The TUC publishes a series of free booklets explaining your rights at work and dealing with other common workplace problems.

Facing Redundancy

Contents of this page:

If you would like to view a pdf file of the TUC's leaflet Facing Redundancy (text of which is below), then click on the link here http://www.tuc.org.uk/extras/redundancy.pdf

When the economy is in difficulties, redundancies are in the news every day. But even when times are better firms can re-organise or get taken over, and redundancies follow. This leaflet explains your rights if your job is at risk

Using this page

This leaflet gives a basic guide to the legal rights of those facing redundancy. It answers some common questions about those rights and issues such as tax and benefits.

Employment rights and these other issues are often very complicated, and before you challenge your employer you should take further advice. If you are in a union, a union rep or official should be able to assist. If not, other sources of help are listed at the end of this leaflet.

We have tried to make this information as accurate as we can, but it is only a short introduction and you should not take it as a comprehensive statement of the law.

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What is redundancy?

Redundancy is not the same as getting the sack. The key difference is between dismissal when an individual loses his or her job, and redundancy when the job itself disappears.

Dismissal can be fair (if you are caught stealing, for example) or unfair (if, for example, you are sacked for being pregnant). Employers must follow fair procedures if they are dismissing someone. Dismissal is dealt with in detail in the leaflet Your job and the law which you can get from the TUC's know your rights line 0870 600 4 882.

Redundancy is different. This happens when an employer needs to reduce their workforce. This means that it is not a redundancy if your employer immediately takes on somebody else to do your job. This would then become a dismissal, and you could well have a case against your employer even if they have told you that you are redundant.

This does not normally stop your employer taking on people to do a different job in your workplace, or people doing your job but in a different workplace. If your contract of employment says you could be moved to a different location or given a different job then you should have been offered these jobs before they were filled with new staff. If you think you might be in this situation, then you should take further advice.

Even if an existing member of staff is given your job, you can still be made redundant as long as there is an overall loss of jobs. An employer can normally reshuffle their workforce after making some people redundant. They do not have to get rid of the people currently doing the jobs that will disappear, as long as they are genuinely reducing the size of the workforce.

If you think you may not be legally redundant, but have been dismissed instead, then you should take advice. You may be entitled to compensation if you make a claim to an Employment Tribunal.

If the redundancies are genuine, there are still rules that your employer must follow, which are set out in this leaflet. In brief your employer:

  • will often have to give notice of redundancies and consult formally with the workforce
  • will have to pay redundancy pay to most staff who have worked for more than two years
  • must not choose who gets made redundant on the basis of their sex, race, disability, pregnancy or trade union membership.

Many employers will act fairly, and do more than the legal minimum if they are making redundancies. Unions are often able to negotiate far better terms.

But some employers may try to get out of all their legal obligations by trying to put you in such a bad position that you resign.

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Consultation on redundancy

If your employer intends to make more than 20 people redundant over a 90 day period, he or she must, by law, consult the workforce. If your employer recognises a union, it must be consulted. If not, your employer must establish a representative body or make use of an existing representative body, for example, a staff council, which must be elected by the entire workforce.

The agenda for consultation must include ways of avoiding redundancies or of reducing the numbers affected. Agreement does not have to be reached as a result of the consultation but the employer must consult "in good faith", that is, with a view to reaching agreement. Some information must be disclosed to the representative body including:

  • the reasons for the redundancies
  • the numbers and descriptions of those affected
  • the proposed method of selecting those to be made redundant, eg, "last in first out" (the method must not tbe discriminatory, eg, by selecting jobs which are predominantly done by women)
  • how any redundancy payments better than the legal minimum will be worked out

Consultation cannot just take place one afternoon when the managing director has a spare hour or two. There are minimum periods during which representatives must be consulted.

These are:

  • if 20 to 99 employees to be made redundant at one establishment over a period of 90 days or less, consultation must last at least 30 days, and,
  • if 100 or more employees are to be made redundant as above, consultation must last at least 90 days.

