Redundancy

The problems and processes of being made redundant

What is redundancy?

If you wish to claim a redundancy payment from your employer, you will have to meet certain criteria – you must have been “dismissed” from your place of work, and it must be “by reason of redundancy”. It may seem as though it would be simple to meet these standards, and in most cases it is, but confusion has been known to arise over whether or not both of these terms have been met.

It can sometimes be argued that a person left of their own volition rather than being dismissed, as well as disagreements arising over whether a person was dismissed due to being made redundant or not, which can lead to lengthy disputes over entitlement to redundancy pay.

According to the Employment Rights Act 1996, dismissal is considered to have been enacted by reason of redundancy if the dismissal was due entirely or mainly to:

  • the fact that his employer has ceased, or intends to cease (i) to carry on the business for the purposes of which the employee was employed by him, or (ii) to carry on that business in the place where the employee was so employed; or
  • the fact that the requirements of the business (i) for employees to carry out work of a particular kind, or (ii) for employees to carry out work of a particular kind in the place where the employee was employed by the employer have ceased or diminished or are expected to cease or diminish.

This legal mumbo-jumbo may seem difficult to fathom, but the essential meaning is that you can be considered redundant if either the company ceases to operate, or if the duties you performed are no longer a part of what the business does. It is important to note that redundancy applies when there is no longer a need for anyone to carry out your role, not simply that you will not be performing it.

Who qualifies for redundancy payments?

If you wish to claim a statutory redundancy payment, you must have been employed continuously by the employer in question for at least two years prior to the date of the dismissal.

An employee may also have a contractual right to an enhanced redundancy payment.

An employee may be excluded from the right to a statutory redundancy payment where:

  • They are dismissed for misconduct
  • They have been made redundant but unreasonably refuse any “suitable” alternative employment offered
  • They have failed to work their notice period (if required by the employer)

    How much redundancy pay am I entitled to?

    The law clearly sets out the appropriate procedure for calculating the amount of statutory redundancy pay you must receive, but some employers offer more generous payouts on their own terms. If you suspect that you may have been signed up to such a scheme, you should check this before accepting the bare minimum required by law.

    In order to establish basic redundancy payments, one must take into account the number of years the employee has worked at the company in question. They will receive the following:

    • 1.5 weeks’ pay for every year worked where the employee was more than 41 years old;
    • 1 week’s pay for every year worked where the employee was more than 22 years old but less than 41 years old; and
    • Half a week’s pay for every year worked where the employee was under 22 years old.
    However, this is limited insofar as it will only count the previous 20 years. The law also establishes a limit regarding the definition of a week’s worth of pay – it clearly sets out what is and is not included in this calculation, but the maximum amount allowable is £450 from the 1st of February 2013. This means that the top payout which can currently be required by law is £13,500 (20 years work after the age of 41 at £450/week x 1.5).

    Any redundancy payment, be it statutory or granted by a more generous private scheme, is exempt from income tax until it breaks the £30,000 mark.

    Redundancy calculator

    You can avail yourself of our handy redundancy calculator in order to check the minimum redundancy payment you are entitled to.

    You also have the right to receive a written statement from your previous employer explaining how they have calculated the redundancy payment you are owed.

    What if I do not receive my proper redundancy payment?

    If you feel that you should receive a statutory redundancy payment, you need to lodge a claim with your former employer or an Employment Tribunal within 6 months of the effective date of termination of the employment, or you may lose any right to a payout. Claims made after 6 months but within a year may be considered by an Employment Tribunal but whether or not you will receive a payout is up to them.

    The six month time limit stops when either the a payment is agreed and paid, the employee makes a written claim to the employer, the employee’s right to a redundancy payment is referred to an employment tribunal or the employee makes a claim for unfair dismissal.

    Our Instant Law Line service could help to prepare you for an upcoming employment tribunal.

    What if my employer offers me another job?

    Employers may offer you “suitable alternative employment” instead of serving up a redundancy payment. If they do so and the offer is “unreasonably refused” by their employee, then the employer is not required to grant any statutory redundancy payment. The definition of “suitable” will be based on the prior duties of the employee compared to the position offered to them. This has many facets, including the salary, potential for progression and the location of the job, as well as what kind of job it is.

    Regardless of how hard the employer has attempted to offer a suitable new position, an employee is still entitled to claim a redundancy payment if they do, in fact, have a good reason for turning it down. Rather than being based directly on the employment situations, this is likely to revolve more around personal circumstances, and may involve health issues, commitments outside of work and the like.

    In order to ensure that an employee is not left without recourse should the new job prove to be unsuited to them, where the terms of the proposed alternative employment differ from the original employment, they are granted a 4 week statutory trial period performing their potential new duties. If the trial period is unsuccessful the employee is considered to be dismissed and may look to claim a redundancy payment.

    If you are looking for advice on redundancy payments, it may be valuable for you to seek out a professional employment law solicitor.

    Compromise Agreements

    A compromise agreement is a legal agreement between an employer and employee designed to ensure a redundancy or dismissal is conducted in a clean and easy fashion. It involves the employee confirming that they do not have any concerns or issues left unraised with the employer over leaving the company, and agreeing not to bring any action against them in the future, often in exchange for a cash settlement of some kind. The settlement will be conditional on the ex-employee abiding by the terms of the compromise agreement.

    The employee and employer must both approve the terms of a compromise agreement, affixing their signatures in order to formalise this fact. For an employee, signing an agreement indicates that they have no intention to make any claims against their employer in future, nor will they ever do so.

    Compromise agreements usually include the following:

    • Details of the settlement offered to the employee
    • Any assurances from the employer
    • A reference to be given to potential employers in future
    • The terms the employee agrees to be bound by – usually including a confidentiality clause
    • The acceptance by the employee that the compromise agreement is a “full and final settlement” and there will be no legal action in the future

    If you are on either end of a compromise agreement, it’s vital that you understand the legal underpinnings of such a document. For an employer, you must ensure the terms are legally watertight; for an employee, you should confirm with an outside source that you are not getting a raw deal.

    Our Instant Law Line telephone service could help you get the advice you need for your redundancy - you could be getting legal advice from an adviser in 5 minutes time.

    Click here to get started.

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