Due to the financial impact of losing your job by being made redundant, it’s important to know your employment rights in relation to receiving a redundancy payment. In this article we explain Statutory Redundancy Payments, Enhanced Redundancy Payments and show examples of cases involving Enhanced Redundancy Payments below.
What are Statutory Redundancy Payments?
Statutory Redundancy payments are calculated with reference to an employee’s age, weekly pay and the number of years of continuous service.
- You will receive 0.5 of a week’s pay for each full year you were under the age of 22
- One week’s pay for each full year you were 22 or older, but under the age of 41
- 1.5 weeks’ pay for each full year you were 41 or older
As of 6 April 2017, the law in England and Wales states that the amount of gross weekly salary to use in a redundancy payment calculation is capped at £489, so any gross pay above this amount is not considered. Some employers may agree to pay you your actual weekly pay (without the cap), however this is subject to separate agreement.
The Statutory Redundancy Payment is the minimum an employer should pay you if you have formally been made redundant. However please note this redundancy entitlement is only valid if you have been working for your employer for over 2 years.
Example – Mr C had been working for his employer for 6 years and was aged 48 at the date of his redundancy. His gross weekly pay was £500 (this will be capped to £489).
Mr C would receive 1.5 weeks’ pay for each of the 6 years of service he has given to the company. He will therefore receive the total of £4,401 by way of Statutory Redundancy payment.
Redundancy pay is normally tax free up to £30,000.
What are Enhanced Redundancy Payments?
Some employers may operate a policy to enhance redundancy payments for employees. These will normally take two forms – Express Terms and Implied Terms.
These are terms that have been confirmed either orally or in writing, and understood by all parties to be part of the contract. If there is any misunderstanding over the terms, it can lead to a dispute between the employer and the employee.
When terms are written, the main types of dispute are likely to revolve around their interpretation and application in a particular set of circumstances.
Where contractual terms are orally agreed, the matter would be a question of what the terms were and this would be for the Court to decide. The evidence will likely be the witness evidence of the parties involved, and therefore witness recollection will be key in persuading the Court exactly what was said, when this was said and the true application of the words used.
Generally express terms are less likely to be in dispute. However disputes can arise as to whether the particular term was contractual or whether further policies have been introduced since the original contract.
It is common for an employment contract to be made up of both express and implied terms.
Implied terms are those which have not been explicitly confirmed by all parties, but they are considered either so obvious that they are part of the contract, or have been ‘inserted’ in the contract by the custom or practice of the parties or industry.
Terms will only be implied by law in particular circumstances. The most obvious type of enhanced redundancy payments cases would be by way of ‘custom and practice’. This means it’s the organisation’s practice to offer enhanced redundancy payments. But this can be difficult to prove, as you would need to show the Employment Tribunal or Court that enhanced redundancy payments were paid to other employees, every year, and there were no verbal representations made to the contrary.
Generally speaking, implied enhanced redundancy terms must be ‘reasonable, notorious and certain' and must be shown to be the general rule rather than exception. The onus (responsibility) will be on you to show this to the Court or Employment Tribunal.
A key factor in deciding whether a term has been implied is whether a clear and certain policy has been communicated to employees. This would go some way to showing that the policy was ‘notorious’.
Examples of Enhanced Redundancy Payment Cases
The cases described below give some examples of when employees have argued that they are due to receive enhanced redundancy payments.
Albion Automotive Ltd v Walker and ors 2002 EWCA Civ 946 CA
This case gives useful guidance to employees seeking to rely on an implied term. In this case the facts were:
- The redundancy terms were decided after high profile negotiations
- The existence of the terms had been drawn to the attention of all employees in writing
- The policy had been applied in 6 successive redundancy periods
As a result of these facts, the Court of Appeal found the enhanced redundancy payments were an implied contractual entitlement.
Quinn and Ors v Calder Industrial Materials Ltd 196 IRLR 126, EAT
In this case the Employment Appeal Tribunal (EAT) found employees had no right to an enhanced contractual redundancy payment, even though the company had made the same payments for a number of years. The reasons provided by the Employment Appeal Tribunal were that the policy had not been communicated to employees and the payment was not automatic, so it therefore remained discretionary. The mere fact an employer has chosen to pay enhanced redundancy payments previously is not usually sufficient to be held to be implied.
Keeley v Fosroc International Ltd 2006 IRLR 961, CA
If it is clear that the terms in question exist, the next aspect will be to show those terms were incorporated into your contract and are therefore enforceable. Simply because the policy is referenced in an Employment Contract, does not necessarily mean that it is incorporated into the contract.
You must show that the term was ‘apt’ for incorporation. The case of Keeley v Fosroc International Ltd dealt with to what extent an enhanced redundancy policy listed in a staff handbook should be incorporated into a contract.
The Court of Appeal noted some provisions may be “...Declarations of an aspiration or policy falling short of a contractual undertaking…”. The Court of Appeal went further to confirm that the overall bargain would be viewed as to whether terms are apt for incorporation. Generally speaking, enhanced redundancy packages are considered as an employee’s overall remuneration package, therefore enhanced redundancy terms are normally considered to be apt for incorporation.
Other Sources of Enhanced Redundancy Payments
It may be worth checking whether your role is subject to a Collective Agreement. These are agreements made by or on behalf of trade unions and one or more employers’ associations relating to specific matters affecting the terms and conditions of employment. A Collective Agreement does not have to be stated as such to be valid and can therefore still be incorporated into a contract.
Where a Collective Agreement is incorporated into individual contracts, it will bind all employees whether or not they were aware, or a member of that particular trade union.
However it is important to separate the express incorporation of a Collective Agreement into a contract, with that of a passing reference. This can be shown by the case of Worrall and Ors v Wilmott Dixon Partnership Ltd and anor EAT 0521-4/09. In this case the claimant sought an enhanced redundancy payment as a Collective Agreement was referred to in his contract. This was not sufficient to have been incorporated into the Claimant’s contract as he had not shown evidence that he had received or read the handbook and therefore the Court felt he could not claim to have been bound by it. Furthermore, the Court could not find sufficient evidence that the mere reference to a Collective Agreement showed it had contractual effect.
It can be difficult to establish if you are entitled to any payment over the statutory minimum. It may also be difficult to establish whether you have actually been made redundant, or dismissed for other reasons. At Co-op Legal Services, we are experts in such disputes and would be happy to discuss ways in which we can help you.