Compulsory Redundancy Explained [Employee Guide]

Compulsory redundancy can happen for many reasons, from restructures to business closures. Knowing why it’s happening and how it should be handled can make it a little easier to navigate.

This compulsory redundancy guide explains everything you need to know about compulsory redundancy, helping you understand the process, your rights, and what to expect at each stage.

What is compulsory redundancy?

Compulsory redundancy happens when your employer decides that your job no longer exists and ends your employment as a result. Unlike voluntary redundancy, you don’t choose to leave. Instead, your employer selects you based on fair and objective criteria.

Redundancy can occur for several reasons, including:

• Closure of a department or site
• Financial difficulties or cost-cutting measures
• Restructuring or reorganisation within the business
• Introduction of new technology reduces the need for certain roles.

The difference between voluntary and compulsory redundancy

When comparing voluntary and compulsory redundancy, the process, and the amount of control you have, can feel very different.

• Voluntary redundancy: When an employee chooses to leave in exchange for an agreed redundancy payment. Employers often offer this option before making compulsory cuts.
• Compulsory redundancy: When the employer decides which roles are being made redundant and who will leave (after a consultation process).

Key differences include:

Compulsory redundancy rights

If you’re facing compulsory redundancy, you have several important legal rights. These protect you from unfair treatment and ensure you receive what you’re entitled to.

Your key compulsory redundancy rights include:

• Fair selection: Your employer must not choose you for discriminatory reasons (such as age, sex, disability or pregnancy).
• Proper consultation: Your employer must discuss the proposed redundancies with you before making any decisions.
• Notice period: You must receive the correct compulsory redundancy notice period, either as set out in your contract or under statutory law.
• Redundancy pay: You’re entitled to compulsory redundancy payments if you’ve worked for your employer for two years or more.
• Right to appeal or challenge: You may appeal if you believe the process was unfair.

If your employer breaches these rights, you could have grounds for an unfair dismissal claim.

How does compulsory redundancy work?

The compulsory redundancy process must be fair, transparent and consistent. In most cases, it will include the following key stages:

1. Confirming that redundancy is necessary

   Your employer must establish that a genuine redundancy situation exists. For example, due to a business restructure, reduced demand, or closure.

2. Identifying roles at risk

   Your employer must clearly define which roles or departments they are considering for redundancy and explain their reasons.

3. Offering voluntary redundancy (where appropriate)

   Before moving to compulsory redundancies, your employer might invite volunteers to leave under agreed terms. This can reduce the need for mandatory cuts, but employers are not obliged to offer it.

4. Compulsory redundancy consultation​

   Consultation must take place before your employer makes any final decisions. They should tell you the reasons for the proposed redundancies, the number of jobs affected, and the selection criteria being used.

5. Applying fair selection criteria

   Your employer must use fair and objective measures, such as skills, experience, qualifications, performance and attendance (excluding protected absences). Everyone in the selection pool should be assessed consistently, with evidence to support scoring.

6. Issuing notice of redundancy

   Once consultation has ended and selections are confirmed, your employer must give you written notice of redundancy. The length of your notice depends on how long you’ve worked for your employer (or an extended period if specified in your contract).

7. Making redundancy payments

   If you’ve worked continuously for your employer for at least two years, you’ll likely be entitled to a statutory redundancy payment. Some employers offer enhanced or contractual redundancy packages, which they must confirm in writing.

If your employer skips or rushes any of these steps, or fails to consult properly, the redundancy could be considered unfair, and you may have the right to challenge it.

Alternatives to compulsory redundancy

Redundancy should always be a last resort. Before confirming any job losses, employers are expected to explore other ways to reduce costs or reorganise work. These steps can sometimes avoid, delay, or reduce the need for compulsory redundancies.

Common alternatives include:

• Redeployment to another role: You may be offered a suitable alternative position within the organisation.
• Voluntary redundancy: Employers often invite staff to leave voluntarily with an agreed redundancy payment, helping to minimise compulsory cuts.
• Reduced hours or job sharing: Some employers offer part-time work, compressed hours, or job-share arrangements to keep more people employed.
• Temporary layoffs or short-time working: Your employer may reduce your working hours temporarily rather than make permanent redundancies (if you agree or your employment contract allows).
• Restricting recruitment or overtime: Stopping new hires or limiting overtime can save money without cutting existing roles.
• Early retirement: In some cases, employees close to retirement age may be offered the option to retire early on agreed terms.

If you’re at risk of redundancy, you can ask your employer whether they have explored any of these options. Employers are legally required to consult you about ways to avoid redundancies, and you’re entitled to suggest reasonable alternatives yourself.

