Redundancy

The problems and processes of being made redundant

What is redundancy?

In order to claim a redundancy payment from your employer you must have been "dismissed”, and this must have been "by reason of redundancy". In the majority of cases this will be obvious, but sometimes disputes arise as to whether someone has been dismissed or left of their own volition, and, if they have been dismissed, if this was because they were being made redundant.

The law says that an employee is dismissed by reason of redundancy if the dismissal is attributable wholly 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.

In other words, an employee is redundant if the whole business closes down, or if the business continues but there is no longer a need at that particular place for workers of the employee's kind (note it is the class or type of worker, rather than the individual, who should no longer be required).

Who qualifies for redundancy payments?

In order to qualify for a redundancy payment, the dismissed employee must have been continuously employed by the employer for at least two years at the date of the dismissal. There is no lower age limit to be entitled to redundancy payments.

However, there are some workers who are specifically excluded from making a claim. These are:-

• Employees dismissed for misconduct
• Redundant employees who refuse suitable alternative employment (see below)
• Fixed-term contract workers of more than 2 years who have renounced their redundancy rights
• Share fishermen, people ordinarily working abroad, employees of foreign governments, civil servants and certain public officials

How much redundancy pay am I entitled to?

The procedure for calculating statutory redundancy pay is clearly laid down in law, and this is detailed below, but it should not be forgotten that many employers have their own private redundancy schemes which are often much more generous than the statutory scheme.

The statutory scheme calculation is made by reference to the number of completed years service by the employee. They will then receive:

• one and a half week's pay for each year in which the employee was over 41 years of age;
• one week's pay for each year in which they were over 22, but under 41; and
• half a week's pay for each year under 22.

The maximum number of years which may be counted is 20. The statute lays down how "a week's pay" should be calculated (i.e. what is or is not included), but this is subject to a maximum figure, which is currently only £400 (£350 if you were made redundant before 31^st September 2009). The current maximum payment is therefore £12,000 (20 years at £400 x 1.5). Both statutory and non-statutory redundancy payments up to £30,000 are exempt from income tax. 

Redundancy calculator

You can use the Government's redundancy calculator to calculate your statutory redundancy entitlement.

All employees are entitled to a written statement showing how the amount of their redundancy has been calculated.

What if I do not receive my proper redundancy payment?

If you believe you are entitled to a redundancy payment you should make a claim in writing to your employer or to an Employment Tribunal within 6 months of your redundancy, otherwise your claim may be lost. If you delay beyond this time limit, but make a claim within the next 6 months, the Employment Tribunal can consider your claim, but any award is at the Tribunal's discretion.

What if my employer offers me another job?

In order to overcome a redundancy situation, an employer would have to offer an employee "suitable alternative employment". If this is offered and is "unreasonably refused" by the employee then the employee cannot make a claim for a redundancy payment. The question of suitability will depend entirely on the job the employee did before and what is now on offer. Important questions relate to pay, prospects and location, as well as the type of job itself. 

Even if the alternative job is deemed to be suitable, the employee may still refuse to accept it and claim their redundancy payment if they can establish that their refusal was reasonable. This relates much more to their own personal circumstances e.g. health, family commitments or status of the new job.

To help an unsure employee decide whether to accept the new job on offer, there must be a trial period of 4 weeks in the new job allowed, during which time they can leave and still claim redundancy.

If you require further legal advice on redundancy you may want to consider consulting a specialist employment law solicitor. Use our free Find a Solicitor service to find an expert legal specialist you can trust and rely upon. 

Compromise agreements

Compromise agreements are legal documents that can be used by employers to ensure that a certain employee’s redundancy or dismissal is as ‘clean’ as possible, settling any disputes and safeguarding them from any unwanted further action in the future.

They generally offer some form of payment to the employee, subject to the conditions within the agreement.

Compromise agreements must be agreed upon and signed by both the employer and employee. Upon signing the agreement, the employee is accepting that the package represents a ‘full and final settlement’, meaning that they are not allowed to make any further claims against their employer.

A compromise agreement will likely include:

details of the compensation offered
any assurances given by the employer
a reference for prospective employers
the affirmations given by the employee, usually including confidentiality
the acceptance of all terms in “full and final settlement” by the employee and an assurance that legal action will not be pursued in the future

It is advisable to consult the services of a specialist employment solicitor when drawing up and agreeing to compromise agreements. They will be able to tell you whether the terms of the agreement are fair, and if the compensatory amount is sufficient. Use our free Find a Solicitor service to connect with an employment law expert you can trust and rely on.