Redundancy (Rights of employees)

Key points

• The Redundancy Payments Act 1965 (whose provisions have long since been repealed and largely re-enacted in the Employment Rights Act 1996) came into force on 6 December 1965. The two principal objectives of the Act were to require employers to compensate redundant employees for the loss of their livelihoods and to establish a Redundancy Fund from which employers would recoup a percentage (or rebate) of any statutory redundancy payment due and paid to a redundant employee. However, the already (by then) much-mutilated redundancy rebates scheme was abolished when the Employment Act 1989 came into force on 16 January 1990.
  
  
• It should be noted that the purpose of the redundancy payments scheme is to compensate a redundant employee for the loss of his (or her) investment in his job – not, as might be supposed, to provide him with sufficient funds to help him survive a period of unemployment. Accordingly, any employee who has lost his job because of redundancy may legitimately claim income support or the jobseeker's allowance, notwithstanding that he may already have received a substantial tax- free redundancy payment from his employer (see Wynes v Southrepps Hall Broiler Farm [1968] ITR 407).

Employer's liability to pay

• Subject to certain conditions (discussed in the following paragraphs), an employer is liable to pay statutory redundancy pay to any employee of his who has either been dismissed on grounds of redundancy or laid-off or kept on short-time working for a period of four consecutive weeks (or for an aggregate of six weeks in a period of 13 consecutive weeks) (sections 135 and 148, Employment Rights Act 1996).
  
  
• An employer cannot contract-out of his (or her) duty to pay a statutory redundancy payment to those of his employees who are entitled to receive such payments. Any provision in a contract of employment (or otherwise), which purports to exclude or limit that duty, or to deny an employee his right to bring proceedings before an employment tribunal, is null and void (ibid. section 203). However, there are two exceptions to this rule. A COT 3 agreement, concluded with the intervention of a conciliation officer of ACAS under section 18 of the Employment Tribunals Act 1996, is legally binding on both parties to the relevant dispute and serves to waive the right of the employee to bring proceedings in respect of that dispute before an employment tribunal. The same applies to a compromise agreement properly concluded between an employee and his or her employer.
  
  
• There can also be an exemption in the case of a redundancy agreement concluded between an employer and one or more trade unions representing employees. If the employees covered by such an agreement have a right in certain circumstances to payments on the termination of their employment, and those payments are not less beneficial to those employees than the redundancy payments to which they would otherwise be entitled under the provisions of the 1996 Act, the Secretary of State for Education & Employment may (on the application of all parties to the agreement) make an order exempting that agreement from those provisions. However, the Secretary of State will not make such an order unless satisfied that the agreement allows questions to be put to an employment tribunal concerning the amount of (or the entitlement of an employee to) a payment under that agreement (ibid. section 157). To date, few redundancy agreements have been the subject of an exemption order by the Secretary of State.

Qualifying conditions

• As a general rule, a redundant employee will not qualify to be paid a statutory redundancy payment unless, at the relevant date, he or she:
  • was under age 65 or below the normal retiring age (whichever is the lower of those ages) for a person (male or female) holding the position which that employee held;
  • had been employed for a minimum period of two years calculated from the date on which his or her period of employment began or from his or her 18th birthday (whichever is the later) and ending with the relevant date; and
  • had not unreasonably refused an offer of suitable alternative employment (whether in writing or not) made by his or her present employer, an associated employer, or by the new owner if the employer 's undertaking was sold or transferred to another employer.

Meaning of 'relevant date'

• The expression relevant date means the date on which the notice given to a redundant employee by his employer expired. However, if the employee was dismissed without notice or was given less than the minimum number of weeks' notice prescribed by section 86 of the 1996 Act (namely, one week's notice for each year of service up to a maximum of 12 years), the relevant date (for the purposes of calculating an employee's entitlement to a statutory redundancy payment) will be the date on which that statutory minimum period of notice would have expired had it been given on the date on which notice was actually given.

