Redundancy: How Employers Can Avoid Costly Mistakes in 2026 and 2027

As financial pressures continue to affect UK businesses and significant employment law changes approach, redundancy is becoming an increasingly important consideration for employers. But even where redundancies are genuinely necessary, getting the process wrong can expose a business to costly Employment Tribunal claims.

For many small and medium-sized businesses, making employees redundant is one of the most difficult decisions they will ever face.

Rising operating costs, changing customer demands, technological developments and the need to remain competitive can all force employers to reconsider how their businesses are structured.

Sometimes, despite everyone’s best efforts, reducing the workforce becomes unavoidable.

However, a common misconception is that, if there is a genuine business reason for redundancies and employees receive the correct redundancy payments, the employer has done everything required.

Unfortunately, it is not quite that simple.

A genuine redundancy situation does not automatically make a dismissal fair. Employers must also show they followed a fair redundancy process, including meaningful consultation, appropriate selection procedures, and reasonable consideration of alternative employment.

Recent Employment Tribunal decisions have reinforced the importance of getting these steps right. With significant changes to unfair dismissal protection taking effect from January 2027, mistakes could have much more serious consequences.

What is a fair redundancy process?

A fair redundancy process is one in which an employer has a genuine redundancy situation, identifies affected employees fairly, consults meaningfully, considers ways to avoid dismissal and follows an appropriate procedure before reaching a final decision.

Although the precise requirements will depend on the circumstances, employers should ordinarily be able to demonstrate that they have:

• Identified and documented the genuine business reasons for the proposed redundancies.
• Considered alternatives to compulsory redundancy.
• Identified appropriate selection pools and fair selection criteria.
• Consulted meaningfully with affected employees.
• Considered suitable alternative employment opportunities.
• Confirmed decisions in writing and provided an appropriate opportunity to appeal.

Where collective redundancy obligations apply, you must also meet additional consultation and notification requirements.

Importantly, consultation should take place while proposals are still genuinely open to discussion, not simply after the employer has decided who will leave.

Why redundancy consultation matters

One of the most common mistakes employers make is approaching redundancy consultation as a formality rather than a meaningful part of the decision-making process.

For example, a business owner might decide that a particular employee’s role is no longer required, prepare the redundancy paperwork and then arrange a consultation meeting to explain the decision.

The problem is that consultation should not simply be an opportunity to tell employees what has already been decided.

Employees should have a genuine opportunity to understand the proposals, ask questions, challenge the reasoning, suggest alternatives and influence the outcome.

Fairness isn’t a one-off; it must be maintained throughout the redundancy process.  While there isn’t an absolute rule requiring consultation before every stage of selection or scoring, employers must consider whether their process was fair overall.

The practical lesson? Employers should involve affected employees early enough, remain open to alternatives, and avoid giving the impression that consultation is just a box-ticking exercise.

Transparency will be even more important going forward, and so will open, honest conversations.

Choosing who is made redundant: Getting selection right.

Where an employer needs to reduce the number of employees performing similar roles, deciding who should remain can be particularly challenging.

Imagine a business employs three administrators but only needs two after a restructure.

How does the employer decide which employee to make redundant?

Selection criteria should be fair, as objective as possible and supported by evidence.

Criteria such as relevant skills, qualifications, performance and disciplinary records may be appropriate, depending on the circumstances. However, employers should be cautious about relying on vague or subjective assessments.

For example, scoring an employee poorly for their ‘attitude’ or ‘team fit’ without clear supporting evidence can create difficulties if the decision is challenged.

Employers must also avoid disadvantaging employees because of protected characteristics or circumstances such as disability, pregnancy, or maternity-related absence.

Managers should be able to explain why they awarded particular scores and demonstrate that they applied the same standards consistently.

A scoring matrix is only as reliable as the evidence and reasoning behind it.

Another area where employers need to exercise particular caution is when scoring attendance, reliability or flexibility. For example, an employee may have a higher sickness absence record than their colleagues, but what if some of that absence relates to a disability? Using those absences to mark the employee down could amount to disability discrimination, particularly where reasonable adjustments have not been considered.

