David Royden
1970 - 2008

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REDUNDANCY

These notes are designed to help you understand the legal route to fair dismissal when making employees redundant.

In General

The statutory redundancy payment scheme operates so that any employee with two years’ service, who is dismissed for redundancy, receives a tax fee lump sum, calculated according to age, length of service and gross weekly wage.

What is a Fair Dismissal?

• The redundancy grounds must genuinely exist.
• The employee must be treated fairly in the procedure used prior to the final decision to dismiss.
• The redundancy must be provable on its facts.
• The employee must be fairly selected and consulted with a view to avoiding 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; or
• The requirements of the business for the employee to carry out work of a particular kind, completely or in a particular place, has ceased or diminished, or is expected to.

There are basically three situations which may result in a redundancy situation:

1. Either part or all of the business closes in which the employee works.
2. Demand reduction due to economic downturn resulting in less or no work.
3. 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 use of appropriate selection criteria, identification of the selection pool, due consultation, adherence to relevant contractual matters and an overriding requirement that the redundancy is proven to be genuine.

An employee’s place of work is either the location where they have worked at, or at any or all of the locations the employee has 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 following a relocation as unsuitable if the distance to travel was too far. This would enable the employee to make a claim for redundancy pay. Even if the contract contains an express “mobility clause” its exercise is still the subject of the implied duty on the employer to act reasonably.

Time Off

An employee under redundancy notice is entitled to take reasonable time off work to seek alternative employment or training.

Qualification

To qualify for redundancy pay the individual must:

1. Be an employee.

2. Have been dismissed.

3. Be over the age of 18 and have had two years continuous service with the
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)

4. Have been dismissed and dismissed for a genuine redundancy situation.

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.

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 an aggregate of six weeks within any thirteen week period.

Once the decision is taken that redundancies must be made, the reason for the dismissal cannot be substituted with another alternative reason. The reason for this is that some contractual redundancy packages can be very substantial. Thus by changing the reason for dismissal to one other than redundancy would effectively avoid payment. In such circumstances 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.

Statutory Redundancy Pay

The payment is dependant upon the employee’s length of service, age and pay. Only the last 20 years service is counted and any service prior to the age of 18 is ignored. For every completed month of service over the age of 64 (or one year less than the normal retirement age) one twelfth of the total amount is deducted. It is assumed that 65 is the normal retirement age but the correct retirement age, if different, must be used when making the calculation.

Calculating in the order listed, the payment entitlements are as follows:

• 1½ weeks’ pay for each completed year of service whilst aged 41 to 65
• 1 week’s pay for each completed year of service whilst aged 22 to 40
• ½½ week’

The maximum 'week’s pay' is currently £280.00 and is calculated by taking the average of the preceding 12 weeks’ pay from when the redundancy notice was issued. All redundancy payments are exempt from tax and/or National Insurance contributions. Given that the maximum number of years to be taken into account in calculating a redundancy payment is 20, the current maximum redundancy payment is therefore £8400.

The employee is entitled to receive from the employer a written statement detailing how the redundancy payment has been calculated.

To calculate a statutory redundancy payment, simply identify the appropriate “multiplier” figure by matching the employee’s age against the number of years service on the table below. The employee’s gross weekly wage, capped at £280 is then multiplied by the multiplier to ascertain the correct statutory redundancy pay. Note any contractual notice period or payment in lieu is in addition to an employee’s statutory redundancy pay.

Redundancy Pay Matrix

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 refuse that offer if he or she is able to establish that it is not reasonably suitable on a number of grounds. The grounds for refusal must be clearly stated, a simple refusal for no reason at all would be classed as unreasonable. If the employer refuses to accept the employee’s reasons for refusal the employee may submit an application to an Employment Tribunal. The Tribunal will look at both the suitability of the job offered, and the reasons for the employee’s refusal of the alternative job separately and come to separate decisions respectively.

When an offer of alternative employment is made it must be clearly stated what the changes are to existing terms and conditions to enable the employee to make a reasoned decision. The offer must be made before the existing contract and position is terminated and take effect within four weeks of that date.

An employee is entitled to ask for a trial period if the job offered 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 the employee acceptance of the alternative job by continuing after the end of the trial period. There will be no dismissal and the employee’
• alternative job is unsuitable due to differences between the old and new job. In this case the employee will be deemed to have been dismissed on the original date within the redundancy notice and a redundancy payment is made accordingly.
• the employee unreasonably decides that a suitable job is unsuitable or unreasonably refuses to continue with the job. In this case the dismissal will not be deemed to take effect on the original date within the redundancy notice and the employee will not qualify for a redundancy payment.

Change of Employer

Under the Transfer of Undertakings (Protection of Employment) Regulations 1991, if a business is acquired by a new owner/employer the period and continuity of service of an employee 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 which case the employee’s employment is treated as if there has not been a change of owner/employer.

Notification to the Department of Trade and Industry

Employers proposing to make 20 or more employees redundant at one establishment within a 90 day period must notify full details in writing to the Department of Trade and Industry in advance. Employers must do this at least 30 days before the first dismissal where 20 – 99 redundancies are proposed or 90 days before the first dismissal where 100 or more redundancies are proposed.

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