Redundancy

What does redundancy mean?

The legal definition of a redundancy situation is:

• the employer has ceased or intends to cease, to carry on the business for the purposes of which the employee was employed by him, or has ceased, or intends to cease, to carry on that business in the place where the employee was so employed
• the requirements of that business for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where he was so employed, have ceased or diminished or are expected to cease or diminish

If the reason for dismissal falls within the definitions above the employee may be entitled to a statutory redundancy payment. Many companies have redundancy schemes which are more generous than the statutory provisions.

Redundancy payments

You are eligible for a payment if:

• you have two or more years continuous service since the age of 18
• you are below 'normal' retirement age (which will usually depend on your employer's normal practice on retirement).

Payments

For each full year of continuous employment up to a maximum age of 20, an employee is entitled to:

• From age 41 to 64: 1.5 week's pay
• From age 22 to 40: 1 week's pay
• From age 18 to 21: 0.5 week's pay
  

A reduction is applied in the final year before normal retirement age.

The calculations are made on the basis of basic pay and overtime is only included if it is guaranteed and required. There is a cap to the basic pay which can be claimed. The current maximum is £310 per week.

Disqualification from payment

You can lose your right to a redundancy payment if:

• you are offered your old job back or a suitable alternative and you unreasonably refuse
• you are dismissed for gross misconduct during the redundancy notice
• you resign before the end of the notice period.
  

Employer does not pay

From October 2004, unless there are special circumstances (e.g. threats or continuing harassment by the employer) the employee must write to the employer raising a grievance and attend one or two meetings before complaining to an employment tribunal about failure to pay redundancy payment.

The normal time limit of six months from the dismissal taking effect is extended by a further three months to allow this to happen. Compensation may be reduced if the applicant failed to follow the statutory grievance procedure.

If the employer is insolvent then statutory compensation will be paid. Some debts to former employees are treated as preferential and liquidators may be able to meet the claim. Seek legal advice from the union in such cases.

Protective awards

Before making 20 or more employees redundant the employer is required to consult at the earliest opportunity with any independent trade union which is recognised for collective bargaining or, where no union is recognised, with elected representatives.

Appropriate information must be provided to the union and the employer has to consult with a view to reaching an agreement. If the employer fails to do so, the union can apply for a 'protective award'. This is anything up to 90 days pay according to the circumstances, for each employee affected.

The time limit for these claims is normally three months from the date the dismissals take effect.