Redundancy and restructuring: Key considerations for employers

Economic uncertainty continues to be a live issue for many businesses in 2025. The recent increase to employer national insurance contributions from April this year have heightened cost pressures — particularly for labour-intensive sectors. At the same time, international instability, and potential trade wars, arising from US-imposed tariffs under the second Trump administration, are causing businesses to re-evaluate global supply chains and staffing models. The third sector is already facing less cash coming into charities to deliver services.

In this climate, restructuring and redundancy may become necessary, not just as a short-term cost-saving exercise but as part of longer-term operational change. However, it is essential that any redundancy process is carefully planned, lawfully executed, and sensitively communicated.

What does it mean to restructure rather than make redundancies?

Restructuring involves reshaping roles or redistributing responsibilities across the workforce, often without reducing headcount. It might mean consolidating departments, adjusting pay bands, or changing working patterns. Redundancy, by contrast, arises where there is a cessation or diminution in the need for employees to do work of a particular kind.

Employers must identify whether the need for work has reduced or ceased, whether in terms of the whole business, a specific site, or a category of job.

Consultation process: A legal and practical imperative

Any redundancy process is difficult for employers and employees alike. Employers must consult meaningfully with employees before reaching any redundancy decision. Presenting a fait accompli risks a finding of unfair dismissal.

Where fewer than 20 redundancies are proposed, consultation is individual but must still be genuine and evidenced.

In collective redundancy cases, where 20 or more redundancies are proposed at one establishment within a 90-day period, collective consultation obligations apply:

• At least 30 days before the first dismissal (if 20–99 staff are affected)
• At least 45 days (if 100 or more affected)

This means:

• Consulting with recognised trade unions or elected employee representatives
• Completing and submitting an HR1 form to the Insolvency Service

Employees on maternity or other family leave must be included in consultations and considered for suitable alternative roles.

Consultations can take place face to face, using video conferencing or over the phone and should involve explaining the situation to employees and the business’s proposals getting their feedback, which should be worked into final plans.

Fair selection: Avoiding discrimination

Unless one role is being eliminated involving one employee, referred to as being in a selection pool of one, selection must be based on objective and non-discriminatory criteria — such as skills, performance, attendance, and disciplinary records. Criteria should be consulted on and clearly evidenced. Businesses should avoid allowing scores to be assigned by managers unfamiliar with the employee’s work history.

It is unwise to rely solely on “application for own job” models. While competitive interviews can be appropriate for dissimilar roles, requiring staff to reapply for the same role, in cases of head count reduction, is viewed as procedurally unfair by employment tribunals.

Suitable alternative employment and ‘bumping’

Employers must actively explore whether there are alternative roles available for at-risk staff. This duty extends during the notice period, particularly if that period is lengthy. It is necessary to consider “bumping” – displacing another employee (A) in a different role to retain a more senior or skilled individual (B) at risk, who is bumped into A’s role.

A trial period of up to four weeks applies when offering alternative employment (or longer if agreed in writing to assess suitability for the new suitable alternative role), after which statutory redundancy pay may still be claimed if the role proves unsuitable.

Redundancy dismissal letters: What to include

Final redundancy letters should set out:

• The reason for redundancy and selection rationale
• Notice period and termination date
• Redundancy pay and other final payments (e.g. accrued holiday)
• Continuation or cessation of benefits
• Right of appeal and appeal procedure

Ensure someone independent of the original decision is reserved to hear any appeal.

Settlement agreements

For risk mitigation or where enhanced packages are being offered — especially under voluntary redundancy schemes — consider offering a settlement agreement. These provide finality and protect against future claims.

Redundancy pay and notice

Statutory redundancy pay is calculated based on age, length of service (up to 20 years), and weekly pay (subject to the statutory cap). Notice periods must comply with both the employee’s contract and statutory minimums and cannot start until consultations are complete.

A final word

In 2025, many employers are navigating rising employment costs and a shifting global trade landscape. Redundancy should never be rushed, however urgent the need to reduce staff casts. Procedural fairness, legal compliance, and effective communication are critical. Getting it wrong could result in not only tribunal claims, but reputational damage and lasting disruption.

If you are considering a restructure or redundancy process, we can guide you through each stage — from consultation strategy and scoring matrix design to settlement agreements and risk mitigation.