Where suitable alternative employment is offered, you’re entitled to a four-week trial period to decide whether it’s right for you. If either you or your employer decides during that period that the job isn’t suitable, you’ll still be entitled to redundancy pay. However, if you refuse a suitable alternative role without a good reason, you may lose your right to statutory redundancy pay.

What does ‘fair selection’ mean?

When an employer is proposing compulsory redundancies, they must use a fair and objective process to decide who is selected.

How fair selection works:

• The employer should explain which roles are “at risk” and why those roles (and not others) are included in the pool
• Typical lawful criteria include skills and qualifications, performance, relevant experience, and genuine attendance or disciplinary records (excluding protected absences)
• Managers should apply the same criteria to everyone in the pool, using evidence (e.g. appraisals, training records, etc.) and keep notes that show how scores were reached
• You should be told your provisional score/position and given the chance to correct inaccuracies or add evidence before a final decision is taken
• The employer should consider ways to avoid redundancy (such as redeployment) and discuss any suitable alternative roles with you.

What must not be used in the selection process:

• You must not be selected because of age, disability, gender reassignment, marriage/civil partnership, pregnancy/maternity, race, religion or belief, sex or sexual orientation
• Absence related to pregnancy/maternity or disability should not count against you
• It is unfair to select someone for reasons such as trade union membership/activities, whistleblowing, raising health and safety concerns, asserting statutory rights, or working part-time/fixed-term
• Length of service should not be the only criterion. If used at all, it should be balanced with other objective factors to avoid unfairness.

The compulsory redundancy consultation

The compulsory redundancy consultation is a key part of the process. It allows you to understand the reasons for redundancy, explore alternatives, and have your say.

Consultation should begin as soon as redundancies are proposed, not once decisions are final. The length of the consultation depends on the number of employees affected:

• 20–99 redundancies: At least 30 days’ consultation
• 100 or more redundancies: At least 45 days’ consultation
• Fewer than 20 redundancies: There’s no fixed minimum, but consultation must be “meaningful”

During this time, you should have the opportunity to ask questions, propose alternatives, and ask to be accompanied at meetings if you wish. 

The collective redundancy consultation

In collective redundancy situations, there are additional requirements, including the need for your employer to consult with recognised trade unions or elected employee representatives.

A collective redundancy happens when an employer proposes to make 20 or more employees redundant within 90 days at the same workplace.

Compulsory redundancy payments

If you’ve worked continuously for your employer for at least two years, you’re usually entitled to a compulsory redundancy payment.

The amount you receive depends on your age, length of service, and weekly pay. Statutory redundancy pay is calculated as follows:

• 0.5 week’s pay for each year worked under age 22
• 1 week’s pay for each year worked between 22 and 40
• 1.5 weeks’ pay for each year worked aged 41 and over.

From 6 April 2025, the weekly pay cap is £719, with a maximum statutory redundancy payment of £21,570. You can find the latest figures on gov.uk. Employers can offer enhanced or contractual redundancy pay, so it’s worth checking your contract or staff handbook.

If selected for redundancy, your employer should give you a written statement explaining how your redundancy pay was calculated.

Redundancy pay and tax

Most compulsory redundancy payments are tax-free up to £30,000. Because statutory redundancy pay is capped by weekly pay and length of service, most employees receive their full entitlement without any deductions.

If your redundancy package exceeds £30,000, the amount above that threshold will be taxed at your normal rate of income tax. Other payments you may receive – such as notice pay, unpaid wages, bonuses, or holiday pay – are treated as regular earnings and subject to tax and National Insurance.

If your employer offers an enhanced or contractual payment as part of your redundancy, it’s worth checking how it will be taxed before agreeing to the final terms.

Compulsory redundancy pay and insolvency

When a business enters insolvency, employees are often made redundant as part of the winding-up process. If the company can’t meet its financial obligations, you can claim certain payments from the Insolvency Service’s Redundancy Payments Service (RPS). Claims are made online and payments can take up to six weeks.

RPS will only cover statutory entitlements. If your contract offers enhanced redundancy pay or other benefits, you may need to register as a creditor with the insolvency practitioner for the remaining balance.

Compulsory redundancy notice period

Once you’ve been selected, your employer must give you notice before your employment ends. Your compulsory redundancy notice period depends on how long you’ve worked for the company:

• At least one week’s notice if you’ve been employed between one month and two years
• One week’s notice for each full year of service (up to 12 weeks)
• Or your contractual notice period, if longer than the statutory minimum.

Some employers may offer payment in lieu of notice (PILON), meaning you receive notice pay without working your notice period.

