What is employee redundancy in the workplace?

When economic strain increases or a company undergoes restructuring, employee redundancy often becomes part of the plan—either to cut costs and stay afloat, or to eliminate roles that no longer fit the new organizational design. But, if done wrong or without the proper documentation, redundancy can create serious legal risk for the business.

Understand what redundancy is and how to make a role redundant while meeting legal obligations.

How does redundancy work and what does it mean in the workplace?

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.

Types of redundancy

There are two main types of redundancy:

• Involuntary redundancy is when the business eliminates an employee’s role and ends their employment contract.
• Voluntary redundancy is where an employee puts themselves forward for redundancy, often in return for a better severance package.

Depending on the type of redundancy, businesses may have to compensate employees differently, making it important to understand these processes ahead of time. 

With voluntary redundancy, employees typically get more support through the process and can negotiate a more favorable financial package.

How it differs from layoffs and downsizing 

Redundancy, layoffs, and downsizing all have similar effects, but they’re not the same. Layoffs may be temporary, with the role returning in the future when business conditions stabilize. Downsizing is a broader cost reduction strategy that may involve combining roles or reducing headcount businesswide. Redundancy is the most permanent of the three, as the role itself is eliminated and won’t be refilled.

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 business 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 country of operation to align with regulations.
• Severance pay: Depending on the contract the business has with an employee, you may have to pay severance during redundancy. Especially if the employee is made voluntarily redundant, this will typically come with some financial compensation.
• Payment for unused benefits: You may have to liquidate unused benefits, like vacation or PTO, that an employee has accrued. This obligation is jurisdiction-dependent and will vary depending on where the business is based.
• Right to appeal or seek compensation: Employees are able to seek financial compensation for their redundancy, alongside negotiating severance pay, if you violate the employment contract.
• Redeployment consideration: Employers may need to consider redeployment in a new job role as a potential alternative to redundancy, like offering current vacancies to the employee.
• Rehire priority: In some fields, you may have to follow rehire priority orders, which state that employees should be considered first when filling a new position.

It’s important to explore the local labor laws where the business operates to cover all the right obligations during redundancy.

How to handle the redundancy process 

In locations that have strict regulations about worker job security, the business will have to abide by a range of obligations.

Here’s how to conduct a compliant redundancy process.

1. Conduct a strategic analysis and identify affected roles

The first step when building and enacting a redundancy plan is to identify which roles will be affected. Understanding the event that is causing the business to eliminate these roles will help you determine the extent of the redundancy.

After making a general estimate of the total number of roles you’ll have to remove, see which roles will have the least impact when cut. Typically, this includes job roles that are no longer vital to the company’s central mission. Work across several departments, as focusing all the job cuts in one place could leave parts of the business severely understaffed.

2. Develop a formal plan and supporting documentation

Once you have the general scope of redundancy outlined, create a timeline of when notice periods begin and end. Identify every document you’ll need to share with employees—such as evidence that you explored alternatives and an offboarding checklist—and begin collecting them.

Develop a plan specifying which employees are likely to be affected, the steps you need to take to compliantly end the employee lifecycle, and the timeline you intend to follow. This will ensure the process is structured and aligned with your legal obligations.

3. Communicate transparently with affected employees

Redundancy notice should be given in writing, alongside documentation explaining why the redundancy is necessary. Provide employees evidence that you considered alternative routes— like reducing hours or redeployment—and offer ample support during the transition.

Where possible, give employees more notice than legally required. Extra time helps employees plan their next steps and signals that the organization is approaching the process with care and respect. 

4. Execute, finalize, and stabilize

After communicating with employees and negotiating any severance packages needed, issue final termination notices to all employees impacted by the redundancy. These documents formalize the end of employment and outline the final terms—such as severance amounts and last working day.

Your business may experience a period of adjustment after a wave of redundancies, as many teams will be working without roles they’ve had in the past. Provide support to remaining employees to help stabilize workloads in teams with reduced staff and maintain morale.

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.