Sham redundancy: examples and guidance for employees

This guide outlines what sham redundancy is, with plenty of examples. It explores the possible motives of employers who decide to carry out sham redundancies and identifies some early warning signals which may indicate that you – as an employee – are being subjected to a sham redundancy.

It’s written to complement our other website resources for employees about aspects of redundancy, including:

• Redundancy  negotiations and settlements
• Is my Redundancy Fair? 
• Virtual Lawyer – our new free letter-writing tool, helps you seek compensation from your employer for unlawful redundancy dismissals (among other things).
• Redundancy letter builder – an alternative approach to Virtual Lawyer above.
• Legal letter examples from real cases about sham redundancies and bullying and stress and also sham redundancy selection.

What is a fair redundancy dismissal?

Before looking at what a sham redundancy is, it’s worth briefly recalling what a fair redundancy dismissal is.  

A redundancy dismissal is a fair dismissal when an employer has reduced their need for employees to carry out work of a particular kind. For example, if a business has ten shops and closes one, it probably won’t need the staff who worked in the store being closed. 

What is a sham redundancy? 

The first thing to ask when questioning a redundancy dismissal is whether there was a genuine redundancy situation in the first place. Sometimes businesses use redundancy as an excuse to hide unfair or discriminatory motives. That’s called a sham redundancy. 

Your redundancy dismissal could be a mistake, not a sham 

Remember that not every redundancy dismissal which may turn out to be unfair is a sham: it may be a genuine redundancy but unfair for a variety of reasons and it may be an honest mistake on the part of your employers.

For example, let’s say that your employer restructures the business, and your department no longer exists. They might automatically assume that means you’re redundant. However, on closer inspection, they might find that someone in another department is doing your work. 

In that case, it wouldn’t be a redundancy; it would more likely be an unfair dismissal. We wouldn’t refer to it as a ‘sham’ either, given that it was probably a mistake with no intention on the part of your employer to mislead anyone. 

Still, your employer should take steps to put its mistake right. For example, if you’re still employed, your employer could cease the redundancy exercise so far as you’re concerned.  If you’ve only just been dismissed, your employer could take you back, but the longer it’s left, the more difficult that would be. 

But your dismissal may be a sham redundancy 

On the other hand, employers sometimes intentionally make a dismissal look like redundancy so that it appears to be fair. That’s what we refer to as a sham redundancy. It’s fake, a wolf in sheep’s clothing. The dismissal is dressed up as redundancy to make life easier for the employer and sometimes also to reduce costs.

For example, The Cycle Shop owners didn’t like their mechanic and allocated the mechanic’s work to one of the shop-floor workers. They then claimed they didn’t need a mechanic and called it redundancy. That would be a sham redundancy.

However, let’s say that The Cycle Shop closed one of its shops, not knowing that cycling was about to see a surge in popularity. Although it may have been a short-sighted business decision, it would still be a valid redundancy situation giving rise to fair redundancy dismissals of the employees concerned: employment tribunals take care not to challenge legitimate business decisions:

Sham redundancies, unfair dismissal and discrimination

If you have been subjected to a sham redundancy, you have probably been unfairly dismissed. 

If your employer’s real reason for dismissing you is because of a characteristic such as your sex or race – you’ve also been discriminated against. (See our guide on discrimination in the workplace for further discussion.) 

Whatever your individual case, if your redundancy is a sham, you probably have a valid claim for financial compensation against your employer.  The compensation can be made either by way of an exit settlement agreement or, as a last resort, by taking your claim to an employment tribunal. 

Your employer may well be aware of this but is prepared to take their chances, to try it on and see if they can get away with it.

How commonplace are sham redundancies?

Sham redundancies are not everyday occurrences. In the absence of any published studies about what proportion of redundancies are sham, our experience suggests that most redundancies are genuine and would be considered fair by an employment tribunal.  (See our guide ‘Is my redundancy fair?’ for more.)

Also remember that a sham redundancy is one that’s imposed intentionally on you as an employee. You need to allow for the fact that employers do sometimes make unintentional errors both in classifying dismissals as redundancy and also in the redundancy process. 

Our guide for employees on redundancies discusses further the circumstances in which making someone redundant is lawful and fair or not. 

Why do employers carry out sham redundancies?

Your employer is not going to admit what their motives might be for carrying out a sham redundancy, but they typically might want to achieve one of the following: 

– To reduce the workforce before replacing a dismissed employee (ie you) with someone they consider more suitable. In such a situation, they might be able to dismiss you fairly for something like poor performance, but a redundancy dismissal is often quicker and easier. 

– Similarly, your employer might believe you misbehaved but can’t prove misconduct or may not want to go through the rigmarole of a disciplinary investigation. 

Or the misconduct might in practice not be bad enough to warrant misconduct dismissal or might require warnings first. (An employer must always give an employee written warnings before dismissing for misconduct unless it’s gross misconduct.)

– Your employer wanted to avoid the risks of being taken to an employment tribunal for discrimination if they dismissed you because you were experiencing ill health, were pregnant or elderly, or simply didn’t integrate into the organisation in the way they wanted. 

– To save money by dismissing you on the grounds of redundancy and making you a redundancy payment, rather than a potentially more expensive settlement agreement payment, or employment tribunal case. 

Early indications of a sham redundancy

You may be aware that something doesn’t seem quite right with moves afoot by your employer which you suspect may lead to your being made redundant. This may well be because those moves are indeed not quite right; they could well be early warning signs of your possible sham redundancy.

Examples of what to look out for in a sham redundancy 

-You’re the only one who’s been selected for redundancy, but there is no reduction in the amount or level of work you have to do – and your role still exists. (See our Q&A selection on redundancy selection)

-You are in ill health, or poorly performing for some reason, or pregnant (etc) – see discussion of motives above;

-You’ve suspected that your employers have been discriminating against you for a long time. When they announce that you are at risk of being made redundant, you believe that in fact, they’re discriminating against you;

-You haven’t been informed of how your work will be done after you’ve left your employment;

-You haven’t been offered alternative employment in the organisation, even though there are other roles which you are capable of filling;

-You haven’t been given a clear reason about why you are being made redundant;

– The redundancy was announced suddenly without consulting you on possible ways to avoid it;

-Your employers are punishing you for having raised a grievance about their poor treatment of you, or for having ‘blown the whistle’ on them by informing/reporting on their unlawful or illegal practices. Coincidentally they suddenly tell you you’re being made redundant……….

Dubious timings suggest sham redundancy

That last example above is a particularly good example of what to look out for: dubious timing. It can be hard to prove that your employers have carried out a sham redundancy. 

However, if the timing of your employer’s actions coincides with another action you’ve taken which irritates or creates difficulties for them, or coincides with discriminatory actions by them, that might provide the evidence you need to turn your suspicion of a sham redundancy into evidence to support a claim.

Next steps

Have a look at our redundancy guides, letter builder and legal letter templates, together with the other articles highlighted throughout this article.  Also, those which are most relevant to your particular circumstances in our Helpful Guides below. 

If you’re facing redundancy that you think is a sham and would like further legal advice, then please get in touch with us at Monaco Solicitors.  

Our accomplished team of experienced employment lawyers has years of experience in successfully representing employees who are encountering sham and unfair redundancies. We only work in the employment law sector and we only represent employees, so your successful case is our sole concern.