How to Handle Redundancy When Restructuring Your Business: A Legal Guide for Employers

Restructuring your business can be an essential move, whether you’re streamlining after rapid growth, shifting to new technologies, or responding to a dip in demand. But let’s face it-navigating redundancy as part of a restructure isn’t just difficult for employees; as an employer, the legal and practical hurdles can feel daunting too.

The good news? With the right approach, you can manage restructure redundancy fairly, comply with the law, and limit your risks. This guide walks you through what it means to make a position redundant by restructuring in the UK, the steps you’re legally required to follow, and the best way to protect both your business and your team during the process.

Let’s break down redundancy and business restructuring for small business owners, with a practical, step-by-step approach and all the legal obligations clearly explained.

What Does Business Restructuring Mean?

Restructuring is when you make meaningful changes to your company’s organisational structure, processes, or staffing. This could mean merging teams, eliminating roles, or introducing new systems as you work to improve efficiency, adapt to market changes, or position your business for growth.

Employers commonly restructure when:

• Technology or automation replaces certain manual tasks
• Business priorities change, reducing the need for specific roles
• You’re merging with another business or downsizing to cut costs
• The economic climate changes (for example, a downturn in demand)

Restructuring can be a lifeline for your business-but it also means some roles may no longer be required. That’s where redundancy comes in.

What Is Redundancy (and When Does It Apply)?

Redundancy occurs when an employee’s role is no longer needed-this could be because your business is closing, relocating, or, most commonly, restructuring and eliminating or consolidating roles.

It’s important to recognise that redundancy is about the job, not the person. If the work the employee does is no longer necessary for your business, that’s genuine redundancy.

Key situations where a position may be made redundant due to restructuring include:

• Two teams are merged and there’s overlap in job duties
• Administrative roles are reduced due to new software or automation
• Your business pivots and no longer offers a particular service

Remember: redundancy can also happen if you move the business location and the employee can’t reasonably commute, or if you’re shutting down altogether. For this guide, we’re focusing on making a position redundant by restructuring.

What Are the Alternatives to Redundancy?

Before making anyone redundant, the law expects you to genuinely consider alternatives. Redundancy should always be a last resort.

Here are some alternative steps you should document (and discuss with your team):

• Reducing overtime or offering flexible working
• Halting recruitment (don’t fill vacant positions for now)
• Reallocating work amongst the team or retraining staff for new roles
• Ending the use of agency workers, contractors or freelancers before affecting employees
• Short-time working or temporary lay-offs (if contracts permit)
• Offering voluntary redundancy (which may include enhanced terms)

Demonstrating that you’ve explored these avenues shows you’re acting fairly and can help you defend your decision if disputes arise down the line.

How Do I Run a Fair Redundancy Process?

If, after considering the alternatives, you decide you have to reduce staff, you’re legally required to follow a fair and transparent redundancy process. There are key stages every employer must follow.

1. Define Your Business Case & Selection Criteria

Start by documenting the rationale behind your restructure redundancy. Keep clear records of why roles are at risk and how you’ve selected those roles. Selection criteria must be objective-think skills, qualifications, experience (not personal opinions or protected characteristics).

You may need to create a scoring system for employees “at risk” and retain evidence of why you chose those criteria. If in doubt, getting legal advice can help you avoid accidental discrimination.

2. Consult With Affected Employees

Consultation is a legal requirement under UK law. It’s not just a courtesy-you must inform employees of the proposed changes, allow them to respond, and consider their input before making final decisions.

• Arrange a meeting (and confirm it in writing)
• Explain the business reasons for the restructure and why their job is “at risk”
• Share your selection criteria and process
• Discuss possible alternatives or redeployment within the business
• Allow adequate time for response/feedback

If you’re making 20 or more employees redundant over a 90-day period, you also have collective consultation obligations-this involves consulting with trade union reps or elected employee representatives for at least 30 days before the first dismissal.

3. Explore Redeployment or Suitable Alternative Roles

Where possible, you should offer any suitable alternative employment within your business. Document your efforts-even if no roles are available, showing you considered other options helps demonstrate fairness. If an employee accepts an alternative role, there are rules around trial periods and, in some cases, pay protection.

Failure to genuinely offer alternative positions (where available) could undermine the genuineness of the redundancy and open you up to claims.

4. Give Proper Notice

Once a decision is made, you must provide employees with clear, written notice that their employment will end due to redundancy. The amount of notice required depends on the employee’s contract and their length of service-but statutory minimum notice periods apply:

• At least 1 week’s notice if employed between 1 month and 2 years
• 1 week’s notice for each year if employed between 2 and 12 years
• 12 weeks’ notice if employed for 12+ years

Notice periods are a legal requirement. You can ask staff to work their notice or pay them in lieu, depending on their contract terms.

