Legal Basics - Employment
Last modified: 24 July 2007

Redundancy

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 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?
In order to qualify for a redundancy payment the dismissed employee must have been continuously employed by the employer for at least 2 years at the date of the dismissal. However there are some workers who are specifically excluded from making a claim. These are:-

1. There are now (from 1 October 2006) no age restrictions on who can claim a redundancy payment
2. Employee's dismissed for misconduct
3. Redundant employees who refuse suitable alternative employment (see below)
4. Fixed term contract workers of more than 2 years, who have renounced their redundancy rights
5. Share fishermen, people ordinarily working abroad, employees of foreign governments, civil servants and certain public officials.

What 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;
• 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 (ie what is or is not included), but this is subject to a maximum figure, which is currently only £290 (01/02/06). The current maximum payment is therefore £8,700. Both statutory and non-statutory redundancy payments up to £30,000 are exempt from income tax. 

If you are in your last year of working with your employer, or 64 if there is no normal retirement age in your employment, at the time of your redundancy then the amount of compensation is reduced by 1/12th for every month of that last year in which you have worked.

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, or 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 eg health, family commitments, status of the new job.

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

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