Redundancy- Is ‘last in first out’ illegal?

The economic impact of the pandemic is continuing to place many employers under increasing pressure to save costs. Furlough has provided a valuable lifeline for many but with the increasing uncertainty continuing to affect most sectors but particularly those in the retail, leisure and hospitality sectors, redundancies are proving to be unavoidable.

In this article we examine one of the most common misunderstandings when it comes to redundancy selection ‘LIFO’ or ‘last in, first out’.

What is LIFO?

LIFO is where someone is selected for redundancy because they are the last person (or ‘last in’) to the company or department where they work.

It is used as a means of protecting the employment of those who have been with the company the longest.

I have heard that LIFO is discriminatory, is it?

It is sometimes not always suitable to use LIFO because often (not always) those who are the newest recruits into a company may be the youngest. Hence it is felt that LIFO carries the risk of disproportionately affecting younger employees and indirectly discriminating against younger employees.

It is not only age discrimination which presents a risk in using LIFO. LIFO can indirectly discriminate against female employees. This is due to women tending to have shorter periods of employment than men, mainly due to having had career breaks to have children.

If you are considering using LIFO as a means of selection in a redundancy situation, it is important to ensure that you are not inadvertently targeting a particular group.

Are there other situations when LIFO should not be used?

Yes. LIFO is usually applied as the only means of redundancy selection when the employee/s have fewer than two years continuous service.

This is because the right to claim for unfair dismissal requires two complete years’ service (exceptions being automatic unfair dismissals – see our previous article here).

This doesn’t mean that the employer is not expected to handle the redundancy of a short serving employee in a fair manner but the redundancy dismissal of someone with over two years’ service generally caries the greater legal risk.

If the last person into the company has over two years’ service, then LIFO will not be an appropriate means of selection on its own.

Similarly, if the short serving employee is pregnant, or has any protected characteristics such as a disability, extra care must be taken in order to avoid discrimination claims.

Is it essential that LIFO is used? My best staff are some of my newest recruits, I would hate to have to let them go and keep on longer serving, less reliable employees.

This is a very common dilemma for employers. It is understandable that when faced with the difficult decision of having to make redundancies that an employer would want to keep on their best staff and whilst there are no hard and fast rules around LIFO, there are some factors to consider:

1. If you are faced with making redundancies because you have to save costs, then bear in mind that an employee with fewer than two years’ service is not entitled to statutory redundancy pay. Their notice is also likely to be less than their longer serving colleagues.
2. Impact on staff. Remember, it is the role that is redundant not the person. If you choose to widen the pool of employees placed at risk of redundancy to include those with short and longer service, this will naturally affect the morale of your staff. It may even prompt employees who you want to keep into looking for a job elsewhere.
3. It is unpleasant for employees and employers to have to go through any redundancy process but the procedure for making employees with over two years’ service redundant is longer than those with short service.
4. Redundancies are never the fault of the employee, that is not to say they are the fault of the employer either, but they are driven by the changing needs of the business. A redundancy process should not be used to remove employees who have not been appropriately performance managed or who are generally ‘difficult’. This is a sure-fire way to wind up in an employment tribunal.

Can length of service be used as a selection criterion where there are a group of employees at risk of redundancy?

Length of service can be used alongside other selection criteria such as qualifications, disciplinary record, skills and so on. Sometimes it is used as a tiebreaker. In this instance though, an employee with longer service will score better.

And finally…. it is vital you seek advice from our experts before embarking on any redundancy process. For further advice on redundancy planning, please see our previous article here.