The terms ‘redundancy’ and ‘restructuring’ give off very different vibes. ‘Redundancy’ has the wiff of failure about it. ‘Restructuring’ strikes a more positive note – focussed on optimising operations for the future.

For this reason, the term ‘restructuring’ is often used to cover situations which, at their core, are actually redundancy. ‘Restructuring’ just has a better ring to it. But whilst HR have a role to play in making sure the ‘message’ given to employees is a positive and empowering one, they also need to understand the legal position.

What’s the difference?

Redundancy is one of the five potentially fair reasons for dismissal. Under s139(1)(b) Employment Rights Act 1996 a dismissal will be for redundancy if it is wholly or mainly because of a reduced requirement of the business for employees to carry out work of a particular kind.

‘Some other substantial reason’ (SOSR) is another of the five potentially fair reasons for dismissal. It can apply in a wide variety of circumstances, including business restructures: where an employer has proposed a change to terms and conditions of employment for business reasons. Employees who do not accept the proposed change are dismissed and offered re-engagement on the new terms. If they do not accept the new terms then their dismissal stands and may be fair for SOSR.

Does it really matter whether it’s a restructure or a redundancy?

HR are likely to approach a business restructure and a redundancy situation in much the same way. Both processes involve engaging with the workforce, consulting regarding proposals, considering alternatives and fairly selecting. Neither process usually engages the Acas Code of Practice. If 20 or more employees are affected then both processes will trigger collective consultation obligations (as these apply to any collective ‘no fault’ dismissals so catch both SOSR and redundancy).

The big difference is in relation to the payments due. If a dismissal is for ‘some other substantial reason’ then the employee is entitled to receive their notice pay but nothing more. If a dismissal is by reason of redundancy then, in addition to notice pay, they are, if eligible, entitled to a statutory redundancy payment (or an enhanced payment if their employer operates an enhanced redundancy scheme).

When a restructure may be a redundancy

It’s clear that where you have a reduction in headcount as part of a restructure process, redundancy is likely to apply – see cases like Murray v Foyle Meats. But what if a restructure does not involve a headcount reduction? Perhaps the business is proposing a cut in core hours across the board to deal with a downturn in work. The same number of employees are needed, but to do fewer hours. The process would likely be called a ‘restructure’. Employees would be asked to agree to the reduction, with dismissal and an offer of re-engagement following if they did not agree. The word ‘redundancy’ would never even be mentioned.

However, such a change could be a redundancy – with the risk of redundancy payment liability flowing from it. In Packman t/a Packman Lucas Associates v Fauchon the Employment Appeal Tribunal held that it is not necessary for headcount to reduce in order to satisfy the statutory definition of redundancy. In this case the employer reduced their book-keeper’s hours after a downturn in business and the implementation of new software. The employee refused to agree to reduced hours, was dismissed and claimed redundancy. Their claim succeeded. If the amount of work available for the same number of employees is reduced, then a dismissal of an employee caused wholly or mainly for that reason can be a redundancy.

Lessons for HR

  • Redundancy vs. Restructure: A restructure may still legally count as a redundancy if the business has a reduced need for employees to carry out work of a particular kind – even without a headcount reduction.
  • Legal label matters: While ‘restructure’ may sound more positive, mislabelling a redundancy as a restructure can expose the business to claims for unpaid redundancy pay.
  • Consultation obligations apply: Whether dismissals are for redundancy or SOSR, if 20+ dismissals are proposed within 90 days, collective consultation requirements are triggered.
  • Keep documentation clear: Label the process clearly in internal and employee-facing documents, but also ensure the legal basis aligns with the true operational reason behind the change.