Restructure v Redundancy

As a result of the COVID-19 crisis, many businesses are facing financial pressures and they are forced to make difficult decisions. Organisations are contemplating downsizing or ceasing the activity and very often redundancies are unavoidable. Restructure and redundancy can be a complex area and the procedure depends on various factors. Below is a summary explaining restructure and redundancy and what steps need to be taken to ensure the process is carried out in a correct and fair way.

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Restructure and redundancy differences

Although in ordinary language, the terms restructure and redundancy are often used with the same meaning, they are different notions. Both redundancy and restructure entail some changes that are made to the company’s organisational structure when facing financial pressures.

Restructure definition

Restructure is not a legal term and there is no definition, but normally they refer to a process that aims to make the business running more efficiently. A company restructure may result in a change of job role, or shift in responsibilities. Restructure does not necessarily result in dismissals; they can involve adding new tasks to the existing employees’ responsibilities or requiring employees to do different jobs for different pay, or even creating new roles. In some cases, however, the restructuring process may result in the loss of jobs. Therefore, the two processes may be linked as the restructure may lead to redundancy.

Redundancy definition

Redundancy, on the other hand, has a statutory definition and is a type of dismissal which occurs when the employer stops trading or stops trading at the specific employee workplace or no longer needs the job roles the specific employee carries out. Making someone redundant may lead to the involvement of a redundancy solicitor, depending on the circumstances and reasons for redundancy.

The restructure process

If the restructure does not involve the downsizing of the workforce, an employer could go down the route of changing the employees’ terms and conditions to accommodate the change in the business structure. The change can occur under the employment contract or by employees’ consent. Under the current COVID-19 climate, it is likely that the employees will consent to save their jobs.

However, if the employees refuse to consent, an employee may be dismissed relying on ‘some other substantial reason’ (SOSR) and subsequently offer re-engagement on new terms. This route should be exercised with care as there are some requirements that the employer must follow such as demonstrating a ‘sound business reason’ for changing the terms and conditions and also following a consultation with the employees before dismissal.

Recent case law has established that there is a thin line between restructure and redundancy and when in doubt legal advice should be sought to clarify what rules apply to the specific situation.

The redundancy processes

Unlike the restructure process, the redundancy is laid out in statutes and a strict procedure must be followed by employers. Employers who don’t follow the law may be liable for unfair dismissal.

During the selection stage, the employer should ensure that the redundancy pooling and the selection criteria are fair. The employer should not discriminate against certain individuals or groups of individuals on grounds of age, sex, race, religion or belief. If an employer fails to make a fair selection, the dismissal would be legally unfair.

The Redundancy Consultation Process is a required stage in the redundancy process where the employer gives a reasonable warning about the potential redundancy and the employee is allowed to respond and to make objections to the redundancy proposal. If the employer intends to make redundant more than 20 employees within a period of 90 days, then collective consultation is triggered, and the employer must check whether the appropriate employee representatives are appointed before the consultation is due to take place. The timeline for collective consultation must begin 30 days before the first dismissal taking effect for a maximum of 99 employees or 45 days for more than 100 employees.

If an alternative employment can be identified within the organisation, the employer must offer this to the employees affected before the expiry of the employment contract. The employee is entitled to accept the role or to be rejected in which case they might lose their entitlement to redundancy pay.
Any employee being made redundant will be entitled to statutory redundancy pay provided that the employee has more than two years in service. Currently, this is calculated based on a formula involving a week’s pay (capped at £538) and the employee’s length of service and their age bracket. There is a maximum statutory pay of £16,140. The employer is under an obligation to calculate the employee’s redundancy pay and provide them with a written statement setting out the amount they are entitled to.

When made redundant, an employee is entitled to a minimum statutory paid period of notice. The length of the statutory notice period is calculating based on the employees’ length of service. An employer may require the employees made redundant not to work the notice period if their contract of employment provides pay in lieu of notice (PILON). Failure to give employees the correct notice, or PILON may result in the employee seeking compensation for wrongful dismissal.

Employees with a length of service of two years or more are also entitled to a reasonable amount of time off for either looking for another job or subsequent training.

Contact us

Employees have certain statutory rights during the restructuring process. Employees also have redundancy rights. If you’re looking for legal advice, our specialist employment solicitors can help guide you through. For more information on the redundancy process in the UK and more, ring 0330 221 0684 or contact our legal team online.