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Where restructuring meets redundancy: Understanding the legal risks
Adrian Fryer
The words “redundancy” and “restructuring” carry very different connotations. Redundancy often implies cutbacks and job loss. Restructuring, on the other hand, sounds strategic and forward-looking.
It’s no surprise then that employers often refer to redundancies as “restructuring”. While HR plays a key role in delivering messaging sensitively, it’s essential not to lose sight of the legal distinctions.
Redundancy or SOSR?
Redundancy is one of the five potentially fair reasons for dismissal. Under section 139(1)(b) of the Employment Rights Act 1996, it applies where there’s a reduced need for employees to do a particular kind of work.
In contrast, “some other substantial reason” (SOSR) might apply where a business restructure requires changes to terms and conditions. If employees refuse the new terms, they may be dismissed and offered re-engagement.
Why the label matters
While the consultation process may look similar for both (engaging employees, considering alternatives, fairly selecting), the key difference lies in termination payments.
A redundancy dismissal typically entitles the employee to a statutory redundancy payment, whereas SOSR does not – just notice pay.
But don’t assume “restructure” means SOSR. In Packman v Fauchon, an employee’s hours were reduced due to a drop in work – even though the headcount didn’t change, the dismissal was still found to be a redundancy in law.
Top tips for HR:
- Even if no roles are lost, a reduced need for work may still be redundancy.
- Mislabelling a redundancy as a restructure can risk unpaid redundancy claims.
- Collective consultation rules apply for both SOSR and redundancy if 20+ dismissals are proposed within 90 days.
- Always align your documentation and rationale with the actual legal basis for dismissal.