In general
The statutory redundancy payment scheme operates so that any employee with two years' service, who is dismissed for redundancy, receives a tax free lump sum, calculated according to age, length of service and gross weekly wage.
For a fair dismissal the redundancy grounds must genuinely exist, the employee must be treated fairly in the procedure they use prior to the final decision to dismiss. The redundancy must be provable on its facts and the employee be fairly selected and consulted with a view to avoiding the redundancy.
Definition
The statutory definition provides that the dismissal must be attributable wholly or mainly to the fact that:
- The employer has ceased, or intends to cease, completely or in an employment place, to carry on the business for the purposes for which the employee was employed by them; or
- The requirements of the business for the employee to carry out work of a particular kind, completely or in an employment place, has ceased or diminished, or is expected to
There are basically three situations which may result in a redundancy situation:
- Either part or all of the business closes in which the employee works
- Demand reduction due to economic downturn resulting in less or no work
- Business re-organisation resulting in less jobs or significant reduction in work available
To remain fair the redundancy must also be procedurally correct which involves the selection criteria, selection pool, consultation, contractual matters and an overriding requirement that the redundancy is proven to be genuine.
An employees' place of work is either the one location that they have ever worked at, or any or all of the locations they have worked at if there is a term in the contract of employment allowing the employer to demand that the employee move to another site or place should there be no work at the current site. This is commonly called a mobility clause. Without a mobility clause it would be possible for an employee to consider the new post after a relocation as unsuitable if the distance to travel is too far, they could then make a for claim redundancy pay. The decision would be made by a tribunal.
Time off
An employee under redundancy notice is entitled to take reasonable time off work to seek alternative employment or training. A tribunal would not look favourably upon an employer if they restricted the time off, so the word 'generous' may be better than 'reasonable'.
Qualification
To qualify for redundancy pay the individual must:
- be an employee
- have been dismissed for a genuine redundancy situation
- have had two years continuous service with employer calculated by taking into account or including:
- one weeks statutory notice; or
- the date of the expiry of the notice period or when termination takes effect; or
- the end date of a fixed term contract; or
- the date on which the final payment, or lump sum, of a payment in lieu of notice
- transfer of business ownership rules (TUPE)
Dismissal situations
A dismissal has occurred when:
- the contract is terminated either with or without notice to the employee
- a fixed-term contract expires and is not renewed
- the employee terminates their contract, with or with out notice, by reason of employers conduct
A dismissal has not occurred when:
- a fixed-term contract is renewed
- a new contract of employment is issued within 4 weeks of a break in service
- the employee accepts a new job within the same group or employer
- the employee resigns prior to redundancy notice being issued. An employee may leave early, with the employers agreement, to start with a new employer as a result of the pending redundancy
Excluded employees
Employees are excluded from redundancy pay when they:
- have accepted alternative employment with the same employer or who have unreasonably refused to accept an alternative or have accepted under a trial period and have then unreasonably resigned within the trial period
- are dismissed for misconduct whilst under notice
Providing these conditions are met then an employee is entitled to receive redundancy pay. It does not matter whether they have or have not secured alternative employment with a new employer.
An employee may also be entitled to receive redundancy pay when they have been on short time working or laid off for either four consecutive weeks or for any six weeks within a thirteen week period.
Once the decision that redundancies must be made it can't be substituted with another reason. The reason for this is that some contractual redundancy packages can be very substantial, by changing the reason for dismissal to one other than redundancy would avoid payment. The courts are prepared to imply into a contract terms that would ensure that the employee receives their full enhanced redundancy package along with costs etc etc.
Statutory redundancy pay
The payment is dependant upon the employees length of service, age and pay. Only the last 20 years service is counted and any service prior to the school leaving age is ignored. There is no upper age limit after which an employee does not qualify for redundancy pay.
Calculating in the order listed, these are the payment entitlements
- 1½ week's pay for each completed year of service whilst aged over 41
- 1 week's pay for each completed year of service whilst aged 22 to 41
- ½ week's pay for each completed year of service whilst aged less than 22
The maximum 'weeks pay' is £380.00 (from Oct 2009 and is reviewed yearly) and is calculated by taking the average of the preceding 12 weeks pay from when the redundancy notice was issued or using their standard hours and hourly rate if not variable. All redundancy payments up to £30,000 are not subject to tax or NI.
The employee is entitled to receive from the employer a written statement as to how the redundancy payment has been calculated.
Suitable Alternative Employment
If an employer can offer alternative employment and that employment is accepted by the employee then the employer can avoid paying redundancy pay. However an employee can reasonably refuse that offer arguing that it is not suitable on a number of grounds. The grounds for refusal must be clearly stated, a simple refusal for no reason would be classed as unreasonable. If the employer refuses to accept the employees reasons for refusal it can be taken to an employment tribunal. They will look at both the suitability of the job offered and the reasons for refusal of the alternative job separately and come to separate decisions for each.
When an offer of alternative employment is made it must be clearly stated what the differences are to enable the employee to make a reasoned decision. The offer must be made before the existing contract is terminated and take effect within four weeks of that date.
