.105(3) ERA)
  • working time (s.105(4A) ERA)
  • making a protected disclosure (s.105(6A) ERA)
  • taking protected industrial action (s.105(7C) ERA)
  • being an employee representative for the purposes of consultation on redundancy or transfer of undertakings (s.105(6) ERA)
  • a reason connected with pregnancy, giving birth or taking maternity leave, parental leave or time off to look after dependants (reg. 20 Maternity and Parental Leave etc Regulations)
  • a reason connected to taking paternity or adoption leave (reg. 29 Paternity and Adoption Leave Regulations 2002)
  • a reason connected to taking shared parental leave (reg. 43 Shared Parental Leave Regulations 2014)

Also, under TULR(C)A an employee will be deemed to have been automatically unfairly dismissed if they are dismissed for redundancy for a reason connected to: 

• the employee’s membership or non-membership of a trade union, or participation in trade union activities (s.153 TULR(C)A)
• or trade union recognition or de-recognition (Schedule A1, para. 162 TULR(C)A).

A dismissal for redundancy will be automatically unfair if the sole or principal reason for dismissal was a transfer of an undertaking. The dismissal will not be automatically unfair where the sole or principal reason for the dismissal is an economic, technical or organisational (ETO) reason entailing a change in the workforce. Where there is such an ETO reason, then the dismissal is still subject to the normal requirements on unfair dismissal. See further the LGA’S guide on TUPE

As provided above, an employee can in certain circumstances complain to an employment tribunal that their dismissal was automatically unfair. In addition to these special provisions, an employee may complain to a tribunal under the normal unfair dismissal provisions in a redundancy situation.

This may occur where:

• the employee is dismissed, but not for redundancy, and wishes to argue that there was a redundancy situation and that a redundancy payment should therefore be made
• the employee is dismissed for redundancy but wishes to argue that this was not the real reason for dismissal
• the employee accepts that the dismissal was for redundancy, but wishes to argue that the dismissal had not been handled reasonably. 

If the employee is replaced there will be strong evidence that the dismissal was not for redundancy. To defend a claim of unfair dismissal an employer has to show a valid reason for dismissal. This may prove difficult if the employer maintains that redundancy was the reason, depending on the circumstances. 

The amount of notice that an employee is entitled to receive is set out in s.86 ERA (see chart below), unless the contract of employment provides for a longer period. 

Employees under notice of dismissal for redundancy may ask their employer to allow them to leave their job early, before the expiry of their notice period. Alternatively, they may give the employer a written counter-notice (s.136(3) ERA).

This will not invalidate the right to a redundancy payment except where the employer successfully contests the application (see s.142 ERA on that issue). They are still deemed to have been dismissed by the employer, but on the date of expiry of the employee’s notice and not of the original notice from the employer. 

Employees who will have at least two years’ service when their notice of dismissal for redundancy expires should be allowed reasonable time off during working hours to look for work or to arrange training. The Employment Rights Act provides that an employee is entitled to paid time off, subject to a maximum of 40 per cent of a week’s pay i.e. two days in total for an employee who works five days a week (ss. 52 and 53 ERA).

An employer must make reasonable efforts to identify alternative employment for an employee at risk of redundancy (see Hendy Group Ltd v Kennedy [2024] EAT 106 (Advisory Bulletin 736) and the  employee should be offered appropriate alternative work that is available. (Special provisions apply in relation to employees who are on or have taken family leave, see section 8 above). Alternative work will be appropriate if the provisions of the new contract as to the capacity and place in which the employee would be employed and the other terms and conditions of employment would not differ from the previous contract, or where there are differences, the work is still suitable in relation to the employee. Whether or not a job is suitable is an objective test and will depend on such factors as pay, grade, job content, status, place of work, etc.

If an employee unreasonably refuses an offer of suitable alternative employment they will not be entitled to a redundancy payment (s.141 ERA). 

The case of Devon Primary Care Trust v Readman ([2013] EWCA Civ 1110) (Advisory Bulletin 606) established that the test should be approached by identifying the employee’s subjective reason or reasons for the refusal and then making an overall judgement of whether the refusal was reasonable.

To preserve continuity and avoid the obligation to make a statutory redundancy payment, the offer of the new job must be made before the redundancy takes effect and start no later than four weeks after the first job ended. Where the termination takes effect on a Friday, Saturday or Sunday, the contract is treated as terminating on the following Monday (s.146 ERA).

