Running a lawful redundancy process in a small UK startup

Why redundancy can feel harder in a startup

Redundancy is never easy, but in a small team it cuts deep. You are not just changing a role on an org chart. You are often telling someone you hired, trained, and sat next to every day that their job is disappearing. That personal closeness can make founders delay difficult decisions or skip formal steps that protect the business later.

The legal framework applies just as much to a five-person startup as it does to a large corporation. Getting the process wrong opens the door to unfair dismissal claims, even if the redundancy is genuine. For startups, a poorly handled redundancy can also damage team morale and your reputation as an employer.

This article walks through what a lawful redundancy process looks like in a small UK startup. It is not legal advice. Speak to an employment solicitor before you start, especially if you have never managed a redundancy before.

Confirm that you have a genuine redundancy situation

Tribunals look for the real reason behind a dismissal. For a redundancy, you need to show the role is genuinely disappearing, not that you are using redundancy as cover to remove someone for performance or personal reasons.

Under UK law, a redundancy arises when:

• the business is closing altogether,
• the business is closing the workplace where the employee works,
• there is a reduced need for employees to do work of a particular kind.

Most startup redundancies fall into the third category. A funding round fell through. A product line is being discontinued. An internal restructuring means the existing role is no longer needed.

You must be able to evidence the business circumstances honestly. Write down the commercial reasons, the roles affected, and why those roles are no longer sustainable. These notes form part of your paper trail.

Identify the affected group and use a fair selection process

Where more than one employee holds a similar role, you need to choose who stays and who goes. That means creating a selection pool of employees doing the same or broadly similar work.

You then need objective selection criteria you can back up. For startups, avoid anything that looks like gut feel. Common criteria include:

• skills and qualifications relevant to the remaining work,
• performance records (if you have them),
• attendance records (with adjustments for maternity or disability-related absence),
• disciplinary records that are still live.

Score each person honestly and keep the evidence. Even in a small team, a perfunctory scoring exercise the night before a meeting will not stand up to scrutiny if challenged. If there is only one person doing a role and that role genuinely vanishes, you might not need a pool, but you must still show the role itself is redundant, not the individual.

Consult with employees individually

Individual consultation is mandatory, regardless of size. Collective consultation obligations only kick in if you plan to make 20 or more redundancies at one establishment within 90 days. For smaller startups, individual consultation is the core legal obligation.

Consultation means genuinely discussing the situation before a decision is final. Give the employee:

• a clear explanation of why their role is at risk,
• any selection criteria and scores if they were used,
• a proper opportunity to ask questions and suggest alternatives,
• a reasonable period to respond and absorb the information.

How long is reasonable depends on the circumstances, but even in a small redundancy a bare minimum is several working days between the first meeting and any final decision. Rushing through a single meeting and handing over a termination letter the same day is rarely defensible.

In a small team, the founder often runs these meetings. That is fine. Just approach them as conversations, not verdicts. Take notes each time, and share a summary with the employee afterwards.

Look properly at alternative roles

A fair redundancy process requires you to explore whether alternative employment exists anywhere in the business. In a five-person startup, that is admittedly limited. You are unlikely to have a vacant role in another department. But the duty remains.

List every open role, even if you think it is obviously unsuitable. Offer the employee the chance to discuss them. Do not assume they will say no. Record what roles were considered and why each was not a reasonable alternative, including factors like a significant pay cut, different working pattern, or skills mismatch.

If you have affiliate or parent companies, you may also need to check for roles there, depending on the structure and contractual ties. Ask your solicitor about group company obligations.

Allow the right to be accompanied

Employees have the right to bring a trade union representative or a colleague to any formal redundancy meeting. In a startup with no unions, this effectively means a work colleague.

Do not discourage it. A companion can take notes, ask questions, and help the employee feel the process is fair. Their presence also protects you from later accusations that the employee was pressured or coerced.

Give proper notice and pay

The notice period in the employment contract must be honoured. You can ask the employee to work their notice or offer pay in lieu of notice if the contract permits it.

Redundancy pay. Statutory redundancy pay is only due if the employee has at least two years' continuous service. For startups, many team members will not have reached that point, so no statutory payment is owed unless your contract promises otherwise.

Statutory redundancy pay is calculated based on age, length of service, and weekly pay capped at the statutory limit. Use the government calculator or your payroll provider to get the exact figure.

You may also need to pay out accrued but untaken holiday, any contractual bonus entitlements, and notice pay.

Settling fairly and documenting the outcome

Once you have gone through consultation, explored alternatives, and made the decision, you should:

• confirm the outcome in writing, including the redundancy reason, final day of employment, payment breakdown, and right to appeal,
• offer a right of appeal handled by someone not involved in the original decision, even if that is tricky in a tiny team,
• issue a proper P45 and any reference you are prepared to give.

Some startups choose to offer a settlement agreement in exchange for the employee waiving their right to bring a claim. This is common where the process had imperfections or you want clean closure. For a settlement agreement to be valid, the employee must receive independent legal advice, which the company usually contributes towards.

One final reminder for founders

Doing redundancy well in a startup means resisting the urge to keep everything verbal and informal. Write things down. Follow a timeline. Keep notes. A solid paper trail is your best defence if a claim materialises months later. It is also the decent thing to do for the person leaving your business.