This guide is maintained as a current resource for September 2026 and covers only the laws of England and Wales. Information is for general guidance, not legal advice. Consult a qualified solicitor for advice specific to your situation.
Can redundancy apply when duties are outsourced in the UK? This guide explains how outsourcing affects redundancy law in England and Wales, including when TUPE applies, employee transfer rights, consultation duties, selection rules, redundancy pay entitlement, and when outsourcing may still lead to lawful dismissal.
Outsourcing is a common business practice in England and Wales, where employers transfer work previously carried out in-house to an external organisation. This can involve entire departments or specific functions such as payroll, customer service, IT support, or facilities management.
When duties are outsourced, redundancy law may apply. However, whether employees are genuinely redundant depends on whether the need for work of a particular kind has ceased within the employer's organisation. In some cases, outsourcing leads to redundancy; in others, employees may transfer to the new provider under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).
The legal position is highly fact-specific and depends on how the outsourcing is structured.
What Is Outsourcing in Employment Law?
Outsourcing occurs when an employer:
- Contracts a third-party provider to carry out services
- Transfers internal functions to an external business
- Replaces in-house staff with external contractors
Common examples include:
- Cleaning services
- IT infrastructure support
- Payroll administration
- Customer call centres
- Security services
Outsourcing can be either a genuine service provision change or part of a broader business restructuring.
When Outsourcing Leads to Redundancy
Redundancy may arise when outsourcing results in:
- The employer no longer requiring employees to carry out work of a particular kind
- The closure of a department or function
- A reduction in internal staffing needs
Under the Employment Rights Act 1996, redundancy occurs where the employer's requirement for employees to perform work of a particular kind has ceased or diminished.
Government guidance confirms that redundancy can arise where work is outsourced and internal roles are no longer required.
In these situations, employees may be dismissed for redundancy and entitled to statutory redundancy pay if eligibility criteria are met.
When TUPE Applies Instead of Redundancy
In many outsourcing situations, redundancy does not apply because employees transfer to the new provider under TUPE regulations.
TUPE applies where there is a:
- “Service provision change”, such as outsourcing to a contractor
- Transfer of an undertaking, business, or part of a business
If TUPE applies:
- Employees automatically transfer to the new employer
- Employment contracts continue unchanged (except in limited circumstances)
- Continuous employment is preserved
- Dismissals linked solely to the transfer are generally unfair
TUPE significantly limits the ability of employers to make employees redundant solely because of outsourcing.
When Redundancy Can Still Occur After Outsourcing
Even where TUPE applies, redundancy may still arise if:
- The new provider restructures the workforce after transfer
- There is a genuine reduction in roles post-transfer
- Economic, technical, or organisational reasons exist
However, dismissals must not be solely because of the transfer itself. They must be justified by a genuine redundancy situation within the new organisation.
The Key Legal Test: “Diminished Requirement for Employees”
The central question in outsourcing redundancy cases is whether the employer's requirement for employees to carry out work of a particular kind has ceased or diminished.
This involves examining:
- Whether the work still exists
- Who is performing the work after outsourcing
- Whether the function has simply moved location or provider
- Whether employees could reasonably be redeployed
If the work continues but is performed by another organisation, TUPE is more likely to apply than redundancy.
Consultation Requirements in Outsourcing Situations
Employers must follow a fair redundancy process where dismissal is proposed. This includes:
- Meaningful consultation with affected employees
- Consideration of alternatives to redundancy
- Fair selection procedures if multiple employees are affected
- Review of redeployment opportunities
Where TUPE applies, employers must also inform and consult with affected employees or their representatives before the transfer.
Failure to properly consult can result in claims for unfair dismissal or protective awards.
Selection Pools and Outsourcing
If redundancy is genuine following outsourcing, employers must define a fair selection pool.
This may include:
- Employees performing the outsourced function
- Staff in overlapping roles
- Employees across affected departments
A narrow or artificially restricted pool may be challenged at employment tribunal if it appears designed to target specific individuals.
Suitable Alternative Employment
Before confirming redundancy, employers must consider whether suitable alternative roles exist.
This may include:
- Roles within other departments
- Positions with the outsourcing provider (where TUPE applies)
- Modified or redeployed roles within the organisation
Failure to consider alternatives can make a dismissal unfair even where outsourcing is genuine.
Redundancy Pay in Outsourcing Cases
Where redundancy applies, eligible employees may be entitled to:
- Statutory redundancy pay
- Notice pay
- Accrued holiday pay
- Contractual severance (if applicable)
Eligibility generally requires at least two years' continuous employment.
Where TUPE applies, redundancy payments are not triggered solely by the transfer, because employment continues with the new employer.
Common Legal Scenarios
1. Full outsourcing with TUPE transfer
A company outsources its IT department to a service provider. Employees transfer under TUPE and are not made redundant.
2. Outsourcing with reduced internal roles
A business outsources most payroll functions but retains a small internal team. Remaining staff may be at risk of redundancy due to diminished internal need.
3. Post-transfer restructuring
After TUPE transfer, the new provider restructures the team and reduces headcount. Redundancy may apply if genuinely justified.
Legal Risks for Employers
Outsourcing-related redundancy carries significant legal risks, including:
- Failure to correctly apply TUPE regulations
- Unfair dismissal claims
- Failure to consult properly
- Misidentifying redundancy where TUPE applies
- Disputes over selection pools and alternative employment
Tribunals often scrutinise whether outsourcing is being used to avoid redundancy protections.
Employee Rights and Challenges
Employees affected by outsourcing may:
- Request clarification on whether TUPE applies
- Review redundancy consultation documents
- Challenge selection criteria or pool definition
- Bring claims for unfair dismissal if procedures are flawed
- Raise TUPE-related disputes regarding transfer rights
Strict time limits apply for tribunal claims, typically three months less one day from dismissal or transfer-related action.
Key Takeaways
Redundancy can apply when duties are outsourced, but only where the employer's need for employees to perform those duties has genuinely ceased or diminished. In many cases, TUPE regulations apply instead, meaning employees transfer to a new employer rather than being made redundant. The distinction depends on how the outsourcing is structured and whether the work continues in substantially the same form. Employers must follow strict consultation and fairness requirements, and failure to do so can lead to significant legal claims.
