This article is divided into Eight Parts for easier reading:
- Part 01: Background.
- Part 02: Redundancy Pay and Taxes.
- Part 03: Redundancy and Consultation.
- Part 04: Suitable Alternative Work and Finding Other Work.
- Part 05: Redundancy and Other Factors.
- Part 06: Redundancy and Insolvency.
- Part 07: Directors.
- Part 08: Miscellaneous.
Part 05: Redundancy and Other Factors
This part of the article outlines other factors relevant to the redundancy process.
5.1 What about Holidays?
- Your employer may be able to require you to take any unused holiday while working through your notice.
- Your employment contract may or may not say something about this.
- If there is nothing in your contract, your employer can still make you take holiday during your notice period, but they must give you at least twice as much advance notice as the amount of holiday they want you to take.
5.2 What is a Settlement Agreement?
Upon the dismissal of an employee, that employee and their employer can enter into what is known as a Settlement Agreement (formerly known as a compromise agreement).
- Commonly used to record an employee’s terms of departure where they are to receive a severance/termination payment in return for the waiver of all actual and potential statutory (and usually common law) claims against the employer.
- Through a Settlement Agreement the two parties can settle any employment claims that may be made by the employee after they leave.
- By entering into a Settlement Agreement the employee waives their right to make any claims, such as unfair dismissal.
- Settlement agreements can be beneﬁcial for employers as it means that they do not have to worry about any later repercussions of dismissing the employee, such as having to attend an Employment Tribunal.
- They can also be much simpler and stress-free to arrange than a claim that has to go through the courts or an Employment Tribunal.
- Before reaching a Settlement Agreement with an employee, it must be ensured that they have received legal advice from an independent adviser ﬁrst. This adviser should be a qualiﬁed lawyer, a trade union representative or an advice centre representative.
- You should acquire a certiﬁcate from the adviser conﬁrming that they have given advice to the employee on the terms and effect of the agreement. The advice will also conﬁrm that the adviser has the necessary insurance.
- A redundancy situation does not always lead to a settlement agreement.
- It is important to understand is that, quite often, the ex gratia payment is negotiable, and if it is not, then you can focus on other areas such as bonus payments, the termination date, share options and holiday pay as points of negotiation to increase your overall termination package.
Examples of terms that a Settlement Agreement may contain include:
- An amount of compensation offered to the employee.
- Staggered payments may be offered as an alternative to a lump sum to encourage compliance.
- Assurances given by both the employer and employee.
- Should state clauses outlining remedies should either party renege on the agreement.
- Provision requiring the employee to confirm that, at the time of signing, they are not aware of any circumstances constituting gross misconduct, which would have entitled the employer to terminate employment without notice.
- If payment is conditional on this undertaking and some heinous act of misconduct is discovered, the employer could withhold payment without being in breach of the agreement.
- Indication that all terms have been accepted by the employee and that they will not take legal action in future.
- A letter of reference which can be used by the employee in future job applications (although it must be fair and accurate to avoid a claim from a future employer about misrepresentation or negligence).
- A ‘non-compete’ clause which places some restriction on the type of jobs the employee is able to apply for in the future.
- Payment of tax by the employer (consider Tax Indemnity Clause).
- Conﬁdentiality Clause – i.e. that the employee cannot disclose some or all of the details of the Agreement or the termination of their employment to anybody.
- Provision requiring the employee to repay all or part of the termination payment if they breach the agreement.
- To avoid allegations that the repayment clause is a penalty, and therefore void, it may be appropriate to consider whether the amount of the repayment is a genuine estimate of the employer’s potential loss.
For a valid waiver of statutory employment rights, certain statutory conditions must be met:
- The agreement must be in writing.
- The agreement must relate to a particular complaint or particular proceedings.
- The employee must have received independent legal advice on the agreement and in particular on its effect on their ability to pursue the statutory rights in question.
- The adviser must be identified in the agreement.
- The adviser must have insurance in relation to the advice.
