Redundancy negotiations and settlements for employees

This article discusses whether and how to negotiate a better redundancy payment than what may already be on offer, and get the payment made as part of a wider settlement agreement (formerly compromise agreement). It also offers further practical help and advice on what to do if you are facing redundancy or have recently been made redundant.

Can you negotiate a better redundancy payout?

Redundancy situations can be one of the hardest situations to negotiate a better settlement package for, especially if there are multiple redundancies.

This is because, if there are many people going to be dismissed for redundancy, the situation is plainly genuine.  Additionally, the more people going, the greater the cost, and the less likely the employer is to make an exception in an individual case and increase the amount of compensation they will pay.

A redundancy situation does not always lead to enhanced financial compensation by way of a settlement agreement. If your employers are confident that they have conducted a fair process – as outlined below – they may decide simply to proceed to dismiss you without any kind of exit package.

If your redundancy is fair, can you still negotiate a better deal?

The short answer to this question is that you can still negotiate an enhanced deal in some circumstances, but bear in mind the comments below.

Employers only have to pay statutory pay for fair redundancies

If the redundancy is fair, employers need not pay any more than statutory redundancy pay unless a contractually binding policy is in place which sets out the amount to be paid. So, in these circumstances, there would probably be no point in trying to negotiate a better redundancy package.

Some employers voluntarily pay more than statutory redundancy pay

However, sometimes you don’t have to negotiate at all to get enhanced redundancy pay, because many employers voluntarily offer a settlement with an enhanced amount, over and above the statutory minimum.

From your employer’s perspective, this helps to ensure your smooth exit from the business.  It also takes into account any element of doubt about the objectivity of the process and protects your employer against any claims you may make against them for their failure to carry out the redundancy process correctly. (See below and also our article ‘Is my redundancy fair?)

How much redundancy pay do employers typically offer?

There is a lot of variety in such circumstances. Some employers offer little more than statutory, but enough to make the employee accept it if their situation is hopeless.

Other employers offer large amounts even though they don’t have to, especially to high-earning employees. This is known as a ‘virtuous circle’, in that departing employees are offered very generous terms because those employees making the offer – usually senior HR or board-level directors – want to ensure that a precedent is set, and if they too were to depart, then they would get the best redundancy package as well.

Scope for negotiating more pay in fair redundancies

Obviously, the more your employer is offering you, the less useful it is for you to point out the holes in the process itself. But there nevertheless remains scope for some further negotiating on your part.

For example, any ex gratia payment offered in an exit package is often negotiable.  If ex gratia pay isn’t negotiable, then you can focus on other areas such as bonus payments, the termination date, share options and holiday pay as points for you to negotiate an increased overall exit package.

 

 

 

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How can redundancy process errors help your negotiations?

Many redundancies are carried out incorrectly by management, to the point where they amount to unfair dismissal under the Employment Rights Act 1996. If you can identify the errors or weaknesses in your redundancy process, then you can use them to strengthen your redundancy negotiations and to negotiate a better redundancy package.

Is there a genuine redundancy situation?

In order for the redundancy to be fair, there has in fact to be a genuine redundancy situation. A redundancy situation occurs with the closure of a business, a workplace, or a whole department,  or when there is a ‘diminished need for work of a particular kind.’

The latter is often broad enough to cover the situation where an employer restructures the business. For example, your employer might decide to merge two roles into one or divide the work amongst other staff.

Is the redundancy a sham?

However, if you are dismissed for ‘redundancy’ and then your employer recruits someone to do the same job that you were doing, then that doesn’t look like a genuine redundancy situation (the exception being if that person is on significantly less money than you were, which is a legally acceptable reason to make you redundant).

You might also think that a decision to make you redundant is really bad for the business and will result in lost revenues, but that is not the test for the employment tribunal, unfortunately.  It will not get involved with whether a decision to make redundancies was sensible, only whether it was genuine, and whether the selection process was objectively fair.

 

 

 

 

Is the selection pool for the redundancy fair?

Your employer can come unstuck in a redundancy dispute in relation to who they decide is at risk of redundancy. In other words, how have they chosen people to go into what’s called the redundancy ‘selection pool’, from which individuals will be selected for redundancy?

If you have not been placed in a redundancy pool, then ask what the business reason for selecting you for redundancy is. If there are other people doing the same job as you, then point out that they should also be in the redundancy selection pool with you.