This consultation can make a difference. It can make management pause for thought. Some workforces have been able to suggest ways of avoiding compulsory redundancy altogether.

For example, in some workplaces all staff have volunteered to work fewer hours in the knowledge that trading conditions may well improve in the future. In other workplaces the consultations have led to fairer ways of choosing redundancy, perhaps by improving redundancy payments to the point where there are enough volunteers.

Individual notices of redundancy should not be issued until there has been sufficient consultation in line with these requirements. Any complaint that redundancy notices have been issued before consultation ends can be made to an Employment Tribunal. If the Tribunal finds that a complaint is justified it can make a protective award, which will require the employer to pay the employees their normal pay for the period covered by the protective award (that is, 90 days or 30 days as above).

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What if your employer offers you another job?

It can be difficult to work out your best course of action if your employer offers you another job. This may mean that you are not legally redundant if you turn this down.

These are the rules.

  • Your employer (or an associated employer, or an employer taking over the business) must offer you a new job before your current contract expires and it must start within four weeks.
  • The job must be suitable for you, and you can turn down an alternative offer that is clearly unsuitable.
  • If you think the job may be unsuitable but are willing to give it a go, you can agree to try it out for a four-week trial period. (This period can be extended if you are being retrained, but this must be done in writing).
  • If at the end of the trial period you are still in the job, then you lose any rights to a redundancy payment. In law you have accepted the new job.
  • If you reject the new job before the end of the trial period because it turns out to be unsuitable as an alternative, or for good personal reasons, your redundancy will be considered to have started the day your old job ended.

However if you and your employer disagree about whether the alternative job is suitable you may need to make a claim in an Employment Tribunal and show them why the job was unsuitable. If the Tribunal finds that you have refused a suitable offer of alternative employment you lose your right to a redundancy payment. So, if you thinking of rejecting an alternative job offer, take advice in good time.


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Redundancy Pay

The law sets out minimum redundancy pay, to which not everybody is entitled.

To be entitled to the legal minimum you must have:

  • worked continuously for at least two years for your employer (time you have taken off for maternity or parental leave is included) and
  • be an employee. (The difference between an employee and a worker is a complex legal point, explained in more detail in your job and the law which you can get from the TUC's know your rights line 0870 600 4 882. Most people are employees, but you may be a worker if you do not have a contract of employment and have a looser relationship with your employer such as being taken on to perform a particular service.)

How much?
The legal minimum you should get depends on:

  • how long you have worked for your your employer (with continuous service)
  • how old you are
  • how much you are paid

Employers can of course be more generous, though see below for why you should be careful about signing away any rights in return.

This is how the minimum is calculated.

If you are 41 or over:
For each complete year of employment after your 41st birthday, but before you turn 65, you should get one and a half week's pay

If you are aged 22-40:
For each complete year of employment after your 22nd birthday, but before you turn 41, you should get one week's pay

If you are aged 18-21:
For each complete year of employment while you were either 18, 19, 20 or 21 you should get half a week's pay.

But you can only count:

  • up to 20 years' service
  • your pay up to a fairly modest weekly limit. Until 1 February 2002, the limit is £240. It is
    uprated each year in line with the Retail Price Index.

Two bits of good news:

  • you do not have to pay tax on redundancy payments less than £30,000
  • receiving a redundancy payment does not affect your right to claim unemployment benefit.

The small print
The basic principles for working our redundancy pay are easily put. But in practice it can be complicated.

1. The first issue is working out how many years of service you have. The period starts with your first day with your current employer, and ends at what is called the "relevant date". This is the day on which your redundancy notice expires, even if your employer has let, or made, you work in the meantime. (See below to find out how to work out your notice.)

It is calculated in calendar years but with no fractions of a year. If you have worked for 10 years and 11 months, then it is counted as 10 years. The period must be of continuous employment. Days on strike do not count but do not break the continuity of the employment. Periods of maternity or parental leave do count and do not break the continuity of employment. Other absences may sometimes count towards a period of continuous employment, even where the contract was broken, for example, by a temporary stoppage of work.

