Crippling Redundancy Costs?

According to press reports this morning, unions are warning of strikes after the government confirmed plans to change public sector redundancy payments, despite having lost a recent legal battle to reduce redundancy payments. Will other employers be in a similar fix if it’s been their custom & practice to pay generous enhanced redundancy payments in the past?



Statutory redundancy pay is actually relatively modest for the majority of employees; and amounts to a weeks pay to a maximum of £380 x full years worked (if employed for over 2 years), with a multiplier of 1.5 for years worked over the age of 41. For a redundancy pay calculator, see http://www.direct.gov.uk/redundancy.dsb. Some employers do forget that on top of that statutory redundancy payment, employees also have the statutory right to a weeks notice per full years worked to a maximum of 12 weeks (or payment in lieu). In other words, someone’s contract may say they are only entitled to 4 weeks notice, but if they have been employed for 12 years, the maximum statutory notice entitlement will apply.




In Harlow v Artemis Internation Corp Ltd HC back in 2008 it was held that a provision in a staff handbook term was an express term of the contract of employment. This had the effect that the employee was legally entitled to enhanced redundancy pay even though the right to it was set out in the staff handbook rather than in his formal contract of employment. As it had become custom and practice for Artemis to compensate redundant employees in accordance with its enhanced redundancy policy from time to time meant that this custom and practice could also have been treated as an implied contractual term if it had not already been an express term.


It’s generally unwise therefore to have enhanced redundancy terms set out in the handbook, or indeed any document circulated to staff. If you do use a formula to calculate enhanced redundancy on one occasion, it’s worth making clear that this may be amended or withdrawn at your discretion. The more rigidly you apply an enhanced redundancy formula over the years, the more vulnerable you will be to the argument that it amounts to a contractual term by custom & practice.

James Carmody http://www.reculversolicitors.co.uk/