Right to a trial period

The legislative framework provides that offers of alternative employment are subject to a statutory four-week trial period if any term of the new contract differs from the corresponding term in the old contract e.g. place of employment or terms and conditions. However, the case of East London NHS Foundation Trust v O’Connor (UKEAT/0113/19 (Advisory Bulletin 675) held that notice of dismissal must have been given otherwise a statutory trial period in the alternative employment will not arise.

A trial period of more than four weeks can be agreed for the purposes of retraining only (s.138(3)(b)(ii)). The agreement must:

• be in writing and be made before the employee starts work under the new contract
• set out the date on which the period of retraining will end
• set out the terms and conditions that will apply to the employee at the end of the retraining period.

If both sides agree that the trial period is successful, there is no dismissal and the employee has effectively accepted the new post.

If both sides agree that the trial period has been unsuccessful, or the employer believes that this is the case, then for the purposes of redundancy, the employee is regarded as having been dismissed at the original date notified to the employee and a redundancy payment is made. In other words, there is a return to the pre-trial period situation as if it had not taken place.

If, in the view of the employer, the employee unreasonably refuses the new job offer, dismissal takes effect, but the employer can refuse to pay a statutory redundancy payment. Dismissal will still be for redundancy. An employee may make a claim that they are entitled to a redundancy payment and it will be for a tribunal to determine whether the employer was correct in its view that the employee’s refusal was unreasonable and to refuse to make the statutory redundancy payment.

Renewal and re-engagement by the same authority

If the contract is renewed or the employee is re-engaged (the offer having been made before the contract expired) then the effect on continuity for statutory rights will be as follows: 

• Any ‘break’ of up to four weeks between the ending of the original employment and the re-engagement by the same authority will count for future redundancy purposes and may count for other statutory purposes depending on its length and whether it is covered by the provisions of s.212 ERA, e.g. absence caused by a temporary cessation of work.
• A trial period will count towards continuity for all statutory employment rights (apart from the calculation of the redundancy payment if the trial period is terminated).
• Under s.214 ERA, receipt of a redundancy payment will break continuity for future redundancy payment purposes, but not for other purposes.

The effect of any break in service on conditions of service will depend on the scheme of conditions in question, the reason for and length of the break (see, for example, Part 2, paragraph 14 of the Green Book).

(For details of the effect of the Modification Order where an offer is made by a body covered by that Order, see below under ‘Offer of a new job with a Modification Order body’.)

Continuous service requirement

Section 108 ERA provides that an employee must have two years’ continuous service with the same employer in order to qualify for a redundancy payment (at the relevant date for redundancy).

Under s.216 ERA, any period during which an employee takes strike action will not count towards continuous service. However, continuity of service will not be broken.

Service of up to 20 years is taken into account for the calculation of a statutory redundancy payment. Under the Redundancy Payments (Continuity of Employment in Local Government, etc.) (Modification) Order 1999 (the Modification Order) when calculating entitlement to, and the amount of, a redundancy payment, authorities must count all continuous local government service and other relevant service up to that maximum (s.162(3) ERA).

It is only where bodies are specified on the Modification Order that service will count. Bodies are specified in two ways: (i) by being named (ii) by being described as a generic category of body. For example, local authorities are not all listed by name, but are described in a generic category.

Employees working for bodies that have applied to be included on the Modification Order, but whose application has not been processed at the time of the redundancy, will not benefit.

Further information on the Modification Order can be found on the LGA website

Calculating the amount of a statutory redundancy payment

Under s.162 ERA, for each year of service that counts, an employee will receive a proportion of weekly pay, which is determined in the following way:

Therefore, the maximum entitlement will be 20 years at one and a half week’s pay i.e. 30 weeks’ pay.  Details of how to calculate a week’s pay are set out below.

Calculating age and length of service – the relevant date

The relevant date for calculating age and length of service for redundancy payment purposes is defined by s.145 ERA as follows:

• if the employee’s contract is terminated with notice, the relevant date is the date on which the notice expires (i.e. when the termination takes effect)
• if no notice is given, the relevant date is the date statutory notice would have expired if it had been given at the termination date
• if insufficient notice is given, the relevant date is the date statutory notice would have expired if it had been given on the date notice was actually given
• if the employee is dismissed upon the expiry of a limited-term contract, the relevant date is the expiry of the contract
• if the employee resigns during a trial period i.e. the four-week period laid down in s.138 ERA, the relevant date is the date on which the original contract terminated
• if the employee leaves early (see above) during the notice period under s.136 ERA, the relevant date is the date when the employee’s counter notice expires.