5. Calculate Redundancy Pay (If Applicable)

Eligible employees are entitled to statutory redundancy pay in addition to notice pay and any outstanding wages or holiday. Statutory redundancy pay depends on the employee's age, length of service, and weekly pay, but some businesses offer enhanced redundancy terms.

• Employees must have at least 2 years’ continuous service to qualify for redundancy pay
• Calculate the amount using the government’s statutory redundancy pay calculator, or consider your own enhanced redundancy scheme
• Pay must be provided at the time of dismissal, or as soon as reasonably practicable

Learn more about redundancy entitlements for employees here.

What are My Legal Obligations as an Employer?

Handling restructure redundancy has real legal consequences if you don’t get things right. The UK’s redundancy laws are designed to protect employees from unfair dismissal, so it’s important to meet these legal duties:

• Consultation: Absolutely mandatory for each affected employee (and collectively for collective redundancies)
• Fair selection process: Avoid bias or discrimination, and be able to justify your decisions
• Giving notice: Follow statutory notice periods and contractual requirements
• Redundancy pay and other entitlements: Pay promptly and in line with the law
• Right of appeal: Employees should have a chance to appeal their selection for redundancy

Failure to meet your obligations may lead to claims for unfair dismissal, discrimination, or breach of contract, so it’s critical to keep things above board. Get more guidance on complying with business regulations here.

How Should I Document and Communicate Restructuring Redundancy?

Clear planning and record-keeping are crucial during a restructure redundancy-not only for good practice but also to provide a solid defence if any claims arise later.

Make sure you:

• Keep records of your business rationale (why restructure is necessary)
• Document alternatives explored to avoid redundancy
• Retain copies of redundancy selection criteria and scoring
• Make notes from consultation meetings and correspondence
• Retain notice letters and written communications
• Provide employees with written confirmation of redundancy and their entitlements

Written policies-such as a staff handbook or redundancy procedure-help set expectations and establish fairness.

What Risks and Consequences Are There If I Get It Wrong?

It can feel overwhelming, but not following a fair or legal redundancy process can expose your business to serious risks, including:

• Unfair dismissal claims: If the redundancy isn’t genuine, or the process is unfair
• Discrimination claims: If the selection process is biased, or protected characteristics are a factor (age, gender, race, disability etc.)
• Breach of contract: If you don’t honour notice periods or redundancy pay
• Bad reputation: Mishandling redundancies can damage morale and your business brand

The costs-both in terms of compensation and lost time-can quickly add up if you face a tribunal claim. Handling things carefully from the beginning, and getting tailored legal advice, can help prevent issues later. Read about common breaches of employment contract and how to avoid them.

Best Practices for Managing Redundancy in a Restructure

While ticking the legal boxes is essential, handling redundancy well during business restructuring also means treating your people fairly and minimising business disruption. Here are some practical steps to keep in mind:

• Communicate openly and early-avoid springing changes on your team at the last moment
• Support those affected-offer references, job search advice, or even outplacement support where possible
• Look after your remaining team-check in on morale and explain how these changes position the business for the future
• Update your contracts, policies and processes-ensure that future restructures can be handled smoothly
• Seek legal help early-getting advice at the planning stage can save you a lot of hassle down the line

Explore more on handling workforce changes in our guide to navigating termination of employment.

What Legal Documents Will I Need During Redundancy and Restructuring?

Having the right documents on hand will not only protect you but make the process easier to administer. Consider the following:

• Redundancy letters and notices
• Redundancy policy (in your staff handbook)
• Consultation meeting checklists and templates
• Selection criteria and scoring forms
• Appeals process documents
• Employee contracts and service agreements

Avoid using generic templates-documentation should be tailored to your business and current legal requirements. If you’re not sure what fits your circumstances, reach out for guidance on contract drafting and HR documentation.

Key Takeaways

• Restructuring is a normal part of business development, but making a position redundant by restructuring must be handled with care
• The law expects you to consider every reasonable alternative before making redundancies, and redundancy must be genuine (about the role, not the person)
• A fair process includes clear selection criteria, employee consultation, exploring redeployment, serving proper notice, and paying redundancy where owed
• Documentation is critical-record your rationale, decision-making, and conversations to protect your business if challenged
• Failing to follow the proper procedure exposes you to unfair dismissal or discrimination claims, reputational damage, and additional costs
• Don't go it alone-legal expertise in employment law can make a major difference in risk and outcome

If you’d like help making positions redundant by restructuring, need documentation reviewed, or just want advice on your options, you can reach our friendly Sprintlaw team at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat. We’re here to help you protect your business and do right by your employees.