When facing workforce reductions, employers often consider voluntary redundancy as a way to manage change more collaboratively and reduce the need for compulsory dismissals. But as an employer, are you legally required to offer it? This article explains the legal position under UK employment law, outlines when voluntary redundancy should be considered, and sets out the correct process and risks to be aware of if you decide to offer it.
In UK employment law (and under section 139 of the Employment Rights Act 1996), redundancy is a specific legal reason for dismissal which occurs when an employee’s job no longer exists or is no longer required due to changes in the employer’s business, like closing, changing location, or changing the types or number of roles needed to do certain work. It applies only to individuals who have the legal status of employee. Someone working as an agency worker, casual worker, or on a zero-hours arrangement will rarely qualify as an employee, so redundancy rights are unlikely to apply.
Voluntary redundancy is an employer-led option that occurs when an employer invites employees to volunteer to leave their employment in return for redundancy terms, rather than selecting employees compulsorily. Typical incentives may include enhanced redundancy pay, payment in lieu of notice, early release dates, agreed-upon references, access to outplacement services, or career transition support.
Even though an employee volunteers, voluntary redundancy is still a dismissal by reason of redundancy, not a resignation. The role must genuinely be at risk because it’s no longer needed for business reasons. Employees who accept remain entitled to the same core protections and entitlements they would have in a compulsory redundancy (for example, statutory redundancy pay where they qualify).
There is no statutory duty in UK employment law requiring employers to offer voluntary redundancy. Voluntary redundancy is an entirely discretionary management prerogative. You can choose whether to offer it, depending on operational, financial, or strategic needs.
Moreover, you are under no obligation to accept every volunteer. You may refuse applications if, for example, the employee holds key skills or knowledge that the business needs to retain.
If you do choose to invite volunteers, the redundancy must still be genuine, statutory rights and consultation obligations remain in force, and the process must be fair and non-discriminatory.
Voluntary redundancy can be suitable if the business needs to reduce headcount but can be flexible about which employees leave, if there are several employees doing similar work and you want to minimise compulsory selection, or if the workforce is engaged and likely to respond constructively to an open invitation.
It is less suitable where the business needs to retain specific skills or roles, or where operational continuity depends on certain key employees, as you could attract too many (or too few) volunteers or lose key skills unintentionally.
Although it can demonstrate that you are taking reasonable steps to avoid compulsory dismissals (which is an important consideration in any redundancy consultation), it helps manage employee relations and morale, and reduces the risk of disputes where employees feel they had a choice.
Employers should therefore design a clear and controlled process that aligns with business needs.
If you decide to use voluntary redundancy, you must ensure the overall process is fair, transparent, and legally compliant. You must:
As good practice, you should create a redundancy plan that sets out the business rationale and alternatives explored, the number of redundancies anticipated, how and when consultation will take place, how employees will be selected, how notice, redundancy pay, and appeals will operate, and what support will be available to those affected.
Before taking any step, employers must ask why redundancies appear necessary, what problems they are trying to solve, and whether other options are available. Redundancy should only be considered when there is a legitimate reason for redundancy. For example, when a business needs to restructure, relocate, close, cut costs, or adapt to new working models, or has a reduced need for employees to do particular work. If your concern is conduct or performance, the appropriate process is disciplinary or capability, not redundancy.
Before commencing redundancy consultation, you must explore alternatives. This includes inviting volunteers for redundancy, reducing working hours, redeploying employees into other roles, limiting or stopping overtime, freezing recruitment or not renewing temporary contracts, and offering flexible or home-working arrangements.
Where voluntary redundancy is offered, you should explain the business context clearly, make clear that it is optional and that applications will be considered but not automatically accepted, ensure the invitation is open to a wide pool and not limited in a discriminatory way, and apply objective, documented criteria when deciding which volunteers to accept. Also, you must not pressure or single out individuals. For example, limiting offers to older employees could amount to indirect age discrimination.
If redundancy remains necessary, you should confirm that the individuals affected are employees and check any collective agreements or internal redundancy policies that govern your process.