If you’ve worked for your employer for at least two years, you’re entitled to reasonable time off during your notice period to look for another job or arrange training. The most your employer has to pay you for this time off is 40% of one week’s pay. Any extra time off can be unpaid, unless your employer agrees to pay more.

Compulsory redundancy and settlement agreements

If you’re being made redundant, your employer may offer you a settlement agreement to confirm the terms of your departure. This is a legally binding contract that sets out your redundancy pay, notice arrangements, and any additional compensation or benefits you’ll receive.

Settlement agreements aren’t a legal requirement in cases of compulsory redundancy, but they are often used when:

• The employer is offering an enhanced redundancy payment or benefits beyond the statutory minimum
• There’s a potential risk of legal challenge over the redundancy process or selection criteria
• The redundancy forms part of a larger restructure or business closure
• The employer wants to secure a clean break and avoid future claims.

If your employer offers an improved package, they will almost always require a settlement agreement in exchange. By signing the agreement, you accept the terms offered and give up your right to bring future employment claims against your employer.

By law, you must take independent legal advice before signing. Your employer will typically pay the cost of this advice, so the process is free for you.

The compulsory redundancy letter

There are three types of compulsory redundancy letter, and you should receive each at different stages of the process:

1. Letter informing you that you are at risk: This confirms that your role is being considered for redundancy. It explains why redundancies are being proposed, which roles are affected, and outlines the next steps. Being “at risk” doesn’t mean you’ve been made redundant yet, it simply means your job is under review.
2. Letter inviting you to a consultation: Next, you’ll receive an invitation to a consultation meeting, where you can discuss the reasons for redundancy, possible alternatives, and how selection decisions will be made. 
3. Letter giving formal written confirmation of your redundancy: If your redundancy is confirmed, you’ll receive a final letter setting out the reasons for dismissal, your notice period, your final working date, and details of your redundancy pay. It should also explain your right to appeal or raise concerns about the process. If anything is unclear, ask your employer to explain it or seek independent legal advice before accepting the terms.

What to do if you think your redundancy is unfair

If you’re facing compulsory redundancy, you may disagree with the outcome, especially if you believe the decision or the terms offered are unfair. What happens next depends on what you’re refusing to accept.

Challenging the redundancy decision

If you believe your selection was unfair or your employer did not handle the process correctly, you can:

• Appeal internally using your employer’s redundancy or dismissal appeal procedure
• Raise a grievance if you think you’ve been discriminated against or treated unfairly
• Seek legal advice if you suspect the redundancy is not genuine or that the consultation was inadequate.

Refusing to agree to the redundancy won’t necessarily prevent your employment from ending, but you may have grounds to challenge the fairness of the dismissal and claim compensation if the process breached your employment rights.

Declining a settlement agreement

If your employer offers you a settlement agreement as part of your redundancy, signing it is entirely voluntary. You can choose not to accept the terms if you’re unhappy with them.

If you decide not to sign:

• You’ll usually still receive your statutory redundancy pay, notice pay and any contractual entitlements.
• You won’t receive any enhanced or discretionary payments, as these are conditional on signing the agreement.
• Your employment will end under standard compulsory redundancy terms instead.

Before making a decision, it’s always best to take independent legal advice to ensure you fully understand your options and the consequences of refusing.

What to do if you’re made compulsorily redundant – a quick checklist

Being told you’re at risk of redundancy can be unsettling, but there are practical steps you can take to protect your position and plan your next move.

You should:

• Review your redundancy letter and check that all details are correct
• Confirm your redundancy pay, notice period and any accrued holiday entitlement
• Ask for clarification if you’re unsure about how selection decisions were made
• Keep copies of all correspondence and notes from consultation meetings
• Seek legal advice if you believe the process was unfair or discriminatory
• If you’re offered a settlement agreement, get independent legal advice before signing.

FAQ’s about compulsory redundancy

Below, we’ve answered some of the most common questions employees ask about compulsory redundancy.

Contact GTE Settlement Agreement Solicitors

Any redundancy can feel overwhelming, but even more so when it’s not what you want. Understanding your rights and the terms you’re being asked to accept is essential to protecting your financial and legal position.

If you’ve been offered a settlement agreement, we can help you review and sign it quickly.

At GTE Settlement Agreements, we provide:

• Same-day legal advice and sign-off
• A straightforward, supportive process
• Reassurance that your agreement is fair and legally sound
• No cost to you (your employer covers our legal fees).

If you are ready to sign, we can help. Call today for your free consultation on 020 7247 7190 or complete the simple enquiry form on this page.