- The agreement must state that the conditions regulating settlement agreements in the relevant legislation have been met.
5.3 What is a Severance Agreement/Payment?
- In the context of employment, an agreement recording the terms of termination of a contract of employment and any payments to be made, usually in return for a waiver of claims.
- In order to effectively waive claims under most statutory employment rights, a severance/termination agreement must comply with the statutory conditions for a settlement agreement.
5.4 What is a Covenant/Restrictive Covenant?
- An agreement or promise to do or provide something, or to refrain from doing or providing something, which is meant to be binding on the party giving the covenant (who may be referred to as the ‘covenantor’).
- In a finance law context, also known as an undertaking.
- In a property law context, in some circumstances, the agreement or promise may have to be given in a particular form for it to be binding.
- Some types of covenant may also be enforceable by, or against, persons who were not a party to the original arrangement.
- Restrictive covenant:
- A negative covenant that restricts the way in which a party can act, for example the way in which land may be used or what an employee can do.
- In employment contracts to protect the employer’s business by restricting the activities of an employee, generally after the employment has ended.
- Based on the restraint of trade principle that an individual should be free to follow their trade and use their skills without undue interference.
5.5 What Happens if the Business Keeps Me On?
The business will not have to pay redundancy pay to an employee(s) if it decides to offer to keep them on or it ﬁnds them suitable alternative employment.
5.6 What Happens if the Ex-Employer Advertises for a Post Similar to Mine?
If your employer claims that they no longer need the work you do to be done, but recruits someone else to fill the post after you have left it; this is a good indicator that something is amiss, that your redundancy is not a genuine one, and that there may be grounds for bringing an unfair discrimination case against your employer (the exception being if that person is on signicantly less money than you were, which is a legally acceptable reason to make you redundant).
- If you were made redundant – that is, you were told that your job was no longer needed – but you get clear evidence later that this was not the case, you may be able to claim unfair dismissal.
- Even if the job advertised is not the same as the one you did, but is sufficiently close that you might be able to do it, you could still have a case.
- This is because your employer should have actively investigated the possibility of suitable alternative employment for you when you were faced with redundancy.
- It may appear to a tribunal, after looking at the evidence, that this avenue was not properly explored.
- However, it is also possible that circumstances have changed since you left.
- Your former employer could argue that there was no prospect of a suitable alternative job when you were declared redundant, but that, for example, since you left, a new unexpected order has come in.
- Your employer should be looking for suitable alternative roles for you right up to your last day of employment.
- The first step in any tribunal claim is to contact ACAS by submitting an ACAS Early Conciliation Notification Form.
- If you want to claim that your selection from redundancy was unfair, you must submit the Form to ACAS within three months (less one day) of your dismissal date, otherwise the tribunal will not be able to consider your claim.
- ACAS conciliation is free, and it is an opportunity to try to settle the dispute without a tribunal claim.
- If ACAS conciliation fails (or if you or your employer choose not to participate in ACAS conciliation), ACAS will issue an early conciliation certificate.
- You will need the number on this certificate to bring your claim.
- All the deadlines in the employment tribunal are extremely tight and if you miss them, the tribunal is unlikely to consider your claim.
- Take advice from your union rep/solicitor and make sure you do not delay.
5.7 Employment Tribunals
- Employees have the right to take disputes about the amount of SRP they will receive, or their eligibility for it, to an Employment Tribunal.
- This is also true for NSRP.
- The time limits for SRP and NSRP are different.
- Complaints about SRP payments must be made within six months of the time at which the payment should have been made.
- Complaints about NSRP must be made within three months as they are breach of contract issues.
- This is the general rule, but there are some exceptions to it.
5.8 What is a Basic Award?
- The first of two elements of compensation payable to an employee successful in an unfair dismissal claim in the employment tribunal (the second element being the compensatory award).
- The basic award is designed to compensate an employee for loss of job security and is calculated in the same way as the statutory redundancy payment according to a formula based on the employee’s age, length of service and weekly pay (subject to a statutory limit).