2. The second issue that can be complicated is working out your weekly pay. For those on a salary, this will be straightforward, but not everyone is paid the same each week. There can also be arguments about which week to take and which part of your wage packet counts.

The weeks' wage is taken to be what your contract of employment said you should have been paid in the week your employer gave you notice, for that week's work. (If for some reason your employer did not give you formal notice then it is the week in which he or she should have given you notice.)

If your pay varies each week, for example because you are paid on a piece-work basis, the amount is averaged over the 12 weeks immediately before the calculation date. Overtime and other bonuses only count if you are guaranteed them in your contract of employment.

3. There are also some other important exceptions. You will not get redundancy pay if:

  • Your employment ends after your sixty fifth birthday
  • You work for a company with a normal retirement age of less than 65 and you have reached that age
  • You are an apprentice whose service ends at the end of your apprenticeship contract
  • You are on a fixed term contract of more than two years' duration which includes, with your written agreement, a clause waiving your right to a redundancy payment, provided your employment ends at the appointed time (this will end in July 2002 when the EU Directive on Fixed Term Contracts is introduced into UK law)
  • You are a domestic servant working in a private household or you are a member of the employer's immediate family
  • You are a share fisherman paid solely by a share of the catch
  • You are a Crown servant or employee in a public office or in the NHS covered by other redundancy arrangements
  • You are an employee of the government of an overseas territory.

4. If you are coming up to retirement then your redundancy pay may be reduced:

  • If you are within 12 months of your 65th birthday, your entitlement is reduced by one twelfth for each complete month after your sixty fourth birthday. This reduces your entitlement to nothing by the age of 65.
  • Your employer may offset part of your company pension payment against your redundancy payment if you are dismissed not more than 90 weeks before the first pension payment is due.

What if your employer offers you more?
Some employers will offer better terms and some will include these in your contract of employment. Your employer may offer a "severance" payment, which is a lump sum, as compensation for ending your employment. This must be above the statutory minimum if your job is being made redundant. In return for this, you may be asked to sign a legal document saying that you accept the sum and will not take any legal action against the employer in relation to the dismissal. If such an offer is made to you and you do not know whether to sign, you should seek advice from your union, from ACAS or from an advice centre.

What if your employer is broke?
If your employer cannot pay because of serious financial problems, the Department of Trade and Industry (DTI) will pay you directly. They will only ever pay the statutory minimum amount even if your contract of employment promised you more. In order to get payment from the DTI, you must first have submitted a claim to the employer in the normal way, as described below.

If your employer is insolvent, the payment is made by the DTI. (They will attempt to recover this from the assets of the business.)

If you lose out in these circumstances because your contract of employment promised you more than the legal minimum, you have a claim against the assets of the company. You will need to lodge a claim with the administrators if they are going through insolvency.

How to get the money?
It is up to your employer to give you your redundancy pay when you leave. You should not have to ask for it. But if you are not paid, then you should make a written request to your employer. If nothing then happens, or if you suspect your former employer will try and avoid paying you, then you should refer the matter to an Employment Tribunal. You need to do this within six calendar months of the date your employment ended. If you do not claim within six months you may lose the right to a payment. (The Tribunal does have discretion to extend this period by a further six months but you should not rely on this.)

What about notice?
If you are made redundant you are entitled to a minimum period of notice. For every year you have worked for your employer, you should get one week's notice, up to a maximum of 12 weeks.

If your employer makes, or lets, you leave before this period you should still be paid for the full notice period.

Your contract of employment may offer you more generous terms.

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Your money when you leave

Make sure your employer gives you:

  • your P45 form
  • written details of your redundancy package
  • and a good reference.

Tax
The first £30,000 of redundancy pay is tax free, but the rest may be taxed.

