Scope of the right 

The right is to a lump-sum compensation payment for an employee who fulfils the prescribed conditions and is:

◉ dismissed because of redundancy or

◉ laid-off, or kept on short time within the contract, for several weeks.

Conditions for eligibility 

◉ The employee must have continuous service of at least two years.

◉ There must be a dismissal (unless the specific provisions on lay-off and short-time apply).  For this purpose, ‘dismissal’ has the same definition as that used for unfair dismissal.

Dismissal will be ‘by reason of redundancy’ if:

◉ the employer has ceased, or intends to cease, to carry on the business overall or in a particular place where the employee works or is based, or

◉ the employer’s requirement for employees to do ‘work of a particular kind’ has ceased or diminished, or is expected to cease or diminish overall or in a particular place where the employee works or is based.

Common misconception (5)

‘….there must be a net reduction in jobs for the redundancy definition to be satisfied’ 

That will often be the case, but it is not necessary.  The same number of jobs might be transferred to a new location from a closing one, or even more new jobs might be created at the new location: redundancy would still apply to those employees whose place of work was closing.  

Furthermore, the second limb of the redundancy definition refers to the requirement for a particular type of work to have ceased or diminished.  Sometimes, at the same location, an employer will make changes in the content of jobs (even though they may retain the same title).  And that employer may be content for the people in the ‘old’ jobs to continue in the new or reconfigured ones.  But there may then be an argument that the extent of the change in job content is such as to make the latest requirement one for work of a new, different kind.  Any termination would then be by reason of redundancy and give rise to eligibility for a statutory payment.

Possible disqualification from entitlement to a redundancy payment

An employee’s entitlement to a redundancy payment is only maintained if the employee does not unreasonably refuse any offer of suitable alternative work that the employer makes before the contract for the redundant terminates.  For this purpose:

◉ an offer on the same terms in the same place disqualifies the employee from payment

◉ an offer on different terms or in a different place raises questions of flexibility, suitability, and also the reasonableness of refusal (where the focus is on factors, such as travelling time and parental commitments that are specific to the individual).

There is provision for a trial period of at least four weeks in any new job that is offered.  The expiry of the trial period is regarded as acceptance of the new job.  

If, during the trial period, the employee terminates the employment for whatever reason, or the employer terminates it for a reason arising out of the change, then the employee is treated for redundancy payment purposes as dismissed from the original job.  The employee therefore receives a redundancy payment, unless the new job was suitable and termination unreasonable.  However, even then, the dismissal may still be unfair according to the considerations mentioned previously.

Common misconception (6)

‘… the conditions governing entitlement to a statutory redundancy payment also apply to access to an additional "company" redundancy payment’

Formally, they do not.  When an employment tribunal applies the rules in the redundancy legislation, its decision binds the parties on the statutory payment only.  The entitlement to an enhanced payment, whether introduced in the contract of employment or in negotiation or consultation under a specific redundancy exercise, does not automatically follow.  

That said, if there are no separate detailed rules in place, it will be difficult to resist practical and legal pressure to treat the additional payment component in the same way as the statutory.  So, if it is intended to depart from the criteria used for the statutory scheme, it is sensible for an enhanced scheme explicitly to set down its own rules and conditions.  

For example, it might provide that refusal of any offer of alternative employment (not just ‘suitable’ alternative employment) disqualifies an employee from the non-statutory payment.

Lay-off and short-time 

An employee can claim a redundancy payment if laid off or on short time for four consecutive weeks, or for a broken series of six weeks in any 13 weeks.  For this purpose:

◉ lay-off is no work and no pay of any kind from the employer for the week in question

◉ short time is shortage of work and less than half pay for that week.

Note: the statutory provisions on guarantee payments use a different definition of lay-off, based on individual workless days.  

The employee must initiate the process by giving the employer, within four weeks of the latest week of lay-off or short time, written notice of intention to claim a redundancy payment.

Entitlement then depends on whether the employer serves counter-notice within seven days, contesting the claim because there is a reasonable prospect of a sustained resumption of full working.  If so, the employment tribunal decides.  Payment, in any event, is made only when the employee finally resigns with notice.