5.9 What Can I Do With My Redundancy Pay?
You can do many things with your redundancy payment, including:
- Use it to replace lost income whilst finding other work.
- Clear debts or repay all or part of your mortgage.
- Check there are no penalties which might be incurred by redeeming your debts early.
- Pay in to a pension:
- You can benefit from tax relief on your contribution.
- However, consider that you might exceed the limit on pension contributions and the implication of this.
- Pay for a holiday.
- And so on.
5.10 What about Support?
- Anyone who has gone through redundancy will understand that it can create diﬃcult situations and conversations within the organisation.
- With this in mind, employers should think about how to support:
- Employees at risk of redundancy;
- Managers who are breaking the news;
- The people leading the consultation;
- Employee representatives; and
- Staff that are staying on.
- However, it is often forgotten that those staying on experience stress from seeing colleagues and friends being made redundant.
- They will also be part of a changing organisation and might feel uncertain about what the business and their roles will look like in future.
- As such, employers can support staff by providing:
- Additional face-to-face meetings;
- Help getting ﬁnancial advice;
- Clear plans for the future of the organisation; and
- Help finding work for another employer.
5.11 What about Unfair Dismissal?
If the redundancy process is not handled properly then the dismissal could be unfair, and the key areas of focus for employers are:
- The consultation;
- The search for suitable alternative work;
- The procedure; and
- The dismissal.
Things to Consider
- The Basic Award (Section 5.8) for unfair dismissal and the SRP are calculated in the same way, anyone who has one will not get the other as well.
- Where there is a technical breach that would not have made a difference to the fact that the employee was dismissed when they were, there is not likely to be much, if any, compensation.
- Where employees under notice of redundancy are dismissed on the grounds of incapacity the timing of the dismissal is likely to be significant, especially if the employer has taken no previous steps to dismiss the employee on ground of capability.
- Where an employee is under notice of dismissal for redundancy and is dismissed for gross misconduct, special provisions apply.
- In this situation the onus is on the employer to show that the employee is guilty of the misconduct.
- Under ordinary unfair dismissal the duty on the employer is only to show that they had a reasonable belief in the employee’s guilt after carrying out a reasonable investigation.
- Furthermore, an employee who is dismissed may still receive a redundancy payment at the discretion of the Tribunal.
5.12 Will a Breach of Contract Claim Affect My SRP?
Based on Ugradar v Lancashire Care NHS Foundation Trust UKEAT/0301/18/BA the answer to this would be no.
- In this case the claimant was made redundant and had a contractual redundancy entitlement of £43,949.04.
- The Trust refused to pay, claiming she had turned down suitable alternative employment.
- A provision in the claimant’s contract stated this entitlement was inclusive of SRP, in her case calculated at £5,868.00.
- The contractual redundancy pay therefore totalled £38,071.04.
- When the claimant brought her case to the employment tribunal, they awarded her £25,000, which was the then cap on breach of contract claims and held the cap also caught her SRP.
- On appeal to the employment appeals tribunal (EAT), the claimant won £25,000 for non-payment of the contractual redundancy pay, and £5,868.00 for non-payment of her SRP.
- The EAT held that the employer had two obligations to the claimant; one in contract and one in statute, and that the award should be reﬂective of both.
- The EAT clariﬁed the cap only applied to a breach of contract claim and did not impact the claimants statutory claim.
- Employers with contractual redundancy schemes should therefore be aware that the cap of £25,000 only applies to contractual redundancy pay and does not extend to the amount owed to employees under statute.
5.13 What about Share Options and Share Awards?
- Employees may be entitled to exercise share options and/or receive share awards either before or at some point after termination.
- The terms of the relevant employee share scheme will govern any right of exercise or entitlement to receive shares.
- Therefore, the reason for the termination will need to be clearly identied for the purposes of dealing correctly with the employee’s share scheme entitlements.
- However, there are many factors which need careful consideration in relation to shares, so individual advice on this is crucial.