As Unemployment Rises, Small Businesses Urged to Tighten Redundancy Procedures

With UK unemployment rising, a Budget on the horizon, and small firms under financial strain, employment law experts warn that getting redundancy wrong could have costly consequences.

According to the Office for National Statistics, the UK unemployment rate has risen to 4.8% in the three months to August, up from 4.7% in the previous quarter. The latest figures come amid mounting pressure on small businesses, with many struggling to absorb rising operational costs and the increase in National Insurance contributions introduced in April 2025.

With the Autumn Budget now just weeks away, there is also growing uncertainty about what further fiscal measures the Government may introduce – potentially affecting staffing costs and future employment decisions.

Against this backdrop, legal experts say it has never been more important for employers to ensure that redundancy processes are fair, transparent, and legally sound.

 

Getting The Redundancy Process Wrong Could Lead To Costly Employment Tribunals

“Getting redundancy wrong could cause more problems than it solves – from employment tribunal claims to reputational damage,” warns Katie Ash, Head of Employment Law at Banner Jones Solicitors. “We’re seeing more small business owners having to make difficult decisions, and many don’t realise just how easy it is to fall foul of employment law in the process.”

 

5 Steps For Small Businesses To Protect Themselves When Making Redundancies

Here, Katie outlines five key steps small business owners should take to protect themselves when making redundancies:

 

Understand What Redundancy Really Means

“When a business makes a redundancy, it’s the role being made redundant, not the person,” explains Katie. “Employers must be able to show that the role will no longer exist – whether due to relocation, reduced workload, or business or departmental closure.”

It’s also vital to remember that redundancy must be genuine. It cannot be used as a way to dismiss an employee for another reasons, such as poor performance or personality clashes.

Even though employees only qualify for redundancy pay and unfair dismissal rights after two years of service, employers must still follow a fair process for everyone affected to ensure that they reduce the risk of other claims of unfairness being made by employees, such as whistleblowing or discrimination claims, where no length of service is required to bring a claim.

 

Communicate Early and Transparently

To minimise risk, employers should communicate at the earliest possible stage that redundancies may be required. This gives employees time to prepare and the chance to suggest alternatives.

“Don’t forget about staff who are on maternity leave, long-term sick leave, or otherwise absent from the workplace,” Katie advises. “They must be included in the consultation process, or you risk claims of unfair dismissal and/or discrimination.”

For larger restructures involving 20 or more redundancies, separate collective consultation rules apply and the financial penalties for getting this wrong can be substantial.

 

Explore Every Alternative

Before proposing compulsory redundancies, employers should consider all other options – from voluntary redundancies to reduced hours, job sharing, or redeploying staff into new roles.

“In some cases, small changes like flexible working arrangements can help avoid redundancies altogether,” Katie notes. “But if they are unavoidable, having robust procedures in place will protect your business from costly claims.”

 

Identify the Correct Selection Pool

If you’re proposing fewer than 20 redundancies, the next step is to determine who might be affected. Employers must establish a fair and objective selection pool, based on roles, not individuals.

“Selection criteria should be measurable, transparent, and based on business needs,” Katie explains. “Impartiality is key — decisions must not be discriminatory or subjective.”

 

Conduct a Proper Consultation

Once the process begins, employers must enter into meaningful consultation with employees. This usually involves at least two meetings with affected employees and being open minded to suggestions made during the process.

“The first meeting should explain why an employee’s role is at risk of redundancy and explore possible alternatives, such as redeployment or job sharing. If the redundancy can’t be avoided, then ways of mitigating it’s impact should be discussed,” says Katie. “And if redundancy is unavoidable, a second meeting should confirm the decision, explain entitlements, and set out any right to appeal.”

Formal redundancy notices should always be issued in writing.

 

A Word of Caution

Katie concludes: “Redundancy is not a shortcut to dismissing underperforming staff. In fact the whole point of a fair redundancy process is to try to avoid the need to make redundancies! If you can’t demonstrate that a role itself is redundant, you could face an unfair dismissal (and/or discrimination) claim. For small businesses already under financial pressure, that’s the last thing you need and could be devastating.”

 

Speak With An Employment Law Expert

If you'd like to speak with our Employment Law experts about Redundancy or any other issue, contact the team

 

You might also be interested in reading the following articles:

The Redundancy Process – a guide for small businesses | Banner Jones Solicitors

Why the consultation period matters when making redundancies | Banner Jones Solicitors