Is 'Last In First Out' a fair method for selecting employees for redundancy?

Due to the rising cost of living, employers are noticing a squeeze on consumer spending and are likely to become under pressure to save costs over the next 12 months and may be forced to consider redundancies. The ‘Last In First Out’ (LIFO) method selects employees for redundancy based on their length of service, with those with least service being chosen first.

There may be a few cost incentives for adopting LIFO especially for employers struggling with profitability. Firstly, an employee with less than two years’ service is not entitled to  statutory redundancy pay. Redundancy pay is calculated based on the employee’s length of service, their weekly wage and their age. You can calculate the amount you would need to pay redundancy employees by considering the table below.

Statutory Redundancy Calculator

Note: weekly pay capped at £643 per week. Maximum 20 years’ service. Maximum payment = £19,290. Applicable from 6 April 2023.

Secondly, you will also need to pay any employees made redundant their contractual notice period.  If there is no written contract or agreement, an employee is entitled to the statutory minimum notice, which is dependent on their length of service.  

Statutory Minimum Notice Periods

If you do decide to use LIFO as the method to select employees for redundancy, it is important to be able to objectively justify it.  If you do not, there is a risk that an employee could claim indirect discrimination and/or unfair dismissal.

The best way to avoid any such claims, is to not solely rely on LIFO and instead, include other objective criteria such as skills, qualifications, performance and disciplinary records.

For further information speak to our specialist Employment Law team.