Redundancy Round Up. (UK Employment Law)

Redundancy Round Up

Redundancy Round Up. (UK Employment Law)

Contractual Redundancy Payments:

According to recent press reports, unions are warning of strikes after the government confirmed plans to change public sector redundancy payments, despite having lost a recent legal battle to reduce redundancy payments. Will other employers be in a similar fix if it's been their custom & practice to pay generous enhanced redundancy payments in the past?

Statutory redundancy pay is actually relatively modest for the majority of employees; and amounts to a weeks pay to a maximum of 380 x full years worked (if employed for over 2 years), with a multiplier of 1.5 for years worked over the age of 41. For a redundancy pay calculator, see http://www.direct.gov.uk/redundancy.dsb. Some employers do forget that on top of that statutory redundancy payment, employees also have the statutory right to a weeks notice per full years worked to a maximum of 12 weeks (or payment in lieu). In other words, someone's contract may say they are only entitled to 4 weeks notice, but if they have been employed for 12 years, the maximum statutory notice entitlement will apply.

In Harlow v Artemis Internation Corp Ltd back in 2008 it was held that a provision in a staff handbook term was an express term of the contract of employment. This had the effect that the employee was legally entitled to enhanced redundancy pay even though the right to it was set out in the staff handbook rather than in his formal contract of employment. As it had become custom and practice for Artemis to compensate redundant employees in accordance with its enhanced redundancy policy from time to time meant that this custom and practice could also have been treated as an implied contractual term if it had not already been an express term.

It's generally unwise therefore to have enhanced redundancy terms set out in the handbook, or indeed any document circulated to staff. If you do use a formula to calculate enhanced redundancy on one occasion, it's worth making clear that this may be amended or withdrawn at your discretion. The more rigidly you apply an enhanced redundancy formula over the years, the more vulnerable you will be to the argument that it amounts to a contractual term by custom & practice.

Capping Redundancy Payments on Length of Service:

The number of claims for unfair dismissal, breach of contract and redundancy for 2009-10 was 17% more than the previous year, probably as a result of the credit crunch. Many employers will be keen to avoid joining this unfortunate statistic when carrying out redundancies. One recurring question is whether employers who cap length of service for calculating redundancy payments are being discriminatory on the grounds of age.

In the recent case of Kraft Foods v Hastie, in order to keep costs down, Kraft capped their generous redundancy payments at what a redundant employee would have earned if he had remained in employment until normal retirement age. This hit the 62 year old Mr Hastie in the pocket, who sued for age discrimination. The EAT held that the cap was justified as Kraft's aim of preventing employees from receiving a 'windfall' met a legitimate & proportionate aim, which was to compensate for future loss of earnings only.

Those employers who cap redundancy payments based on (say) no more than 12 years service (even if the employee has worked 20 years and is not near retirement) could not rely on that argument. However they generally avoid legal challenges by making payments subject to compromise agreements: Employees seldom turn down reasonably generous payments to chance their arm in the Tribunal.

Please let me know if there are any issues arising in this article that you would like to discuss by contacting jrc@reculversolicitors.co.uk .

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