If you have to pay tax, it counts against your tax bill in the year you receive the money, not the year you were made redundant. If it is paid in instalments, then the £30,000 exemption can be carried forward.

You may be able to reduce your tax liability by paying some of your redundancy pay into a pension.

Redundancy pay or pay in lieu of notice?
Confusion can arise when your contract of employment says you are entitled to a period of notice, but your employer says you can leave immediately and gives you your wages for that period in one lump sum. Your employer might call this redundancy pay. However the tax office will still treat is as normal pay for your notice period and deduct tax and national insurance.

Any statutory redundancy pay to which you may be entitled is in addition to this payment in lieu of notice. The redundancy pay is only taxable after the first £30,000.

Tax will also be levied on any compensation you win if you successfully sue your employer for failure to give you proper notice, or not enough notice pay, or none at all.

What to do with your money?
Many redundancy payments are relatively modest, and will only help tide you over until you get another job. But with long service or a redundancy payment greater than the legal minimum, you may get a tidy sum. A redundancy cheque may be one of the biggest amounts of money you have received in one go. It can be tempting to spend it!

If you know you have another job to go to, this may be reasonable. Or you may want to use the money to take time out from working while you study or retrain for a new career. Other people may want to use the money to set up in business. Others may want to consider themselves as retiring early.

But you should think carefully about your financial situation and take advice before making any hasty decisions.

You may want to consult an independent financial advisor (or IFA). These are professionals skilled in giving independent advice to people about money. They should always provide a free initial consultation. After that they will either make their money from commission they receive on any investments you make, or charge you a fee but pass on the commission payments to you instead, or some combination of the two.

You are almost certainly best advised to consult an IFA rather than your bank. Most banks (though not all) will only try and sell you their own savings and pensions products. Some of these may be good value, but they will not have the wide range available to an IFA. If you want to find an IFA, there are details at the end of this leaflet.

Some IFAs specialise in advising on ethical investment, while some others specialise in the particular needs of the gay and lesbian community.

Typical advice would be to first put your redundancy payment into a high interest savings account while you consider what to do. Many newspapers carry tables that show the accounts paying the best rates. They may well only be available via the Internet or by post, rather than your high street.

The next step would be to look at your debts - such as credit cards and your mortgage and consider paying these off, as the interest on them is likely to cost you more than you would get in interest on your savings.

After that if there is any money left over, you will want to save it in a way that helps your long-term security. You are likely to be advised to keep some in an emergency fund that you can get at easily, with the rest in longerterm savings that minimise the tax you have to pay.

But what you should do will really depend on your own circumstances. That is why you should take independent advice if you get a sizable redundancy payment.

What happens to your pension
If you have a job where your employer runs a pension scheme and you are a member, it is important to understand what will happen to your pension.

If you are old enough, your employer, or the rules of your pension scheme, may allow you to retire early with a reduced pension. In some cases as part of a redundancy package you may be offered a deal more generous than normally on offer for those taking early retirement from your pension scheme. You may still be entitled to redundancy pay in addition - you should not confuse this with the lump sum offered by most pension schemes on retirement.

If you are not old enough to take early retirement you should be offered some or all of the following options:

  • You should be allowed to take your "pension pot" and transfer it to a scheme run by a new employer or invest it in your own private pension scheme.
  • You should be allowed to keep the pension with the employer who is making you redundant. When you retire you will receive a pension from this scheme. This is known as a deferred pension.
  • You may be offered a refund of your contributions if you have only been a member of the scheme for a short period.
  • You may be offered a transfer to a "buy-out" policy. You get a lump sum invested, and a pension that will depend on how well the fund does. You are often guaranteed at least a minimum pension, but certain constraints may be imposed relating to the benefits accrued under your employer's scheme. You should take advice if you are offered a 'buy-out' policy.

Members should be told as soon as possible:

  • What the value of their deferred pension would be;
  • The value of a transfer payment to another pension scheme;
  • Their entitlement to a refund of contributions; if any;
  • The value of an early retirement pension and lump sum.