Excluded categories

• The following categories of employee are excluded from any entitlement to a statutory redundancy payment:
  1. an employee who is dismissed on grounds of gross misconduct (whether with or without notice) while under notice of dismissal on grounds of redundancy (ibid. section 140(1)); and
  2. an otherwise redundant employee who unreasonably refuses an offer of suitable alternative employment or who has agreed to 'try out' another job but unreasonably terminates his (or her) employment during the trial period (ibid. section 141(2) and (3)).

     Note

     Since 25 October 1999, when section 32 of the Employment Relations Act 1999 came into force, employees who are made redundant while outside Great Britain (including employees who ordinarily work outside Great Britain) no longer forfeit their right to a statutory redundancy payment on the termination of their employment. Furthermore, with the coming into force on 1 October 2002, of the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002, waiver clauses, in a fixed-term contract lasting or expected to last for two years or more, are no longer permissible or enforceable – unless the contract in question (or its accompanying waiver clause) was agreed or inserted before 1 October 2002.

Meaning of redundancy

• A redundancy situation arises when an employee is dismissed from his (or her) employment, and the dismissal is wholly or mainly attributable to:
  • the fact that his employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed; or has ceased, or intends to cease, to carry on that business in the place where the employee was so employed; or
  • the fact that there is a reduced need for employees of the same category as that employee to carry out work of a particular kind in the place where that employee is employed (ibid. section 139(1) and (2)) – which underlines the rationale behind the inclusion of an employee's job title in the written statement of terms of employment prescribed by Part I of the 1996 Act.
  In other words, an employer may decide for sound commercial reasons (1) to close down his (or her) business altogether; (2) to move his business to a different location; or (3) to reduce the number of people he employs in certain departments or sections within the business. For example, a sudden and apparently permanent decline in export orders may prompt a manufacturer to reduce the number of production workers in his factory. In an extreme situation, he may very well be forced to shut down completely. 

Lay-offs and short-time working

• A redundancy situation will also arise if an employee has been repeatedly laid off or kept on short-time working for four or more weeks. It must be emphasised at this point that an employer may not lay-off an employee or transfer him (or her) to short-time working – however serious the situation may be – unless the employee's contract of employment contains a clause which allows the employer to do so. An employee may, of course, agree to be laid off or placed on short-time working (as the more desirable alternative to redundancy); but that agreement (preferably in writing) must be sought and obtained by the employer before he puts any such arrangement into effect.
  
  
• Subject to the foregoing, any employee who has been laid-off or kept on short-time working for a period of four consecutive weeks (or for an aggregate of six weeks within a 13-week period), may serve written notice on his (or her) employer that he intends to claim a redundancy payment. However, the notice must be served not later than four weeks after the end of the last of the weeks in which the employee was laid- off or kept on short-time working. Furthermore, it must be accompanied by at least one week's notice of termination of employment (or such longer period as the employee is required to give under the terms of his contract of employment).
  
  
• If the employer does not dispute the employee's claim to a redundancy payment and/or cannot guarantee to provide the employee with a period of full employment lasting at least 13 weeks (to commence not later than four weeks after the date of service of the 'notice of intention to claim'), the employee is entitled to be paid a statutory redundancy payment (provided, of course, that he qualifies for such a payment in terms of his age and length of employment at the relevant date) (ibid. Part XI, Chapter III).

Employee anticipating expiry of employer's notice

• A redundant employee working out his (or her) employer's notice will still qualify for a redundancy payment even if he hands in his resignation to take effect on a date earlier than the date on which his employer's notice is due to expire (so long as he does so within the 'obligatory period of notice' (see next paragraph) and provided always that his employer does not object to his leaving prematurely). However, this rule does not apply if the employer writes to the employee instructing him to withdraw his letter of resignation and to continue working until the date originally specified in the employer's notice. An employee who unreasonably refuses to carry on working in such circumstances thereby forfeits his right to a redundancy payment, although the question as to whether the employee's refusal was 'unreasonable' will be a matter for an employment tribunal to decide (ibid. sections 136(3) and 142) (but see next paragraph).

  Note

  Section 142 of the 1996 Act endorses the right of an employee under notice of redundancy to look for and, if need be, take up alternative employment before the expiry of his (or her) employer's notice. Provided that his employer does not insist on the employee working out his notice period, the employee will retain his right (if any) to a statutory redundancy payment on the termination of his employment.