Local authorities’ powers to make additional severance payments

Under the Local Government (Early Termination of Employment) (Discretionary Compensation) (England and Wales) Regulations 2006, local authorities have two main powers:

• to calculate redundancy payments on an employee’s actual weekly pay rather than the statutory maximum (or any amount up to an actual week’s pay); and
• to pay an enhanced severance payment of up to 104 weeks’ pay (including the statutory redundancy payment) to an eligible employee.

Authorities must have a written policy on how they propose to grant severance payments.

How to calculate a week’s pay

A week’s pay is calculated in accordance with s.220 ERA. The statutory maximum week’s pay is £719, as from 6 April 2025 (£749 in Northern Ireland).

For employees with normal working hours whose pay does not vary with the amount of work done, a week’s pay is the amount they would receive for working their normal working hours in a week.

If the employee has no normal working hours i.e. the hours vary from week to week, a week’s pay is the average remuneration for the 12 weeks prior to the calculation date (see below). If the employee receives no pay for any of these 12 weeks, the 12-week period is extended to include previous weeks where pay was received.

In Gilbert and others v Barnsley (UKEAT/674/00) (Advisory Bulletin 460) it was established that a week’s pay for a term-time only employee who is paid in equal instalments over the year should be based on the week’s pay for the weeks which are actually worked and not on 1/52 of their annual pay.

The calculation date for determining a week’s pay for statutory, and so also enhanced, redundancy pay is: 

• if notice is given, the date on which statutory notice would have to have been given to end on the termination date;
• if no notice or less than the statutory notice is given, it is the date employment ends; and
• if the employee resigns during a trial period, the calculation date is the calculation date that applied under the original contract. 

In terms of what payments have to be included in a week’s pay, the ERA requires a week's pay for the purposes of redundancy pay to be calculated on what is payable to the employee for working under their contract of employment. Contractual pay would usually include basic salary, contractual overtime payments, and any contractual allowances (and even some discretionary bonuses depending on how they are worded and operated). Further, the EAT has held that a week’s pay includes employer pension contributions (see University of Sunderland v Drossou (UKEAT/0341/16)  Advisory Bulletin 653). However, other payments, such as car allowances and honorariums, may or may not be contractual pay depending on how the payments have been incorporated into the employee's contract and salary.

Section 165 ERA requires an employer to provide a written statement to an employee explaining how their redundancy payment has been calculated.

Pay in lieu of notice (PILON) is compensation for not providing employees with the notice period to which they are contractually entitled. 

Pay in lieu of notice should only be paid where there is good reason for the employee not working the notice period. 

To prevent misunderstanding about the nature of the payment and make it clear that the employment relationship ends when pay in lieu is given, authorities should clearly inform the employee of this when giving a payment in lieu of notice. 

Following changes in the taxation system introduced in April 2018, any payment made for PILON is taxable as normal pay, irrespective of whether or not there is a PILON clause in the employee’s contract of employment. 

Employees who are members of the Local Government Pension Scheme (LGPS) qualify for an immediate pension if their employment ends due to redundancy or business efficiency and they are aged 55 or over with two years’ qualifying membership. (Separate provisions apply to teachers.)

A person is deemed to have the necessary two years’ qualifying membership in the LGPS (England and Wales) if:

• they have spent two years as an active member in the LGPS
• a transfer has been received in from a different occupational pension scheme (or under a European pensions institution) and the length of service in respect of benefits in that scheme was two or more years
• the aggregate of the period the person has spent as an active member of the LGPS and of a different occupational pension scheme or European Pensions Institution in respect of which a transfer value payment has been accepted, is two years
• a transfer value payment has been received in respect of rights accrued in a scheme or arrangement that does not permit a refund of contributions to the member (for example, from a personal pension or stakeholder scheme);
• the member has paid National Insurance contributions whilst an active member and ceases active membership after the end of the tax year preceding that in which the member attains pensionable age (i.e. age 60 for a female or age 65 for a male if the member has a GMP or, in any other case, State Pension Age);
• the member already holds a deferred benefit or is in receipt of a pension from the LGPS (other than a survivor’s pension or pension credit member’s pension)
• a transfer value payment has been made from the LGPS to a qualifying recognised overseas pension scheme
• the member ceases active membership at age 75.

