How to handle redundancy: Know what you’re entitled to and seek legal advice

Since 2008, “redundancy season” has become an inherent part of life in the City. The shifting market and regulatory backdrop have led to swathes of job cuts, as companies restructure to fit the new landscape. Even now that economic conditions are more benign, many will wait anxiously as HR departments gear up for the annual cull. Limits on bonuses, for example, have driven up salaries and, by separating pay from performance, are encouraging firms to cut headcount to limit wage bills. So if you find yourself in the unhappy position of being made redundant, what can you do to help you secure appropriate compensation without harming your future employability?

 

Traditionally, organisations have sought to avoid using the word “redundancy”. In some cases, formal redundancy processes have been routinely ignored and employees dismissed with immediate effect. In such situations, employees might be presented with compromise agreements (now known as settlement agreements) with an offer which exceeds their contractual and statutory entitlements. Employers like the immediacy and simplicity, usually avoiding time-consuming negotiations with (or claims from) employees and their legal representatives.

 

Although this “traditional” practice remains common, it is increasingly seen as an unnecessary expense to pay termination sums in excess of legal requirements when it is possible and better to follow a fair redundancy process. Many employers now follow a process of collective consultation, use redundancy selection criteria, and individual consultation. Providing an employer follows a fair procedure and the redundancy is genuine, they should be able to successfully defend any claims for unfair dismissal.

 

Nevertheless, for some jobs, following a fair redundancy process may be seen as contrary to an employer’s interests. Senior or high value trading roles don’t fit well with protracted redundancy consultation, for example. Employers may regard the price of additional compensation as commercially worthwhile.

 

If you face redundancy, the first issue to consider is whether you have a legal claim. Being aware of the legal arguments can help you to choose whether you should accept any pay-out or hold out for more. Employees with more than two years’ service are entitled to a relatively nominal statutory redundancy payment. Compensation for unfair dismissal is higher, limited to the lower of an employee’s gross annual salary or the statutory ceiling, currently £76,564.

 

For senior employees, the bigger consideration can be their contractual entitlement to any earned or prospective bonus, stock options, or other forms of deferred pay. Employees may lose out if redundancy results in the forfeiture of unvested options. Often, employers have made bonuses conditional on the employee remaining in employment and not being under notice of dismissal at the time payment becomes due.

 

Has your selection for redundancy been influenced by, for example, discrimination or is it a result of a previous protected disclosure (whistleblowing)? In such cases, neither the normal statutory ceiling on the award for unfair dismissal or the two-year qualifying period of continuous employment apply.

 

Once the commercial terms of settlement are agreed in principle, other issues matter to employees: the reference; garden leave or immediate termination; outplacement counselling; post-termination restrictions, and even continuing provision of private medical insurance or other benefits.

 

It is a statutory requirement that any employee entering a settlement agreement takes independent legal advice. By seeking advice that goes beyond just a legal rubber stamp, you might find that redundancy works for you as well as it does for your former employer.

 

Richard Nicolle is a partner at Stewarts Law.

 

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