The service requirement of two years applies.  

This statutory right is only needed if the contract of employment allows the employer to lay the employee off and/or to implement short time.  Without this right, the employee would be unable to claim a redundancy payment, regardless of the length of the lay-off or short time.  

In contrast, if the contract does not contain lay-off/short-time provisions, an employee experiencing lay-off or short time can resign and assert ‘constructive’ dismissal by reason of redundancy in order to get a statutory payment (see earlier).  The statutory lay-off/short-time rules are not needed.  

The tariff

The calculation is based on a scale, working back from the date of dismissal:

◉ for each year of reckonable service from age 41  - 1½ weeks’ pay

◉ for each year of reckonable service from age 22 to 40 - 1 week’s pay

◉ for each year of reckonable service below age 22 - ½ week’s pay

A ‘week’s pay’ is calculated according to defined rules.

Applicable limits:

◉ the maximum service taken into account is 20 years (a ‘year’ being 12 complete calendar months)

◉ so, if all these years fall at the age of 41 or older, there will be a maximum of 30 weeks' pay

◉ with effect from April 2018, the maximum ‘one week’s pay’ is £525

◉ so the maximum overall payment is £15,750.

The maximum amount of ‘one week’s pay’ (and therefore of a statutory redundancy payment) is reviewed each April.

‘Indirect’ age discrimination and redundancy payments 

Although it is, in part, based on length of service, the statutory redundancy payment scheme is specifically exempted by legislation from any unlawfulness caused by ‘indirect’ age discrimination.  

Any scheme for enhanced redundancy payments will also be completely exempt from such unlawfulness provided that it uses the statutory scheme’s classification of ages and bases itself on the same sliding scale of ‘weeks’ pay’ entitlement before applying a common multiplier or ignoring the maximum on a week’s pay.  

Any other form of service-based enhanced scheme will need to satisfy the ‘objective justification’ test under age discrimination law.

A claim for a redundancy payment must be made within six months of the termination of the contract (unless a claim for unfair dismissal is made within three months).  The employment tribunal can hear a time-barred claim within a further six months, if that is just and equitable in the circumstances.

If the tribunal awards an ex-employee a statutory redundancy payment, it may also award compensation for any financial loss caused by the employer’s non-payment.

There is a duty to consult representatives of employees.

At the same time as representatives are being consulted, there is also a duty to notify the Department for Business, Innovation and Skills (DBIS) on Form HR1 of the proposed number of redundancies.  Failure to notify can result in criminal proceedings and an unlimited fine (level 5 standard scale of the Criminal Justice Act 1992 as amended) against the company and/or its officer.

A dismissal for redundancy may be unfair on grounds that:

◉ the employer has failed to give the employee as much warning or opportunity for one-to-one consultation as is reasonably practicable (unless the employer can reasonably conclude, at the time, that such consultation would be futile), or

◉ the selection criteria used are unreasonable in themselves or have been applied unreasonably, or

◉ the employer has failed to consider and, if appropriate, offer the employee any alternative employment that was available.

Common misconception (7)

‘… the employer’s duty to consider and explore with the employee opportunities for alternative employment only extends to work that is "suitable"’

Unfair dismissal law focuses on what reasonable measures the employer has taken to avoid the dismissal of an employee whose current job is redundant.  Unemployment, even temporary, is undesirable, both for the individual and for society.  

So, the employer’s duty covers most, if not all opportunities or vacancies that exist within the organisation, regardless of their nature, worth or status.  It is the employee’s prerogative to refuse on one or more of these grounds, but not the employer’s right to forego at least discussing them with the employee.  

Of course, in the context of entitlement to a statutory redundancy payment, the employee’s refusal of an alternative job may have consequences only if that alternative is suitable in the first place (see above).  But that is a different matter, based on a separate set of rules.

Also, a redundancy dismissal will be unfair if the employee is selected for any of the ‘automatically unfair’ reasons (referred  earlier).  The normal service qualification for unfair dismissal does not apply to these automatically unfair reasons.