When an employee is made redundant they are entitled to receive statutory redundancy pay if they have at least two years’ continuous service. The payment is calculated on the basis of an employee's age, length of service and weekly pay, subject to a weekly maximum. In addition to this, organisations 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 payment can also be off-set against the statutory amount.
If an employee facing redundancy refuses to take up suitable alternative work when offered, their right to redundancy pay is extinguished. However, whether the new role would be considered suitable has regard to the skills and qualifications needed to do it, alongside its status, pay and benefits.
If employees are not provided their enhanced redundancy pay and pursue a breach of contract claim through the employment tribunal (ET), the maximum amount they can be awarded is capped at £25,000 by the Extension of Jurisdiction Order 1994.
The employee in this case was engaged to work at an NHS Trust under its Agenda for Change (AfC) terms and conditions. This entitled her to a contractual redundancy payment that supplemented her entitlement to statutory redundancy pay.
She was later placed at risk of redundancy due to a reorganisation and refused to take alternative roles when offered. She argued that they were unsuitable for a number of reasons, including that they would not permit her to practice her particular therapeutic skills and therefore serve to ‘obstruct’ her professional development.
As a result of this, the Trust refused to provide her with redundancy pay, claiming she had unreasonably denied offers of alternative employment. The employee later brought claims to the employment tribunal for 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.
The ET held that the alternative employment offered to the employee was unsuitable, meaning that 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 as 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 she had previously been unlawfully denied by the organisation.
The employee appealed against the amount awarded to her to the Employment Appeal Tribunal (EAT).
The EAT upheld her appeal, finding that she was entitled to her statutory redundancy pay in addition to the amount awarded as part of her contractual pay claim.
In forming their decision, the EAT explained that 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 that was provided. However, as the employee met the conditions to qualify for statutory redundancy pay, if 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, meaning that whilst they were able to award the additional statutory amount on top of the £25,000 previously provided, the employee still lost out on over £18,000. Commenting on this, the EAT called for this cap to be re-evaluated, stating that it had not been subject to review for a ‘quarter of a century’ and, if it had been, would have prevented the employee from unfairly suffering these losses.
The findings of the EAT in this case make it clear that claims for statutory redundancy pay are separate to those for contractual pay. This means that organisations who do provide enhanced redundancy pay and find themselves faced with such claims could potentially face liability to pay whatever statutory pay is due on top of the unpaid contractual amount.
There is also suggestion that the current cap of £25,000 on breach of contract claims could be subject to review going forward. Such a cap does not apply in the county court although it is unlikely employees would pursue this route due to tribunal claims having no fees.