How to Avoid Legal Pitfalls and Protect Your Small Business
As financial pressures mount for small businesses across the UK, it has become increasingly important to proactively assess and refine redundancy processes. With rising operational costs – including the recent increase in National Insurance contributions in April 2025 – many employers may find themselves facing difficult workforce decisions to remain financially viable. Ensuring that redundancy procedures are legally sound, transparent and strategically managed not only helps mitigate legal risks but also supports business resilience during challenging economic times.
Getting redundancy wrong could cause more issues than anticipated – including potential employment tribunal proceedings.
We spoke to Katie Ash, Head of Employment Law at Banner Jones Solicitors, who explains what small business employers must do to manage redundancies correctly and avoid costly legal action.
Key points to protect your small business during the redundancy process
UNDERSTAND WHAT REDUNDANCY REALLY MEANS
It’s important to clarify that in a redundancy situation, it is the role – not the individual – that is made redundant.
As an employer, you must be able to demonstrate clearly that the role no longer exists. This is a crucial point: the redundancy must be genuine. It cannot be used as a cover for issues such as poor performance or interpersonal conflicts. Many business owners fall into this trap, so it’s vital to be clear from the outset.
Employers must also follow a fair redundancy process regardless of an employee’s length of service – although redundancy payments are only legally due after two years of employment.
Redundancy payments are calculated based on an employee’s weekly gross pay, age and length of service. If you’ve reached the stage where compulsory redundancies are necessary – whether due to business relocation, reduced demand or departmental closure – the legal and emotional weight can be considerable. However, mistakes at this point can expose your business to significant risk.
COMMUNICATE EARLY
A fair redundancy process begins with early and open communication. Letting staff know at the earliest possible stage that redundancies are a possibility gives them time to prepare and suggest alternatives.
It’s important not to overlook employees who are away from the workplace – such as those on maternity leave or long-term sickness absence. Communication can be verbal or written, depending on circumstances.
If you plan to make more than 20 redundancies, collective consultation requirements apply. However, this article focuses on situations involving fewer than 20 employees.
IDENTIFY THE CORRECT SELECTION POOL
Next, employers must define the correct selection pool – the group of roles potentially affected – and apply objective, measurable criteria for selecting redundancies.
This should include compiling a list of affected roles based on the areas of the business being reduced and identifying the skills your business will need going forward. Your criteria should be consistently and fairly applied. Though it may feel impersonal, impartiality is essential for fairness and legal compliance.
FOLLOW THE CONSULTATION PROCESS
Once the process begins, a formal consultation period is required. This involves two-way dialogue between the employer and the employees whose roles are at risk.
In the first meeting, you should explain the reasoning behind the redundancy and invite the employee to discuss alternatives – such as job sharing or redeployment. If no viable alternative is found, a second meeting should confirm the decision and explain next steps, including notice periods and entitlements. Meetings can be held remotely if needed.
Redundancy decisions must be confirmed in writing and employees should be given the right to appeal. If your process is robust and transparent, any appeal is unlikely to succeed – but it’s an essential step in ensuring fairness.
THE BIGGER PICTURE
Redundancy can be a difficult and emotionally charged process. Wherever possible, explore alternative options – from voluntary redundancy and early retirement schemes to flexible working, reduced hours or retraining.
But if you have exhausted all avenues and redundancies are unavoidable, having a compliant, well-documented process is your best protection.
Above all, remember: redundancy is not a shortcut to removing underperforming or problematic staff. If the redundancy is not genuine, your business could face unfair dismissal claims – which are not only costly and time-consuming, but potentially damaging to your reputation.
Need advice?
If your business requires guidance on managing the redundancy process, contact the Banner Jones Employment Law team on 0333 200 2301 or email employment@bannerjones.co.uk.
