Redundancy - negotiate a well paid exit by knowing the law

If you are being made redundant, your employer has a number of statutory obligations in addition to making a redundancy payment if it wants to avoid a risk of unfair dismissal.

It must allow you a reasonable time off work to look for alternative employment. If more than 20 employees are being made redundant at one establishment within 90 days, the employer must also consult &quotappropriate representatives&quot of the employees concerned.

Failure to consult may entitle you to a protective award in a Tribunal and is also likely to render the dismissals unfair. This statutory obligation does not negate your employer's obligation to also consult with you on an individual basis. Failure to consult on an individual basis may also render the dismissal unfair (see below).

Your employer may also be liable for unfair dismissal if it fails to act fairly in all the circumstances. For example it should consider whether or not there is any suitable alternative employment, even if it is on reduced pay and status.

If you unreasonably refuse such alternative employment, you may lose your right to a redundancy payment. In considering whether the offer is &quotsuitable&quot or not, you are unlikely to be acting unreasonably if you refused a significant pay cut, or being employed on a lower status than before.

You are entitled to a four-week statutory trial period in the new position. If the new job does not work out, then you are still entitled to refer back to the original redundancy and claim the appropriate redundancy payment.

If the selection criteria for redundancy are inadequate or have been improperly applied, this can also lead to a finding of the redundancy dismissal being unfair.

If all procedures appear to have been complied with, and your dismissal appears to be a genuine redundancy, you will be entitled to a statutory redundancy payment as long as you have been employed for more than 2 years.

The payment is based on age, gross weekly salary and length of service. There is a cap of 250 a week when calculating your gross weekly salary and the total maximum statutory payment is capped at 7,500.

Financial services staff of course often have contracts of employment giving far more generous redundancy payments, and even if they do not, it is often the custom and practice of an employer to pay an enhanced redundancy. If so, the higher redundancy payment should be made, rather than the statutory amount.

Often it is possible to negotiate a severance payment with your employer, especially where there are question marks over the validity of the redundancy. Employers are usually keen to settle where this is the case. Professional advice should preferably be sought for such negotiations, and is essential where you are asked to sign a Compromise Agreement setting out comprehensive terms of settlement.

Notice

This is normally governed by contract, but in any event, employees are entitled to the statutory minimum of 1 week's notice for up to 2 years service, and then 2 weeks for every 2 years worked, 3 weeks for every 3 years etc, up to 12 weeks for 12 full years worked. Often, employers make a payment in lieu of notice as part of the severance packet.

This can be negotiated to be paid without deduction of tax (only up to 30,000), as long as the contract does not make a provision for the employer to make a payment in lieu of notice. If there is such a provision, tax must be deducted on such payment in the normal way.

Bonus

Where an employee is made redundant shortly before a bonus entitlement is due to be paid, a question that is often asked is what obligation the employer has to honour the bonus arrangement.

There are many different types of bonus schemes. Some are commission-related, which are based upon specific contractual formula, and others are awarded purely on the basis of performance, in the discretion of the employer.

Often in the latter type of arrangement, employees are not even aware of the basis of the calculation upon which the bonus is paid. The discretion might link to individual performances, the company's performance as a whole or simply give the employee the right to a discretionary bonus &quoton terms to be notified to the employee from time to time,&quot with a separate document listing criteria or a specific formula.

If the bonus is expressed to be contractual, then it should still be paid notwithstanding the actual date of dismissal (pro rata if the dismissal falls before the year end).

If the bonus is discretionary, the position is more difficult. Where your employer has by custom and practice paid bonuses to employees where they have left employment before the year end bonus has been determined, then you should also be paid such bonus in line with this practice.

Recent cases have, furthermore, put discretionary bonuses under the spotlight and shown that employers may not have as much unfettered discretion as they think. In the case of Clark-v- Nomura, the employee's bonus was discretionary. It was not guaranteed in any way, being based upon individual performance.

That performance was good. The employee was nevertheless dismissed shortly after the year end with no bonus having been paid. The courts awarded the employee substantial damages, largely reflecting the bonus that would have been paid.

It said that &quotan employer would be in breach of contract in relation to an unfettered discretion if no reasonable employer would have acted in that way&quot.

In another case, where the employee was entitled to &quotparticipate in a bonus arrangement providing a maximum of 60% of basic salary in any year,&quot the courts ruled that in calculating damages for breach of contract, they would make a realistic assumption of the bonus award that would have been made had the employer acted in accordance with its obligations.

Finally, where a general discretion is stated in the contract, and the employer seeks to withdraw the scheme during the bonus period, this is likely to be a breach of contract. If there is to be a withdrawal or amendment, this should take place at the end of the bonus year and only apply to future entitlement.

Landau Zeffertt Dresden is at www.lawserve.co.uk

Disclaimer

The information and any commentary on the law

is provided free of charge for information

purposes only. Every reasonable effort is made to make

the information and commentary accurate and up to

date, but no responsibility for its accuracy and

correctness, or for any consequences of relying upon

it, is assumed by either eFinancialNews or Landau

Zeffertt Dresden. The information and commentary does

not, and is not intended to, amount to legal advice to

any person on a specific case or matter. You are

strongly advised to obtain specific, personal advice

from a solicitor about your case or matter and not to

rely on the information or comments on this site.