Negotiating better redundancy pay & severance packages


How do you negotiate a higher redundancy payout?

Negotiating better redundancy pay for your settlement agreement is often the first thing on your mind when made redundant. This is especially the case when you feel singled out unfairly for redundancy and therefore the standard severance package does not seem like a fair outcome. One thing to analyse is the way that your employer selected you for redundancy because if for some reason it just doesn’t seem right, it may have been underhand.

This article discusses how to succeed in a redundancy negotiation in order to increase your settlement amount. Be sure to also read our more general blog on how to negotiate a settlement agreement as well as our page about how much money you should get. You should also try our settlement agreement calculator to get a detailed estimate of how much you could get in a settlement agreement if you make the right tactical steps.

TOP 3 questions to ask…

  1. Is there a genuine redundancy situation?
  2. Were you consulted properly regarding your role?
  3. Were you offered suitable alternative employment?

A lot of redundancies are carried out incorrectly by management and being able to identify the errors can be the key to negotiating a better redundancy package. Many redundancy processes (which are incorrectly carried out) result in  fake or sham redundancies. A sham redundancy is considered a situation whereby your employer decides in advance who they want to select for redundancy, and then builds a seemingly objective redundancy selection process around this decision. This is done to make it look like the selection was a result of an official process when the whole time it was a foregone conclusion.

It is supposed to be the role itself which is identified as being redundant first, and then the employee is identified afterwards. All too often, however, managers will first select those people who they would like to see made redundant.

A lot of redundancy packages will take into account the element of doubt about the process, and will offer an enhanced amount that is over and above the statutory minimum. If your employer is already offering you a redundancy package larger than the statutory minimum then it will obviously be harder to negotiate an even better exit package, but it can be possible if you can prove that the redundancy process was unfair.

It’s preferable to all parties to carry out these negotiations out of court, as even if successful in an employment tribunal claim you might not get more than say 6 months’ pay (or even less if you find another job quickly, as tribunals only award compensation in redundancy cases for actual losses and you are under duty to look for another job).

Negotiation process

Once you’ve identified the weaknesses in your redundancy process, then you can go about leveraging them to negotiate a better payment. This should be done on a ‘without prejudice’ basis, which means a special ‘off the record’ way of writing or speaking to your employer.

At the same time, you should be running an ‘open’ position whereby you attend all the required consultations and go through the appeals process, flagging up where you think they have gone wrong. Be aware that this can be double-edged as pointing out flaws in the process may allow your employer to ‘correct’ those errors before the end of the consultation period. You will still get made redundant, but by helping out your employer you have made it harder to later negotiate a higher settlement payment. With this advice we are assuming that by now you don’t actually want your job back because you feel so aggrieved with the unfair treatment you have received.

Make sure that you ask for disclosure of documents, especially any scoring criteria. Demand to know who rated you against the criteria and why, and ask to see any evidence which the managers referred to when making you redundant, such as absence records or disciplinary records. You should also ask to see the scores of the other employees in your redundancy pool.

By this stage your employer may start to get nervous about your enquiries and offer you an increased package. At this point making an official grievance (such a grievance letter) can also be a good way to go – this forces them to seriously consider your arguments.

It goes without saying that if you instruct lawyers to represent you then you will invariably have a higher chance at negotiating better redundancy pay. This is partly because lawyers will of course know what to say and the most effective strategy, and partly because your employer will take you more seriously just because you have instructed lawyers (especially if they are specialist employment solicitors like us).

Correct redundancy procedure

In order to make redundancies that are fair, the employer should:

Have a genuine reason

A genuine redundancy situation might occur when a business or workplace closes. Often though a redundancy situation can occur when there is a diminished need for work of a particular kind. This is usually broad enough to cover a situation where an employer reorganises the way that work is carried out.

Make fair selection

Apply fair and open selection criteria. These criteria could, for example, include things such as attendance and punctuality, skill-set and performance. The more subjective the criteria (such as measuring employees on skills or experience) the more the employer has to be able to back it up with evidence, such as past appraisals or reviews.

Consult the employees

Where there are less than 20 redundancies, this consultation should be done individually. If there are more than 20 people being made redundant, the employer has to consult collectively with the workforce. In those circumstances the consultation should be with the union or employee representatives and the consultation should last a minimum of either 30 or 45 days depending on the numbers at risk of redundancy.

In terms of individual consultation, procedurally, there needs to be at least one meeting with the employer and they should give you written notice of the meeting in advance. At the meeting they will have to say to you we are going to discuss your redundancy. That will be a serious meeting where you can have a long chat. You can raise any and all issues that you have.

If you have some potential claims to bring against the employer, this meeting may be a good time to mention ‘without prejudice’, and that you would like to enter into a settlement agreement. You should try to negotiate an amount of money that you would be prepared to accept.

Offer the employees alternative employment

There may be other positions available within the company, for which the employee should be allowed to apply. Whether the alternative employment is suitable depends on the employee s current job, the type of alternative job offered and pay, prospects, conditions and location on offer.

An employee can refuse to accept a suitable alternative and still be entitled to redundancy payment if their refusal was reasonable, eg. due to health, family commitments or similar reasons.

Statutory Redundancy Pay

To qualify for a statutory redundancy payment, you must have been continuously employed for at least two years. Statutory redundancy pay is calculated with reference to your number of completed years’ service. You get:

  • 1.5 weeks’ pay* for each year in which you were 41 years old or above;
  • 1 weeks’ pay* for each year in which you were over 22 but under 41 years old;
  • 0.5 weeks’ pay* for each year in which you were under 22 years old.

*Unfortunately, a weeks’ pay is subject to a maximum figure of £508 (from April 2018). The maximum number of years which may be counted is 20. Even if you have been somewhere for say 20 years, from the age of 41 to 61, you would be entitled to only (20 x 1.5 x 508) = £15,240.

Redundancy payments up to £30,000 are not taxable. Any money above the statutory minimum is usually offered in exchange for you agreeing not to sue your employer.

Your employer must give you a written statement showing how the amount of your redundancy pay has been calculated. An employee who does not receive their redundancy payment can make an employment tribunal claim within six months of the redundancy.

Can I be made redundant on the basis of test result only?

Man thinking about paperwork

No, said the employment tribunal and the Employment Appeal Tribunal in Mental Health Care (UK) Ltd v Biluan & Anor. In this case, workers had to sit a test, similar to the kind of test used in recruitment situations, and the outcome determined if they were made redundant or not. No account was taken of the employee’s employment record or managers’ views. In fact, management were surprised by who was selected. Despite this “some very good workers” were dismissed by way of redundancy and the tribunal found their dismissals unfair. Some account should have been taken of other matters not just their test results.

Jumping before you are pushed

There is one route to consider, and which applies to all redundancy pay negotiations. If you are 100% sure that you are going to be made redundant, then there is the option is to offer to resign voluntarily first – this would be done on the basis that your employer pays you a sum of money which recognises the amount of time and effort saved by short circuiting the redundancy process. For example, you might save HR and management a month of their time, in which case for example you might ask for a month’s salary plus another month to take into account the time and effort you have saved them. It’s attractive option from the employer’s point of view too as they won’t have to carry out any kind of fair process or give you a right of appeal.

Next steps

If you want to talk to us about your work situation, including your next steps and whether you deserve a better deal, just get in touch on 020 7717 5259 or click here to request a free no obligation 15 minute consultation.