Don't forget that if you are made redundant and you are due to receive a payment under an occupational pension scheme within 90 weeks of the dismissal, your redundancy payment may be reduced. See above. Deciding the best thing to do with your pension is often very difficult, and is another area where an IFA would be able to help.

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Benefits

This simplified picture of the benefit system is designed to provide background information you may find useful. Please remember that social security is very complicated, and don't make any decisions until you have had individual advice from your union, a CAB, an unemployed workers' centre or another advice agency.

Jobseeker's Allowance
Jobseeker's Allowance is the main benefit for people of working age who are looking for another job. Some of the most important rules are:

  • You have to be available for and actively seeking work - you have to 'sign on', and attend fortnightly meetings to discuss what you have done to get a job.
  • You have to be capable of work - using the test for Incapacity Benefit (see below).
  • You may get less JSA if you receive an occupational or personal pension.
  • Redundancy and other payments from your employer can affect when you start getting JSA, and to how much you get. If a full-time official from your union negotiates a redundancy package for you, s/he should know about these rules. If you aren't represented by a union get advice quickly before any decisions are made.

Incapacity Benefit
You may qualify for Incapacity Benefit (IB) if you have paid enough NI contributions and are incapable of work because of sickness or disability.

  • For the first 28 weeks of incapacity IB is only paid to workers who don't qualify for Statutory Sick Pay, and who cannot work in their own occupation.
  • After 28 weeks of incapacity, eligibility for IB depends on a test of how your sickness or disability limits your ability to carry out certain physical and mental functions.
  • You may get less IB if you receive an occupational or personal pension.
  • You do not have to have paid NI contributions if you became disabled when you were young.

Income Support

Income Support is a means-tested benefit, so the amount you get depends on your circumstances and other income. Unlike JSA, you don't have to be available for, actively seeking or capable of work to claim, but some people have to attend a 'work-focused interview' to learn how the local Jobcentre could help in getting a job.

Most working age people are expected to claim JSA, not IS, and to look for a job. Some groups, however, are allowed to claim Income Support, such as:

  • Lone parents
  • Pregnant women
  • Carers
  • People over 50 and out of work for at least 10 years
  • People who are incapable of paid work.

Help with housing costs
You are unlikely to get help at first to pay your mortgage. Anyone who took out their mortgage after 1995 gets no assistance for nine months. If your loan was taken out before 1995 then you may be eligible to get support to cover the interest payments only on mortgages up to £100,000 as long as you do not have a working partner or savings above £8,000.

Housing Benefit and Council Tax Benefit are administered by local authorities. If you are entitled to means-tested JSA, IS or have a low income and are liable for rent and/or council tax for your home you may qualify for Housing Benefit and/or Council Tax Benefit. The amount you get will depend on your rent, your income and savings and your personal and family circumstances.

Some people take out mortgage payment protection insurance with their mortgage that covers them against redundancy. Your policy should explain how you go about claiming. You may well have to provide evidence that you are looking for work, probably by claiming JSA. If you only took out the policy recently, then you may be asked for a letter from your former employer confirming that you did not know you would be made redundant.

Tax and benefits
Jobseeker's Allowance counts as 'taxable income', and you are liable to pay income tax (but not NI contributions) on part of it. The tax isn't deducted from your JSA immediately. When you get a job - or at the end of the tax year, if that comes first - the Jobcentre adds together your JSA and your wages since the end of the last tax year, and works out your tax position.

The tax position of Incapacity Benefit is similar to JSA, but not identical.

  • Short-term lower-rate IB is not taxed
  • Child dependency additions to any of the rates of IB are not taxed
  • If you have an occupational or personal pension as well as your IB the tax will usually be deducted from your pension
  • If IB is your main taxable income, your tax will be deducted from your benefit before you get it.

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Training & retraining

Your employer may offer to provide you with training that will help you get a new job as part of the redundancy package. There are both commercial and government services that may be made available.