• The 'obligatory period of notice' referred to in the previous paragraph is the period of notice to which an employee is entitled under his (or her) contract of employment, or the minimum notice required to be given by the employer in accordance with section 86(1) of the 1996 Act (that is say, a minimum of one week's notice for each of a maximum 12 years' continuous employment), whichever is the greater. Even though a redundancy situation exists, or is imminent, there can be no entitlement to a redundancy payment if an employee terminates his employment before the beginning of that obligatory notice period (ibid. section 136(4)).
  
  
• In Pritchard-Rhodes Ltd v Boon and Milton [1979] IRLR 19, two employees each received a letter from their employer informing them that they were to be made redundant at some future (unspecified) date. But the letter assured them that their jobs would last 'for at least seven months'. Taking the initiative (or, more appropriately, 'jumping the gun'), both men terminated their contracts some six weeks later and put in a claim for redundancy payments. The Employment Appeal Tribunal held that, as the employees had not tendered their notices within the obligatory period of notice required to be given by their employer under section 86(1) of the 1996 Act, they were not entitled to statutory redundancy pay.

Voluntary redundancies

• Voluntary redundancies occur when an employer and one or more of his employees agree to part company. This situation quite often arises when an employer invites employees to take part in a voluntary redundancy programme – the purpose often being to encourage older employees to accept dismissal in deference to younger workers. So long as there is a genuine redundancy situation, an employee's willingness to be made redundant will not deny him his (or her) statutory entitlement to a redundancy payment.

'Bumping'

• The question arises as to whether an employee is truly redundant (and therefore entitled to a redundancy payment) if he (or she) is 'bumped' out of his job in order to make way for a more senior or longer-serving employee whose own job has been made redundant. In Gimber v Spurrett (1967) 2 ITR 308 (followed by the EAT in Elliott Turbomachinery Ltd v Bates [1981] ICR 218), it was held that an employee dismissed in such circumstances had indeed been dismissed by reason of redundancy. But, in a more recent case, that of Church v West Lancashire NHS Trust [1998] ICR 423, the EAT ruled otherwise, declaring that, although 'bumping' was one way of managing a redundancy situation, the 'bumped' employee's dismissal was not of itself attributable to a diminution in the requirement for employees to do work of the kind done by that employee. Although the Church decision has been appealed to the Court of Appeal, the 'bumping' issue appears to have been resolved by the decision of the House of Lords in Murray v Foyle Meats Limited [1999] ICR 827; [1999] IRLR 562. There, the Law Lords held that an employee's dismissal could be due to redundancy even if the work on which he (or she) was engaged was unaffected by a fall in demand or a business set-back elsewhere within the employing organisation. There was no reason, they said, why the dismissal of such an employee should not be attributable to a diminution in the employer's need for employees to do work of a particular kind, although an employer in such a case would nonetheless need to explain the causal connection.

Offer of suitable alternative employment

• If an employer makes a written or verbal offer to an otherwise redundant employee, either to renew his (or her) existing contract of employment or to re-engage him under a new contract, the employee will not be entitled to a redundancy payment if he unreasonably refuses that offer. However, the employer's offer must be made to the employeebefore his previous contract comes to an end. Furthermore, the new job must not only be suitable in relation to the employee (see next paragraph) but must be available to the employee either immediately on the end of his former employment or within the next four weeks (ibid. sections 138(1) and 141 (1)).
  
  
• To be suitable, the terms and conditions under which the employee would be employed under the new or renewed contract (including the location and capacity in which he (or she) would be employed) must either be the same or similar to those enjoyed by the employee under his previous contract (ibid. section 141(1), (2) and (3)).

Trial period in new employment

• If, on the other hand, an otherwise redundant employee is offered re- employment in a job whose terms and conditions differ wholly or in part from the corresponding provisions of his (or her) previous contract, the employee has the right to try out that alternative job for a period of up to four weeks (or for an agreed longer period, if retraining is required) (ibid. sections 138(2) and 141(4)).
  