The same caution applies when assessing an employee’s flexibility or availability. A manager might assume that someone who cannot regularly work late, travel at short notice or change their working hours is less committed to the business. However, that employee may have caring responsibilities that the manager knows little or nothing about. Depending on the circumstances, applying such criteria could result in indirect discrimination, including sex discrimination, or raise other legal concerns.

And this is where employers can easily come unstuck. Just because a manager believes they know their employees well does not mean they understand every aspect of their personal circumstances. Assumptions about someone’s health, family commitments or willingness to work can lead to unfair scores and potentially discriminatory decisions.

This is why selection criteria should be carefully considered before scoring begins, with appropriate adjustments made where necessary and employees given a meaningful opportunity to comment on their assessments. A scoring matrix may look objective on paper, but it is only as fair as the information, assumptions and judgments behind it.

Is a redundancy pool of one fair?

A redundancy pool containing just one employee is not automatically unfair.

Legitimate circumstances may make a particular role unique, with no other employees performing comparable work.

However, employers should not assume that because one role is disappearing, only the person currently occupying that role needs to be considered.

Employers need to think carefully about how they decide which employees to put at risk of redundancy. It is not always as straightforward as identifying the disappearing role and assuming the person doing that job must leave. Other employees may perform similar duties or have interchangeable skills, and employers should consider these factors before deciding who falls within the selection pool.

Importantly, employees should have a genuine opportunity to question the proposed selection pool and explain why they believe others should be included. An employer may ultimately decide that a pool of one is appropriate. Still, they must be able to explain and justify that decision rather than assume it is the correct approach.

Employers must consider alternative employment.

Another area where employers can struggle is failing to explore whether redeployment could avoid redundancy properly.

Employers also need to remember that identifying a genuine redundancy situation and following a fair selection process is only part of the picture. They must also take reasonable steps to explore whether the employee could remain within the business in another role.

Simply directing someone to the company’s vacancies page and leaving them to apply for available positions may not be enough. Employers should take a more proactive approach by considering whether suitable opportunities exist elsewhere in the business, discussing them with the employee, and exploring whether additional training or support could make an alternative role viable.

Don’t assume an employee would be uninterested in another position, especially if it involves different duties, working hours, or a location change. What might seem unsuitable to the employer could be an opportunity the employee would welcome. Have the conversation rather than deciding for them.

Employers should actively consider whether suitable alternative positions exist, discuss potential opportunities with affected employees and assess whether reasonable retraining or adjustments could enable an employee to move into another role.

Special priority rules also apply to certain employees who are pregnant, on maternity leave or within protected periods following maternity, adoption or shared parental leave.

These protections may require employers to offer eligible employees suitable alternative vacancies before other candidates.

Failing to recognise these additional obligations can create significant legal risks.

January 2027: Why redundancy mistakes could become more expensive

The Employment Rights Act 2025 introduces one of the most significant changes to unfair dismissal protection in recent years.

From 1 January 2027, the qualifying period for ordinary unfair dismissal protection reduces from two years to six months.

This means employees with much shorter service can challenge the fairness of a redundancy dismissal.

Crucially, the change applies to dismissals taking effect from 1 January 2027, including employees who joined the business before that date.

For example, an employee recruited in April 2026 who is dismissed for redundancy in January 2027 will have the qualifying service necessary to bring an ordinary unfair dismissal claim.

Employers should therefore review any proposed redundancies carefully, particularly where dismissals may take effect around the beginning of 2027.

Why getting redundancy right matters more than ever.

One of the biggest misconceptions about redundancy is that an employer’s obligations begin and end with paying the employee what they are entitled to. However, statutory redundancy pay and the right to challenge an unfair dismissal are very different.

An employee will ordinarily need two years’ continuous service to qualify for statutory redundancy pay. But that does not mean an employer can dismiss someone with less service without following a fair process. Even under the current rules, certain claims, including discrimination and automatically unfair dismissal, can arise regardless of how long someone has worked for the business.

And this is where the upcoming changes to employment law become particularly relevant.

From 1 January 2027, the qualifying period for ordinary unfair dismissal protection will reduce from two years to just six months. This means employees with much shorter service can challenge the fairness of their redundancy dismissal, even if they do not qualify for a statutory redundancy payment.