If an employee has not received an enhanced redundancy payment under the Local Government (Early Termination of Employment) (Discretionary Compensation) (England and Wales) Regulations 2006, an authority can compensate a member for redundancy by providing an award of additional annual pension up to a maximum of £8,903 (April 2025 (increased annually)) under regulation 31 of the LGPS Regulations 2013 (provided the resolution to award additional annual pension is made within 6 months of the date the member’s employment ended). This can be provided to a scheme member of any age (under age 75). 

If the authority gives the employee notice of redundancy and, before the dismissal takes effect, the employee receives an offer of employment (which they accept) from another body specified in Part II of Schedule 2 of the Modification Order, the individual will lose entitlement to a redundancy payment if the new contract starts within four weeks of the end of the employment from which they were made redundant. Where the termination takes effect on a Friday, Saturday or Sunday, the contract is treated as terminating on the following Monday.

In these circumstances the employee’s continuous service will not be broken for redundancy pay purposes.

Authorities are therefore advised to seek written confirmation from the employee at the date of termination that they will not be taking up any other employment covered by the Modification Order within four weeks after the date of redundancy (as defined above).

Further information is available on our Modification Order webpage

In general terms, the following principles apply: 

• compensation for loss of office, i.e. the statutory redundancy payment and enhanced employer payments made under the 2006 Discretionary Compensation Regulations are, in aggregate, tax free for the first £30,000. Anything paid in excess of £30,000 will be taxable but will also be subject to employer National Insurance contributions. Provided the payment relates solely to the termination of employment any excess over £30,000 will not be subject to employee National Insurance contributions.
• where sufficient notice is given and say, for organisational reasons, the employer does not require the employee to work during some or all of the notice period, this is regarded as a form of ‘garden leave’, and tax and national insurance is deductible on the pay received by the employee.
• termination payments, except genuine discretionary compensation payments, which are written into the contract, may be regarded as a deferred reward for services rather than compensation for loss of office and may be taxable.
• lump sum pension benefits are not taxable, but annual pension payments are. Those who receive a return of contributions will have 20 per cent deducted for tax.

Following changes introduced in April 2018 (see Advisory Bulletin 643) any payment made for pay in lieu of notice will be taxed as normal pay, as will any other payment which the employee would have received had they continued in employment and worked their notice period.

Note: Due to the complex nature of tax legislation advice on individual cases should be sought from the authority’s HMRC office and on the HMRC website 

An employee who would normally be entitled to a redundancy payment may lose this entitlement where:

• the employee commits an act of gross misconduct (i.e. an offence of a serious nature and/or as defined in the relevant disciplinary procedure) and is dismissed
• the employee leaves early before the notice has expired without the employer’s agreement.

However, an employee denied a redundancy payment in these circumstances can make a claim for a payment to an employment tribunal. The tribunal can order the employer to pay a statutory redundancy payment, or such part of it that the tribunal considers fit, if it considers it just and equitable to do so.

If an employee has not received a redundancy payment the employee may lose the right to claim a statutory redundancy payment once six months have elapsed from the relevant date unless:

• the employee has made a written claim for redundancy pay to their employer (a letter is all that is needed)
• a claim for a redundancy payment is lodged with an employment tribunal
• a complaint of unfair dismissal has been lodged with a tribunal (this applies even if the time limit for unfair dismissal claims has expired) (Duffin v Secretary of State for Employment [1983] ICR 766).

This is subject to the tribunal’s discretion to award a redundancy payment if the employee failed to do any of these things in the first six months, but did comply with one of these requirements within the following six-month period.

For these purposes the relevant date is the date notice expires or, if no notice is given, the date termination takes effect.

The six-month time limit only applies to a claim for statutory redundancy payments. If the complaint is that a payment should have been made under the Local Government (Early Termination of Employment) (Discretionary Compensation) (England and Wales) Regulations 2006, the applicable procedure is the authority’s Internal Dispute Resolution Procedure (IDRP). An IDRP complaint normally has to be raised within six months of the termination of employment to which the complaint relates (although the person deciding upon the complaint could extend the period in exceptional circumstances such as incapacity).

Local Government Association

Further guidance is available at:

• Employment relations FAQs | Local Government Association
• Advisory bulletins: employment law updates | Local Government Association

Acas 

• For Acas guidance see Redundancy | Acas 

Government guidance 

• For Government guidance see Making staff redundant: Overview - GOV.UK