  
• If, during or at the end of the trial period, the employee decides that the new job is unsuitable, he (or she) will be treated in law as having been dismissed on the day his previous contract of employment came to an end, and will be entitled to be paid a redundancy payment calculated to that earlier date. If, however, the employee unreasonably terminates his new contract, for reasons which are not immediately apparent, his employer may dispute his obligation to pay a redundancy payment. As always, the matter may be referred to an employment tribunal for a determination (ibid.).
  
  
• The question whether an offer of alternative employment is 'suitable' in relation to an employee is one of fact to be decided by an employment tribunal (see Hitchcock v St Ann's Hosiery Company Ltd [1971] ITR 98, QBD). Having decided that an offer is suitable, an employment tribunal will then need to decide whether an employee had acted reasonably or unreasonably in refusing that offer. Factors to be taken into account may include matters such as distance, family commitments, the unemployment situation in the area, etc (see John Laing & Son Ltd v Best [1968] ITR 3).

Redundancy consultations

• An employer who has it in mind to make 20 or more employees redundant within a period of 90 days or less, is duty-bound to discuss his (or her) proposals with persons who are appropriate representatives of any of the employees who may be affected by the proposed dismissals or may be affected by measures taken in connection with those dismissals (per section 188, Trade Union & Labour Relations (Consolidation) Act 1992, as amended by the Collective Redundancies & Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 1999).
  For these purposes, the appropriate representatives of any affected employees are:
  • representatives of an independent trade union (shop stewards or works convenors), if the employees in question are of a description in respect of which the trade union is recognised by their employer as having collective bargaining rights (ibid. section 188(1B)) or, if there is no trade union representation;
  • existing employee representatives or representatives specifically elected by their colleagues or workmates to represent their interests, to be consulted about their employer's redundancy proposals, and to receive information from their employer concerning those proposals (ibid.).
    
    
• In short, if the would-be redundant employees are of a description in respect of which an independent trade union is recognised by their employer, their employer must consult representatives of that trade union. If there is no trade union representation, the employer must consult existing employee representatives. If there are no existing employee representatives, the employer must ensure that the would- be redundant employees are allowed sufficient time (and the facilities) to elect one or more of their number to represent their interests in consultations with their employer. It is up to the employer to decide how many employee representatives should be elected (ibid.sections 188 and 188A).
  
  
• If, in spite of having been invited to do so, the affected employees fail within a reasonable time to elect one or more of their colleagues to represent their interests, their employer must nonetheless ensure that each of those employees receives the written particulars referred to below.

When must the redundancy consultations begin?

• Consultations with appropriate representatives should begin at the earliest opportunity, and must in any event begin:
  • at least 90 days before the first of the dismissals is to take effect, if 100 or more employees at one establishment are to be dismissed as redundant within a period of 90 days or less; or
  • at least 30 days before the first dismissal takes effect, if 20 or more, but fewer than 100, employees at one establishment are to be dismissed as redundant within a period of 90 days or less.
  An employer who refuses or fails to consult with the appropriate representatives is liable to be ordered to pay each affected employee an amount not exceeding the equivalent of 90 days' pay 

Scope of consultations

• Consultations with the appropriate representatives must include consultation about ways to:
  1. avoid the dismissals;
  2. reduce the number of employees to be dismissed; and
  3. mitigate the consequences of the dismissals,
  and must be undertaken by the employer with a view to reaching agreement with those representatives (ibid. section 188(2)).

Written particulars

• For the purposes of the redundancy consultations, the employer must write to each of the relevant representatives:
  1. explaining the reasons for the proposed redundancies;
  2. listing the numbers and descriptions of employees whom it is proposed to make redundant;
  3. specifying the total number of employees of any such description who are currently employed at the establishment in which the redundancies are to take place;
  4. outlining the proposed method for selecting the employees who may be made redundant; and
  5. explaining what severance payments (if any) are to be made to the redundant employees – in addition to their entitlement (if any) to statutory redundancy pay – and how those severance payments are to be calculated.
  The letter or document containing the above particulars must either be delivered by hand to each representative or be posted to an address nominated by the representatives. In the case of trade union representatives, the letter should be sent by post to the union's head office (ibid. section 188(5)).
  