If you are losing your job as part of a big number of redundancies or major closure it is likely that you will be offered advice by the Employment Service (a government agency), the Regional Development Agency or some other body. This could include direct help with finding a new job, help with job search skills and access to training. Otherwise you can approach your local Jobcentre or Careers Advisory Service.

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Further advice

ACAS Public Enquiry Points
The TUC's know your rights line provides a range of helpful leaflets like this one that cover a wide range of employment rights information, and can advise you on which union you should join - 0870 600 4 882. Calls are charged at the national rate.

The ACAS public enquiry points - general advice for workers and employers on legal rights - www.acas.org.uk

Birmingham - 0121 456 5856

Liverpool - 0151 427 8881
Bristol - 0117 946 9500
London - 020 7396 5100
Cardiff - 029 2076 1126
Manchester - 0161 833 8585
Fleet - 01252 811868
Newcastle-on-Tyne - 0191 261 2191
Glasgow - 0141 204 2677
Nottingham - 0115 969 3355
Leeds - 0113 243 1371

Discrimination
If you think your employer may be discriminating unfairly in selecting who should be made redundant, one of the following may be able to help.

  • the Equal Opportunities Commission (0161 833 9244) www.eoc.org.uk (for sex discrimination)
  • the Commission for Racial Equality (0207 828 7022) www.cre.gov.uk
  • the new Disability Rights Commission (0845 622633) www.disability.gov.uk
  • LAGER (Lesbian and Gay Employment Rights) (0207 704 8066 (women) 0207 6066 (men)

The Employment Tribunal Service
If you need information about making a claim to an Employment Tribunal you should call the Employment Tribunal Service Enquiry Line on 0845 959775.

The Department of Trade and Industry
The DTI is responsible for many employment rights issues. It has produced a short guide to redundancy rights. The orderline is 0870 1502 100. The website is www.dti.gov.uk/er/index.htm

Advice agencies
Law centres provide a free and professional legal service to people who live or work in their catchment areas. The Law Centres Federation can tell you if there is a Law Centre near you. Its number is 020 7387 8570. The National Association of Citizens' Advice Bureaux can give you information about your local CAB on 020 7833 2181 or try their website on www.nacab.org.uk Your local library will also have advice on local agencies which may be able to help you.

Tax and benefits
Inland Revenue on 0800 597 5976 or their website on www.inlandrevenue.gov.uk Benefits agency (your local office will be in the phone book) www.dss.gov.uk

Careers and re-training
For advice on careers and re-training you can look at the Careers Service website on www.careers-uk.com The Government's Employment Service www.employmentservice.gov.uk) web site is a good starting point, and there are many job search sites on the internet.

Independent Financial Advice
You can get a list of local independent financial advisors from IFA Promotions on 0800 085 3250 or try their website: www.unbiased.co.uk

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Unions today - your friend at work

Many of the rights described in this leaflet have been won by union campaigning. And when redundancies are threatened, members will find unions can provide invaluable help and assistance. They will understand your legal rights, and often be able to negotiate a deal much better than the legal minimum.

But it is not just redundancies, every day unions help thousands of people at work. Last year unions won a record £330 million compensation for their members through legal action. They won £1 million in equal pay claims - an average of £15,000 per member.

And of course unions help negotiate better pay and conditions.

But unions are not just there when something goes wrong. Union workplaces are safer, and more likely to help employees get on with better training and development programmes. Unions themselves provide training and services like
legal advice.

And in the best workplaces employers and unions have put behind them outdated ideas of confrontation and work together in partnership. Partnership employers recognise that staff morale and commitment are improved when they are treated well, have their views taken into account and enjoy job security. And in return staff take more pride in their work and are more ready to embrace the changes modern firms often need to compete.

Unions take on the bad employers, and work with the good to make them better.

To find out more about joining a union visit the workSMART unionfinder.

 

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printed 19 May 2013 at 14:15 hrs by 54.234.67.55