At the same time, the statutory cap on compensatory awards for ordinary unfair dismissal will be removed. Although compensation will still be assessed according to the employee’s circumstances and financial losses, the potential cost of an unfair dismissal claim could be significantly higher.

For employers, this makes it even more important to get the redundancy process right. It is no longer enough to assume that an employee’s short service means there is little risk in dismissing them. A genuine business reason, fair selection, meaningful consultation and proper consideration of alternatives all remain essential.

With these changes approaching, seeking advice before starting a redundancy process is more important than ever.

Collective redundancies: The financial risks can be substantial

Where an employer proposes to dismiss 20 or more employees as redundant at one establishment within 90 days, collective consultation obligations may apply.

Depending on the number of proposed redundancies, consultation must generally begin at least 30 or 45 days before the first dismissal takes effect.

Employers must also comply with the relevant notification requirements, including submitting an HR1 form to the Government.

Failure to comply with collective consultation obligations can result in protective awards of up to 180 days’ gross pay for each affected employee, following changes introduced in April 2026.

Failure to comply with the HR1 notification requirements can also constitute a criminal offence, with potential personal liability for directors and other officers in certain circumstances.

Although many smaller businesses will not ordinarily reach these thresholds, employers planning significant restructures should seek advice as early as possible.

Before starting a redundancy process, take a step back.

When a business is under financial pressure, it can be tempting to move quickly, particularly when difficult decisions have already been weighing heavily on the minds of those running it. However, redundancy is one area where taking the time to consider your options before acting can make a significant difference.

Start by understanding why redundancies may be necessary. Is there genuinely less need for employees to carry out particular work, or are there other business issues that need addressing? Being clear about the reasons behind a proposed restructure, and documenting them properly, will help demonstrate that the decision is based on genuine business needs.

It is also worth considering whether you can avoid redundancies altogether. Could reducing overtime, putting recruitment on hold, offering voluntary redundancy or redeploying employees into other roles achieve the same objective? Not every alternative will be commercially viable, but employers should be able to demonstrate that they have given reasonable consideration to the options available.

If redundancies do appear unavoidable, the next consideration is who may be affected. This is where employers need to be particularly careful. It can be easy to focus on an individual rather than the role itself, especially in a smaller business where everyone knows each other. However, identifying an appropriate selection pool and applying fair, evidence-based criteria is essential to ensuring the process is defensible.

And then there is consultation. One of the most important things to remember is that consultation must be genuine. Employees should have the opportunity to understand what is being proposed, ask questions, challenge the reasoning and put forward alternatives. It is not simply a meeting to communicate a decision that has already been made.

Finally, employers need to understand the full implications of the decisions they are considering. The costs of redundancy go beyond statutory redundancy payments and may include notice pay, outstanding holiday entitlement and, potentially, the financial consequences of an unfair dismissal claim. When more employees are affected, additional collective consultation obligations may also arise.

The message is simple: never rush redundancy. Seeking advice early, before announcements are made or decisions communicated, can help employers navigate the process fairly, protect their business, and treat affected employees with the dignity and respect they deserve.

How HR:4UK can support your business through redundancy

At HR:4UK, we understand that redundancy is never simply a paperwork exercise.

Behind every proposed restructure are commercial pressures, difficult decisions and employees whose livelihoods may be affected.

Our experienced HR consultants work alongside employers to help them navigate the redundancy process fairly, sensitively and in accordance with their legal obligations.

Whether you are considering the redundancy of one employee or planning a wider restructure, we can help you review the business rationale, identify appropriate selection pools, develop fair selection criteria, prepare documentation, conduct consultation meetings, and explore suitable alternative employment.

We can also help you understand the implications of the forthcoming employment law changes and what they mean for your workforce.

Our most important advice to employers is simple: speak to us before making any announcements or decisions.

Getting advice at the outset is far easier, less stressful and often considerably less expensive than trying to resolve problems after the process has begun.

Considering redundancies or restructuring your business? Contact your HR:4UK consultant or visit www.hr4uk.com to find out how we can help.