  
• Representatives involved in the consultation process must be allowed to talk to the employees who are on the list of likely candidates for redundancy and must be afforded access to an office and telephone ('such accommodation and facilities as may be appropriate') so as to enable them to conduct such meetings in private (ibid. section 188).
  
  
• It is neither acceptable nor lawful for an employer to refuse or fail to enter into consultations on the grounds that the decision to make 20 or more employees redundant was taken by a parent or holding company (perhaps located elsewhere in Great Britain, or overseas) and that he does not have the authority to explore ways and means of avoiding the redundancies or reducing the number of employees to be dismissed, or to take steps to mitigate the consequences of the dismissals. Nor can he use that same (or a similar) excuse to justify his refusal or failure to give the written particulars referred to earlier.
  
  
• For information about complaints to, and the penalties to be applied by, an employment tribunal, when an employer refuses or fails to comply with his obligation to enter into consultations with employee or trade union representatives (or with any associated duties)

Notifying the Secretary of State for Trade and Industry

• An employer proposing to make 20 or more employees redundant must not only consult with the appropriate employee representatives but must also notify the Secretary of State for Trade & Industry (in practice, the nearest Redundancy Payments Office of the Department of Trade & Industry (DTI)) before those proposals are put into effect (ibid. section 193).
  
  
• The notification must be given in writing (using form HR 1 supplied by the DTI):
  • at least 90 days before the first dismissal is to take effect, if 100 or more employees at the same establishment are to be dismissed as redundant within a period of 90 days or less; or
  • at least 30 days before the first dismissal is to take effect, if 20 or more employees (but fewer than 100) at the same establishment are to be dismissed as redundant within a period of 30 days or less.
  A copy of form HR 1 must also be sent to each of the employee and/or trade union representatives involved in the consultation process described earlier in this section (ibid. section 193).
  
  
• At any time after receiving formal notification of impending redundancies, the DTI may approach the employer in question for further information. Any employer who refuses or neglects to forewarn the DTI about his redundancy proposals, or who refuses to respond to a request for additional information, is guilty of an offence and liable, on summary conviction, to a fine of up to £5,000 (ibid. section 194).

Calculation of redundancy payments

• The method used for calculating redundancy payments is outlined in section 162 of the Employment Rights Act 1996. Just how much a redundant employee is entitled to be paid (assuming he (or she) satisfies the minimum qualifying conditions discussed earlier in this section) is determined by reference to his age, length of service (including any service with a previous employer which counts as part of his total period of continuous employment), and weekly pay at the effective date of termination of his contract of employment. Thus a redundant employee under normal retiring age at the time of his (or her) dismissal, who has worked for his employer for a minimum continuous period of two years (excluding any period of employment before his 18th birthday) must receive at least:
  • one-and-a-half weeks' pay for each year of employment in which he (or she) was not below the age of 41;
  • one week's pay for each year of employment in which he (or she) was below the age of 41 but not below the age of 22; and
  • a half week's pay for each year of employment in which the employee was below the age of 22 but not below the age of 18.
  Calculations may lawfully exclude any period of service in excess of 20 years (counting backwards from the date on which the employment ends or is due to end) and may ignore weekly earnings (or average weekly earnings) in excess of £260 per week – which upper amount is reviewed in January of each year. Thus, the maximum statutoryredundancy payment currently payable to an employee is £7,800 (ie, 20 x 1.5 x £260). Employers are, of course, free to 'top up' the statutory amount if they so wish.

  Note

  A Ready Reckoner for Redundancy Payments (Form RPL2) will be supplied on request by local employment offices of the Department for Work & Pensions. The Ready Reckoner is also reproduced in booklet PL 808 available from Job Centres, and (Redundancy Payments) available from Job Centres and local offices of the Employment Department.

• Furthermore, if a redundant employee (male or female) has already had his or her 64th birthday before the relevant date (see below), the amount of redundancy pay otherwise payable to that employee can legally be reduced by one-twelfth for each complete calendar month by which his or her age exceeds 64. Thus, a redundant employee aged 64 years and eight months when dismissed can expect to have his (or her) redundancy pay reduced by eight-twelfths (or two-thirds) (ibid., section 162(4) and (5)).
  
