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Redundancy/Settlement Agreements during the Coronavirus 19 Lockdown

The Government’s ‘Furlough’ scheme and the Lockdown have probably stalled many tough management decisions about redundancies but it is inevitable that the public and private sector swill be under great pressure to cut costs. 1 in 4 employers are considering redundancies.

The basics/Redundancy rights 

An employer has to give reasonable notice and then consult with employees about ideas for avoiding redundancies and the follow a fair procedure for any selection process including point scoring and a right of appeal. Failure to do so would normally result in a finding of unfair dismissal but the big issue to think about is:

….will an unfair dismissal claim leave you better off than signing a settlement agreement?  

In most cases, the answer is probably ‘no’… because the main remedy for unfair dismissal is based on a calculation of your future lost earnings (currently capped at 1 year’s net pay- with a upper limit of £88,519). If you win at the tribunal the employment judge will look at what has happened since the dismissal and take into account whether or not you would have been dismissed at some point even if the unfair dismissal had not happened.

It will be quite easy for employers to run this point by referring to second waves of redundancy. Taking account of legal costs, stress and the chance of losing, you should think very carefully about walking away from an enhanced offer for a number of reasons:

The absolute minimum an employer can pay is:

  • Statutory Redundancy pay- this is fixed at £538 for each year worked under the age of 41 and £807 for each worked over age 41. This is capped at 20 years’ The payment is non-taxable. If you have been made redundant and bring an unfair dismissal claim you cannot claim this award again (it’s called the Basic Award in an unfair dismissal claim).
  • Contractual notice- this will normally be set out in your contract (please have this ready) but cannot be less than 1 year for each year worked up to a maximum of 12 years. Tax and national insurance must be deducted from this. Again, you will already have received this in the redundancy. You may be entitled to bonus, commissions, private health insurance and these must be paid (net of tax and NI). Where bonuses are discretionary it will be very hard to challenge them in the current economic environment.
  • Protective award- where more than 20 employees who may be made redundant in the near future, there is a stricter requirement to consult including with workplace representatives, and a failure to do so can lead to a maximum award of up to 13 weeks’ pay. This is discretionary and tribunals will no doubt be sympathetic to employers who simply do not have the time or resources to consult in good time or as fully as might normally be expected so expect awards to be a the lower end.

Enhanced payments

A compensation payment of up to £30,000 can be made tax free. So any money received via settlement is more valuable than if awarded by a tribunal where it is taxable and paid net.

Types of redundancy

If the place of work closes down then provided the payments (above) are made it would be very difficult to bring any realistic kind of claim worth the legal cost and time, mainly because you would have no-one to compare yourself with! If your employer is looking to downsize the workforce then it must follow a fair selection procedure by reference to clear information.

If your employer becomes insolvent then there is a procedure for claiming redundancy and contractual notice from government funds but this can be time consuming.

Facing realities – ‘a bird in the hand’

In most cases if your employer is offering you an enhanced redundancy package, then you should think very carefully about losing it. For one thing, your employer may face liquidation or may withdraw or reduce the amount offer if the economy does not pick up. Remember the offer can be withdrawn at any time before it is signed by both the employer and the employee. 

In these unprecedented times it would also be wise to apply common sense: think about future job opportunities and the time and grief of litigation. Future employers will no doubt accept that redundancies were necessary at this time and so they won’t look at this in a negative light. Contrast this with having left and brought a legal claim…expect employers to be very conservative in terms of who they employ!

With the lockdown tribunals are going to face huge backlogs so it’s doubtful that you will get a hearing anytime soon. 

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