Employees should be informed as soon as redundancies are being considered, the reasons for potential redundancies, the number of roles at risk, and the process and timeline for consultation. Each employee at risk should then receive a written notification confirming that they are at risk, outlining the next steps, and explaining their options, including voluntary redundancy or redeployment.
Communication should continue throughout the process, as a lack of transparency often leads to mistrust and litigation.
A voluntary redundancy is not an alternative to consultation; it is part of the same process and must be handled within the same legal framework. You are legally obliged to consult affected employees in a fair and meaningful way, both individually and collectively, where required.
Consultation must be genuine and two-way. Its purpose is to explore alternatives, mitigate job losses, and agree on fair selection criteria. Consultation meetings should cover why redundancies are proposed and what alternatives have been explored, how selection will be conducted, whether employees have ideas to avoid or reduce redundancies, how employees can be supported (time off, training, redeployment), and any concerns about fairness or discrimination.
The extent of your consultation obligations depends on how many employees you propose to dismiss as redundant within any 90-day period.
You must carry out an individual consultation with each affected employee, who has the right to be accompanied. There is no minimum consultation period set by law, but it must be genuine, timely, and reasonable before any decisions are made.
You must then also:
Failure to comply with these obligations can lead to a protective award of up to 90 days’ pay per affected employee and, in serious cases, a criminal offence for failure to notify the Redundancy Payments Service.
If too many employees volunteer, you may reject some applications, as you are under no obligation to accept every volunteer. However, you must apply objective and transparent selection criteria, such as skills, qualifications, and business needs. If you do reject a volunteer, you should communicate the decision clearly and keep written records of the business reasons for doing so.
If you then must select employees for redundancy, you should establish appropriate selection pools containing employees doing the same or similar work, consult with any recognised trade union or employee representatives about how those pools are defined, and agree on fair, measurable selection criteria.
Absence linked to disability, pregnancy, or maternity must be excluded. You must not select or disadvantage employees for reasons connected to protected characteristics, family leave, part-time or fixed-term status, trade union activity, or whistleblowing.
Volunteers remain entitled to statutory redundancy pay if they have been employed for at least two years, notice pay, either worked or paid in lieu, accrued holiday pay, and pension and contractual benefits due up to the termination date. You must also check contracts for enhanced or contractual redundancy pay. Finally, enhanced packages or settlement agreements can be offered at the employer’s discretion.
Notice of redundancy can only be issued after consultation is complete. It should be communicated both verbally and in writing, stating the employee’s score and reason for selection, their notice period and leaving date, the amount of redundancy and other pay due, how it was calculated, and how to appeal the decision.
Appeals should be heard promptly by a senior manager not previously involved, and the employee should be permitted to be accompanied. Decisions must be communicated in writing. If the appeal succeeds before employment ends, notice should be withdrawn and the employee reinstated. If it succeeds after termination, the employee must be reinstated and paid arrears of wages, returning any redundancy payment already received.
Although not mandatory, failing to consider voluntary redundancy can make it appear that you have not explored all reasonable alternatives, undermining your defence to an unfair dismissal claim.
As for mishandling voluntary redundancy, it can create risks of unfair dismissal claims where the redundancy is not genuine or the consultation is inadequate, discrimination claims if voluntary offers are targeted or limited to particular groups, protective awards for failure to comply with collective consultation, breach of contract claims where enhanced terms are changed or misrepresented, and reputational damage and loss of morale among retained staff.
While you are not legally required to offer voluntary redundancy, doing so can demonstrate fairness, improve morale, and show that you have taken reasonable steps to minimise compulsory redundancies. If you do choose to offer it, ensure that redundancy is genuinely required, follow a fair and transparent process, observe all consultation duties, apply objective selection criteria, pay all statutory and contractual entitlements, and provide support and an appeal route.
If you require assistance with any aspect of employment law, or have questions about voluntary redundancy as an employer, please contact our Employment Law team on +44 204 600 9907 or email info@culbertellis.com.
