Redundancy Compensation – a Simple Guide

Redundancy Compensation – a Simple Guide

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Home Page > Law > Redundancy Compensation – a Simple Guide

Redundancy Compensation – a Simple Guide

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Posted: Jan 07, 2011 |Comments: 0

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Under the strains of the recession many companies have found themselves in a position where a making staff members redundant has been the only way to cut costs. Nevertheless, for an employer to make an employee redundant they must have a fair reason and follow a fair procedure, the Tribunal must be convinced that the redundancy was ‘fair in all the circumstances’.

It is common practice for an employer to inform staff generically that redundancies are taking place. This does not however exempt an employer from their responsibility to offer an employee a consultation regarding their redundancy.

Determining who to make redundant:

An employer has to show that they have used a fair selection process in order to choose those employees being made redundant. Sometimes selection is made where there is actually not much choice i.e. where a whole sector of a business goes down, the staff working in that sector are no longer needed.

However in many cases the choice is not so clear-cut. In order to be compliant with the law an employer must select workers for redundancy on grounds such as their ability, experience and disciplinary record. An employer is not allowed to select on grounds such as a person’s race, marital status, whistleblowing or their work pattern (i.e. part-time, flexible hours). If an employer makes a member of staff redundant on one of these latter reasons, then the redundancy becomes an unfair dismissal.

Following a fair process:

An employer should follow a fair process when making staff redundant. If making more than 20 employees redundant than an employer should attempt to evoke a collective consultation i.e. consulting with one person from the appropriate trade union or a nominated employee representative. If the latter, then the employer representative should be fairly elected.

At this consultation the employer should make the following clear:

– The proposed reason for the redundancies;

– The process followed when choosing those who are going to be made redundant;

– The number of employees being put forward for redundancy; and

– The projected notice period and procedure for the redundancies to take place.

This meeting should not involve the employer presenting details of their pre-determined redundancies to the employees. The employer must approach the consultation with an open mind and be prepared to listen to any objections and arguements aginst the selection process. The consultation should be a process of negotiation and a way of finding amicable agreements with employees. It is often recommended that an employers uses a scoring process for their employees, scores are awarded for things such as work ethic, attendance rates etc, an employee can then be given the opportunity to improve their score and not to be made redundant.

If an employer fails to consult with their staff prior to making the redundancies, the redundancy can become automatically unfair and they risk being taken to an employment tribunal.

Notice Periods:

The law sets out statutory notice periods that an employer has to provide in order to make an employee redundant. These are variable dependant on the employee’s length of service:

– If the employment has been between one month and two years – one weeks notice;

– If employed between two and twelve years – a weeks notice for every year of employment; and

– If employed for 12 years plus – 12 weeks notice.

These statutory periods are subject to any prior agreements contained within the employment contract. Not only this, but if there is any doubt to the exact start date of an employee’s contract it is always advisable for the employer to err on the side of caution regarding the given notice period.

If an employer does not provide an adequate notice period, then once again they risk the redundancy becoming unfair and being taken before an employment tribunal.

Appealing the decision:

An employee should always be given the opportunity to appeal against their redundancy. The employer’s own internal appeals process should be followed in order for this to take place. The employer is also under a duty to follow this procedure fairly. The most common reason ground of appeal is the employer’s selection process.

An employee should always appeal a redundancy if they think the reason or process has been unfair in any way. If the employee has not internally appealed against their redundancy and merely proceeds to begin a tribunal claim they can be penalised by a 50% reduction in their compensation amount.

An employee should always seek legal advice before appealing against a redundancy on the ground of legal unfairness.

Redundancy pay:

If after an appeal the redundancy is going ahead, an employer should then have a ‘final meeting’ with the employee to discuss their redundancy compensation package. The amount paid to the employee through the redundancy package should be physically shown on a financial statement provided by the employer.

The redundancy compensation package is normally composed of three elements: a statutory redundancy payment, a notice period payment and payment for any outstanding annual leave or accrued time. Note statutory redundancy pay is only awarded to those whom have been employed for two years or more.

Statutory redundancy pay is independently calculated using the following factors:

– Length of the employee’s continuous service; •

– Employee’s age; and

– Employee’s gross pay.

There is a statutory maximum of £380 (gross monthly pay) for redundancies made after 01 October 2009.

Don’t forget that just because your employer describes your dismissal as redundancy, it doesn’t mean that you’ve actually been made redundant. Employers often misunderstand what redundancy actually means. Therefore. depending on what exactly has happened in your case, it may be that you have a claim against your employer that you could bring before the tribunal. Due to this, the amount of redundancy compensation you have been offered might be significantly less than you would get for the dismissal. If in any doubt at all, always make sure you take legal advice from experienced employment solicitors who specialise in redundancy cases.

About the Author:
Bonallack & Bishop are specialist employment solicitors with experience of redundancy compensation. Tim Bishop is senior partner at the firm, responsible for all decisions. He has grown the firm by 1000% in 13 years and plans to expand further.
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