What is employee redundancy in the workplace?

What is redundancy? A complete guide to the redundancy process, employee rights, and employer obligations‍

Redundancy is a process where an employer ends an employee’s contract because their role is no longer needed. It is usually caused by business changes such as restructuring, financial pressure, automation, mergers, or changes to how an organization operates.

Unlike performance-related dismissal, redundancy is not linked to an employee’s capability or conduct. A genuine redundancy happens because the position itself has been removed or is no longer required.

For employers, managing redundancy requires careful planning, clear communication, and compliance with local employment laws. For employees, understanding redundancy rights can help them navigate the process and understand what support they may be entitled to.

Remember: you’re making the role redundant, not the employee.

What does redundancy mean?

Redundancy is when an employer terminates an employee’s contract due to internal reasons, like no longer needing the role or restructuring the business. It’s not related to the employee’s performance and is tied more to organizational change.

When a role is made redundant, it ends the employment relationship permanently. Unlike reduced hours or temporary suspension, redundancy removes the position from the business and the employee exits the company.

Some employers may ask for volunteers before making compulsory redundancies, giving employees the option to leave the business in exchange for a redundancy package. This is known as voluntary redundancy and can help reduce the number of compulsory job losses, although employers don't have to accept every application if it doesn't meet business needs. If there aren't enough volunteers, or the business still needs to reduce specific roles, it may move to involuntary (or compulsory) redundancy, where employees are selected through a fair redundancy process based on the needs of the organization.

Types of redundancy

There are two main types of redundancy:

• Involuntary redundancy is when the business eliminates a role.
• Voluntary redundancy is where an employee puts themselves forward for redundancy, often in return for a better severance package.

How it differs from layoffs and downsizing 

These terms are often used interchangeably, but they mean different things. Redundancy is when a specific role is no longer needed, so the position is permanently removed. Layoffs generally refer to employees being let go because of business or economic conditions and, depending on the country, may be temporary or permanent. Downsizing is a broader business strategy to reduce the size or cost of the workforce, often through a combination of redundancies, layoffs, hiring freezes, or restructuring. 

What drives redundancy: Common triggers and redundancy examples

Redundancy is generally reactionary, with businesses adapting their strategy and internal structure in response to economic changes or a merger.

Here are some reasons that could trigger a wave of redundancies across a business:

• Economic recession or financial pressure: A business contending with a challenging economic situation may have to resort to employee redundancy to cut costs and remain afloat.
• Business restructuring or department mergers: Merging departments or businesses together may lead to certain roles no longer being needed, which would be grounds for redundancy.
• Adoption of new technology or automation: New technology may directly replace the roles in a workplace, making the employee redundant.
• Closure of a project, business line, or location: Finishing a project or terminating a site of a business could remove the need for associated roles.
• Relocation of business operations: Relocating a business without the option for remote working can lead to several roles becoming redundant, especially when positions are location-dependent, like the manager of a specific branch. 
• Transition to outsourcing: Outsourcing roles to a remote location for flexibility or to reduce costs could also result in employee role termination.

Employee rights and redundancy obligations for employers

Employers have to follow certain obligations when making an employee redundant. While the exact steps depend on where the team member is located, some general considerations to take into account are:

• Notice period: Certain jurisdictions, like the UK, have mandatory notice periods that employers need to follow. Check the equivalent period in your team member’s country of employment to align with regulations.
• Severance pay: Severance pay may be required in redundancy situations. The amount an employee is entitled to depends on local employment laws and may also be influenced by factors such as their length of service, seniority, employment contract, or collective agreements. 
• Payment for unused benefits: You may have to liquidate unused benefits, like PTO that an employee has accrued. This obligation is jurisdiction-dependent and will vary depending on where the team member is based.
• Right to appeal or seek compensation: If an employer doesn't follow the required redundancy process or breaches the employment contract, team members may be able to challenge the dismissal or pursue legal remedies. Depending on the jurisdiction, this could include compensation, reinstatement, or other remedies in addition to any redundancy or severance payments they are entitled to. 
• Redeployment consideration: Employers may need to consider redeployment in a new job role as a potential alternative to redundancy, like offering current vacancies to impacted team members.

It’s important to explore the local labor laws where the team member is employed to cover all the right obligations during redundancy.

How to handle the redundancy process 

Redundancy laws vary by country, but most jurisdictions require employers to follow a fair and well-documented process. Here's how to approach a redundancy exercise while balancing legal compliance with employee experience. 

1. Assess the business need and explore alternatives

Start by clearly defining why redundancies are necessary. Whether driven by restructuring, changing business priorities, automation, or financial pressures, you should be able to demonstrate a genuine business reason for eliminating roles.

Before proceeding, consider whether redundancies can be avoided through alternatives such as redeployment, hiring freezes, reduced hours, voluntary redundancy, or natural attrition. In many countries, employers are legally required to consider these options.

2. Identify affected roles and apply fair selection criteria

Determine which roles are genuinely no longer required and develop objective selection criteria if multiple employees perform similar work. Selection should be based on legitimate business factors rather than discriminatory or subjective reasons. 

In some jurisdictions, employers must also consult with employee representatives, works councils, or labor unions before making final decisions, particularly during collective redundancies.

3. Create a redundancy plan and prepare documentation

Develop a clear timeline covering consultation periods, notice requirements, key decision points, and termination dates. Prepare all supporting documentation, including business rationale, consultation records, selection criteria, notice letters, severance calculations, and any legally required filings.

Keeping detailed records helps demonstrate that the process was fair, consistent, and compliant if it's later challenged.

4. Communicate openly and support affected employees

Communicate with impacted employees as early as possible and explain the business reasons for the proposed redundancies. Where consultation is required, employees should have an opportunity to ask questions, provide feedback, or explore alternatives before decisions are finalized.

Provide written notice, explain any redundancy or severance entitlements, and offer practical support where possible, such as career transition services, job search assistance, or employee assistance programs.

5. Complete the process and support the remaining workforce

Once consultation has concluded and all legal requirements have been met, issue final termination documentation, ensure employees receive all required pay and benefits, and complete the offboarding process.

Redundancy doesn't end when employees leave. Remaining employees often experience uncertainty, increased workloads, and reduced morale. Communicate openly about the organization's future, clarify team responsibilities, provide managers with guidance on supporting their teams, and monitor workloads to help rebuild trust and engagement.

Stay compliant through every employee redundancy with Oyster

Redundancy is a complex labor situation, and one that becomes extremely challenging when working across multiple jurisdictions. Your business may need to balance distinct legal contexts to ensure compliance through an employee’s redundancy.

Use Oyster’s Employer of Record solution to navigate the complexities of global redundancy with ease. Oyster facilitates a fully compliant redundancy process by providing expert guidance for the jurisdiction where you’re hiring and operating.

For fully managed global hiring and redundancy processes, sign up and get started with Oyster today.