An employee is entitled to ask for a trial period if the terms and conditions change or the job is of a different nature. The statutory period is four weeks, but this can be extended. All the conditions of the trial period must be made in writing prior to the trial period commencing.
There can only be three outcomes of a trial period:
- Acceptance of the alternative job by continuing after the end of the trial period. There will be no dismissal and service continuity is preserved
- Alternative job is unsuitable due to differences between the old and new job. In this case they will be dismissed on the original date within the redundancy notice and a redundancy payment is made
- The employee unreasonably decides that a suitable job is unsuitable or unreasonably refuses to continue with the job. In this case they will be dismissed on the original date within the redundancy notice and will not qualify for a redundancy payment
Change of employer
If a business is acquired by a new owner/employer the period of service is not interrupted and no dismissal/re-hiring takes place. Therefore there is no entitlement to redundancy pay from the old owner/employer. However, the new employer may decide to make redundancies, in that case it is as if there has not been a change of owner/employer. This is covered by the Transfer of Undertakings (Protection of Employment) Regulations 1981 and is covered.
Consultation
After one years service an employee is entitled to make a claim for unfair dismissal by reason of redundancy. Many of the claims relate not to the reasons for the redundancy but procedure, or lack of, by which it was conducted.
Consultation is the key word, with, if there are 20 or more proposed redundancies, recognised trade unions or appropriate representatives and the workforce it's self. Every affected employee must be consulted with the reasons and after effects being explained and an opportunity given for their comments or suggestions. The purpose of the consultations is to minimise the number of redundancies by fully investigating all aspects of the proposed redundancies and the reasons behind them.
Collective consultation
If there are 20 or more redundancies proposed the workforce, where there is no union representation, may elect representatives from the affected workers to speak on their behalf. The employer can decide upon the number of representatives but must ensure adequate representation of all the affected workers. The ballot should be secret and the employee's can vote for as many of the candidates as there are posts available. No candidate or representative may be discriminated against because they are a candidate or representative. The Department of Trade and Industry must be informed of collective redundancies.
The employer must disclose in writing to the representatives the following information:
- The reasons for the proposals
- The number and descriptions of employees for proposed redundancy
- The total number of employees of each description
- The proposed method of selection
- The proposed method of carrying out the dismissals
- The proposed method of calculating any non-statutory payments
Once elected the appropriate representatives have similar negotiating rights as a trade union for the purpose under which they were elected. An employer must consider and reply to any representations made by the representatives, giving reasons for any representations rejected.
The question of whether the employer has complied with the duty of collective consultation (where this duty arises) is likely to be relevant to the question of reasonableness in the context of an unfair dismissal claim. The duty to consult collectively is separate from the duty to consult individually.
Individual consultation
Every affected employee is entitled to consulted individually regardless of whether collective consultation is taking place or not. The objective is to make the employee aware of all the circumstances surrounding the proposed redundancies, to give the employee a chance to influence the outcome by constructive discussion and to try and find a way in which to reduce the number of redundancies. By conducting a comprehensive consultation program an employer also reduces the possibility of an unfair dismissal case being brought against them.
Throughout the consultation period matters like the selection criteria used, the employee's placement within that criteria and it's validity, voluntary redundancy and suitable alternative employment should be discussed. It should also be stressed that any selection for redundancy is provisional and will remain so until the end of the consultation period.
Consultation does not mean informing the employees that they are redundant and inviting them to take a couple of days to think about what they have been told. Consultation means, for example, informing all the affected employees that the business has to reduce its overheads by "x" pounds, providing financial information to explain the position, suggesting to the employees that the wage bill is the only significant overhead which can be controlled, and inviting employees to suggest ways in which the desired cost cut can be achieved. Clearly, redundancy would be an option but there may be others. It is not unknown for employees to decide to take significant pay cuts in order to preserve jobs.
Selection of employees
The selection of the employees for redundancy must be handled correctly as this is the area that most unfair dismissal cases focus on. You must ensure that the selection of a person for redundancy is made in a fair, objective and reasoned manner. The procedure used to accomplish this must either be one that has been previously agreed i.e. as part of the contract of employment, or a procedure that has been used, or employees have been advised of in the past that does not contravene the custom and practice of the business. The most important thing is to have an agreed procedure, even if it is 'last in, first out' and stick to it. Don't be tempted to alter it slightly so that you can get that person you don't like out.
Once the procedure has been identified then a pool of employees that fit the criteria of the procedure should be identified. The pool need not be company wide if a particular area of the business has been identified as requiring the cuts. Care should be taken in validating the information used to identify possible employees, for instance, make sure that the length of service is correct and there is not a previous period, from a previous owner for instance, which must also be included. If the information is out of date or just incorrect a possible unfair dismissal may take place.
Following the identification of the pool, providing the job requires it, things like skills, knowledge, qualifications, experience and disciplinary record can be taken into account to narrow the selection down. All the criteria used must be applied in a reasonable, fair and objective manner. A properly managed consultation program should also narrow down the selection.
After the final selection has been made written notice of redundancy should be issued.