  
• Reckonable employment, excluding periods which do not count but which do not break continuity, but including, where applicable, any relevant employment with a former employer must be aggregated to make complete years. No payment is due for a fraction of a year. But excess reckonable employment in a higher age bracket will count towards employment in the age bracket immediately below. And, because of the upper service limit of 20 years referred to earlier, the number of complete years of continuous employment must be reckoned backwards from the date of expiry of notice 

A week's pay

• A week's pay in the case of an employee paid monthly (whose salary is invariably expressed as an annual sum) is his (or her) annual income divided by 52. When an employee's pay varies with the amount of work done, as when pay is partly made up of bonuses or commission, the amount of a week's pay will be the average of that employee's weekly earnings over the 12-week period ending with the last complete week in which he or she actually worked. The same applies in the case of hourly- paid employees, when a week's pay will be the average of an employee's earnings over the same 12-week period. However, overtime premium payments will not feature in calculations – unless the employee's contract requires the employer to provide a specified number of overtime hours each week and requires the employee to work those extra hours. The fact that a redundant employee may have worked overtime, week in and week out, for many years will not entitle him to have his overtime income included in calculations for redundancy pay. If overtime working is in any sense voluntary, it (and the premium payments it generates) will be disregarded.

  Note

  If an employee's contract stipulates that he (or she) will be paid an annual bonus calculated as a fixed percentage of his salary or earnings during the previous period of 12 months, the relevant proportion of that bonus must be included in the amount of a week's pay. If, on the other hand, payment of a Christmas (or equivalent) bonus is at the absolute discretion of the employer, that bonus will not be included in calculations.

• For most employees, whose contracts of employment stipulate normal weekly working hours, it is relatively easy to calculate the amount of a week's pay. An Employment Department booklet titled Rules Governing Continuous Employment and a Week's Pay (Ref PL 711) explains the method for calculating a week's pay in the case of shift-workers and others whose working hours often vary from week to week. Copies of the booklet are available on request from any office of the Employment Service.

  Note

  In certain situations, an employer may choose to offset pensions (and lump sum payments) provided under an occupational pension scheme against statutory redundancy payments. Full details of the statutory provisions on account of pension, and examples showing the calculations are set out in Department for Work & Pensions leaflet PPL 1 (which should be readily available from Job Centres or unemployment benefit offices).

Calculations must be explained

• Every statutory redundancy payment must be accompanied by a written statement explaining precisely how that payment was calculated. Any employer who fails to comply with this requirement, without reasonable excuse, is guilty of an offence and liable on summary conviction to a fine of up to £200. An employer who fails to respond to a letter sent by a redundant employee demanding to be sent (or given) the explanatory statement within a specified period (not less than one week), is guilty of a further offence and liable on conviction to a fine of up to £l,000 (ibid. section 165).

References to an employment tribunal

• Any question as to the right of an employee to a redundancy payment, or as to the amount actually paid, must be referred to an employment tribunal within six months of the date of the employer's refusal or failure to pay (ibid. sections 163 and 164). If a tribunal upholds the employee's complaint, it will make a declaration to that effect and will order the employer to pay the amount of the redundancy payment due.
  
  
• If an employer is liable to pay a redundancy payment to an employee, but has either refused or is unable to do so because he (or she) is insolvent or in serious financial difficulties, the employee may apply to the Secretary of State for Education & Employment for a payment out of the National Insurance Fund. If the Department of Employment is satisfied that there is little chance of the employer being in a position to pay, it will pay the money directly to the claimant employee. The Department will then take the necessary steps to recover the money from the defaulting employer (or, as appropriate, from the relevant liquidator or trustee in bankruptcy) (ibid. sections 166 to 169).

Redundancy during maternity absence

• An employee absent from work on ordinary or additional maternity leave, who is not permitted to return to work because of redundancy, is entitled to be offered suitable alternative employment or (if there is nothing suitable for her to do) a redundancy payment. 

Unlawful selection for redundancy

• Any employee dismissed or selected for redundancy for an inadmissible or unlawful reason, or for asserting one or other of his (or her) statutory employment rights will be treated in law as having been unfairly dismissed (ibid. sections 104 and 105)