Case Law Update - Redundancy Pay, Statutory v Contractual

Ben McCarthy

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22 Nov 2019

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The Employment Appeal Tribunal (EAT) has provided further clarification on how statutory and contractual redundancy pay should be provided to employees.

If you want a quick summary of the case and the main takeaway points, you can skip ahead to our Too Long; Didn’t Read section here.

Ugradar v Lancashire Care NHS Foundation Trust

The law

When making an employee redundant, you should give them statutory redundancy pay. (If they have at least two years’ continuous service)

You calculate pay on the basis of an employee's age, length of service and weekly pay. And, it’s subject to a weekly maximum.

In addition to this, employers may also provide enhanced, or contractual, redundancy pay. They are free to set this at any rate they choose, provided it does not go below the statutory requirements.

The overall redundancy payment provided as part of the contract can also be offset against the statutory amount.

For example, an employee might be due £15,000 in redundancy pay from the contract and £5,000 as part of their statutory rights. As their employer, you could incorporate the £5,000 into the £15,000. This would mean the employee would receive £15,000 overall.

An employees’ right to redundancy pay can be forfeit however. If they are offered suitable alternative work and refuse it, for example.

For the new role to be suitable, it must be fit the employee’s skills, qualification, plus status, pay & benefits.

Generally, it’s unlikely that a tribunal will fail to agree with an employee that an alternative role was unsuitable.

In the event an employee isn’t provided their enhanced redundancy pay they can pursue a breach of contract claim. However, the employment tribunal (ET) can only award a maximum of £25,000. This is due to the Extension of Jurisdiction Order 1994 which imposes a cap on the award.

This cap remains in place even if the employee is entitled to a much higher figure.

Background to the case

The employee in this case was engaged to work at an NHS Trust under its Agenda for Change (AfC) terms & conditions. This entitled her to a contractual redundancy payment.

She was later placed at risk of redundancy due to a reorganisation. She refused to take alternative roles when offered.

She argued that they were unsuitable for a number of reasons. In particular, she claimed they wouldn’t permit her to practice her therapeutic skills. As a result it would ‘obstruct’ her professional development.

As a result of this, the Trust refused to provide her with redundancy pay. They claimed she’d unreasonably denied offers of alternative employment.

The employee later brought claims to the employment tribunal. She claimed breach of contract and failure to provide statutory redundancy pay.

The payment she was due to receive was £43,949, which included a statutory redundancy amount of £5,868.

What did the employment tribunal say?

The ET held that the alternative employment offered to the employee was unsuitable. Therefore, she was entitled to receive her redundancy pay.

However, due to the cap on the amount that could be awarded to her, the tribunal was only able to award £25,000 in total.

They explained that the employee was not entitled to receive statutory redundancy pay in addition to this award. The wording of the terms of the AfC were interpreted to mean that this payment had already been subsumed into her contractual pay.

Therefore, the award she received also included the statutory redundancy pay. The pay she’d previously been unlawfully denied by the organisation.

The employee appealed against the amount awarded to her to the Employment Appeal Tribunal (EAT).

What did the Employment Appeal Tribunal say?

The EAT upheld her appeal. They found she was entitled to her statutory redundancy pay in addition to the amount awarded as part of her contractual pay claim.

Claims for failure to provide contractual and statutory redundancy pay were two separate causes of action. Although there had been some overlap in this case, they did not represent one single cause.

They held that the Trust had been entitled to offset statutory redundancy pay against the overall contractual amount provided. However, the employee met the conditions to qualify for statutory redundancy pay. As a result the provisions of the AfC could not serve to restrict her rights to this.

Despite having ruled in the employee’s favour the EAT was still limited by the cap. They were able to award the additional statutory amount on top of the £25,000 previously provided. However, the employee still lost out on over £18,000.

Commenting on this, the EAT called for this cap to be re-evaluated. They stated that it hadn’t been subject to review for a ‘quarter of a century.’ If it had been, it would’ve prevented the employee from unfairly suffering these losses.

Takeaway points

The findings of the EAT in this case make it clear that claims for statutory redundancy pay are separate to those for contractual pay.

Organisations who provide enhanced redundancy pay may be liable to pay statutory pay on top of the unpaid contractual amount. If you find yourself facing a claim, be wary of this.

There’s also suggestion that the current cap of £25,000 on breach of contract claims could be subject to review.

Such a cap does not apply in the county court, although it’s unlikely employees would pursue this route due to tribunal claims having no fees.

TL;DR

An employee worked at an NHS trust. She worked under Agenda for Change (AfC) terms & conditions, meaning she was entitled to contractual redundancy payment.

She was placed at risk of redundancy and offered alternative roles. She refused them. Then, she was made redundant without pay.

As she was due to receive £43,949, she took her employer to an employment tribunal. They found that the alternative work offered to her was unsuitable. However, they could only award her £25,000 due to a cap.

She then went to the employment appeal tribunal. They upheld her appeal. They found she was entitled to her statutory redundancy pay in addition to the amount awarded as part of her contractual pay claim. They stated that claims for failure to provide contractual and statutory redundancy pay were two separate causes of action.

Keep in mind that these two issues are separate. You may be liable to pay both if facing a claim. Also, this figure could increase following a potential review of the award cap.

Expert support

Worried how this latest ruling might impact your business? Dealing with a difficult HR situation and not sure where to turn? Speak to a Croner expert today for support and guidance on 01455 858 132.

About the Author

Ben McCarthy works as a content writer for Croner producing commentary and guidance on employment law and key HR developments. Coming from an extensive legal background, Ben regularly constructs key training materials for clients and advisers, and provides daily contributions to national publications.

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