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

In recent times, employers are noticing a squeeze on consumer spending, along with increased operating costs. Many are coming under pressure to reduce costs and may be forced to consider redundancies.

Whilst the ‘Last in First Out’ (LIFO) redundancy approach is less common now than it once was, it is still used by businesses looking to cut costs quickly. Under this method, employees with the shortest service are the first to be made redundant, regardless of performance or skill level.

Is ‘Last in First Out’ legal in the UK?

Yes, LIFO is legal in the UK, but only if it can be objectively justified as a fair redundancy selection method. Employers must ensure that using this selection method does not result in indirect discrimination against employees with protected characteristics, such as age, sex, or disability. Simply using LIFO without justification risks unfair dismissal and discrimination claims, so best practice is to combine this with other objective criteria.

Why do employers use ‘Last in First Out’

There may be a few cost incentives for adopting LIFO especially for employers struggling with profitability:

Cost savings

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 £719 per week. Maximum 20 years’ service. Maximum payment = £21,570. This was correct at the time of publication.

Shorter notice periods

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

The risks of using ‘Last in First Out’

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
• Age discrimination
• Unfair dismissal

What are some of the alternative redundancy selection methods?

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.

Other redundancy selection methods include:

• Objective scoring matrix (skills, performance, flexibility)
• Competency-based selection
• Skills gap analysis against future business needs
• Performance ratings from recent appraisals
• A combined approach using multiple criteria

These methods are more defensible and less likely to result in discrimination claims than LIFO alone.

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