Selecting for redundancy when roles are similar

It becomes more complicated when there are people who are not doing the same job but where the roles are interchangeable or the skillsets for the jobs are similar. In those circumstances, you should be arguing that the redundancy selection pool should include those roles as well.

Size of the redundancy selection pool

Obviously, the bigger the selection pool, the less likely it is that you will be selected for redundancy.

You may also be able to negotiate better redundancy pay:

  • if the redundancy pool is small (i.e. only two or three of you) and your employers are looking for voluntary redundancies, or are targeting you unfairly.
  • if there is a large pool and you have evidence that you should not have been selected – for example,  through a mistake in the scoring (see below) or the pooling.

Were the selection criteria objective and fairly applied?

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

In these ‘fake’ or ‘sham’ redundancies your employer may even build a seemingly objective redundancy selection process which just happens to select you, when the whole time it was a foregone conclusion.

Selection criteria and scores

If there’s a number of people in the selection pool for redundancy, your employer has to set selection criteria for determining who should be made redundant. This could be things like attendance, punctuality, skills and experience, for each of which you will be given a numerical score.

Facts about attendance can be checked against HR records so are easily verified. Questions about skills and experience are more subjective and are often based on the opinion of the person scoring you.

In those circumstances, your employer should be able to back up their scores, for example, by looking at past appraisals or peer reviews. If your employer has no basis for their scores, then your redundancy may be easier to prove to be unfair.

Interviewing for redundancy

Sometimes employers will hold interviews to decide who will be made redundant. They are allowed to do this, but again they should be able to back up their interview scores objectively and the interview panel should be impartial and free from bias.

Discrimination in redundancy

You should also consider whether your selection for redundancy is discriminatory.  For example, if you have been absent from work due to maternity-related sickness or due to a disability, and are scored down for attendance as a result, then the dismissal may be unfair and in breach of discrimination legislation.

What to do if the selection criteria are unfair

If the way that your employer selected you for redundancy is unfair, then you are within your rights to ask for an increased settlement package. To this end, you might like to try our unique free Redundancy letter builder which creates a legal letter from you to your employer when you are facing or have recently been made redundant. (See the end of this article for further details.)

Were you consulted about the redundancy?

If you are in a redundancy process with your employer then they do have to consult you about the proposals. They should meet you to discuss the rationale behind the decision to put you at risk of redundancy and allow you to put forward alternatives.

They should also consult with you about what other roles might be available to you in the business (see below).

Numbers at risk of redundancy affect the consultation period

The duty to consult with you is much more onerous if 20 or more people are at risk of redundancy within a 90 day period.  In that case,  your employer has to consult for 30 days or more.

If there are 100+ people being made redundant, then consultation is for a minimum of 45 days.

Redundancy consultation meetings

For consultations with individual employees, there should be at least one meeting with the employer and they should give you written notice in advance of the meeting. They should also give you the chance to bring a colleague to accompany you. A colleague can ask questions, but can’t answer questions on your behalf.

At the meeting, they will have to say to you quite clearly that they are going to discuss your redundancy. It will be a serious meeting where you can have a long chat and you can raise any and all issues that you have.

If you are a member of a trade union you can take your union rep to the meeting. Normally trade union reps actually work for your employer, and they not trained lawyers either, so you may think that they are not always the best people to fight your corner in terms of negotiating you the highest reasonable amount for an exit package.

If you have some potential claims to bring against the employer, this meeting may be a good time to mention, on a ‘without prejudice’ basis, that you would consider entering into a settlement agreement.

 

Did your employer consider alternative work for you?

In a redundancy situation, your employer should consider alternative roles for you within the business or any group company. This should include for example sending you lists of all available vacancies. Often this will depend on the size and resources of the employer.

It is important to note though that your employer does not have to create a role in the organisation for you where none exists.

You will be in a much better position to argue that your redundancy was unfair if you apply for lots of roles but are not successful, than if you do not apply for anything at all. It is also worth remembering that if you are offered an alternative role you are legally entitled to a four-week trial period, and if it doesn’t work out in that time you can still claim your redundancy pay.

Top Tips

Nicola Welchman
  • 1
    Ensure that there is a genuine business need to make you redundant
  • 2
    Consider whether the selection pool and criteria were fair
  • 3
    Consider whether you were consulted properly about your role
  • 4
    Your employer should offer you suitable alternative employment

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 £538 (from April 2020).  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 £538) = £16,140.

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.

When will you receive your redundancy pay?

You should receive your redundancy pay on your official last day of work. Alternatively, it should be paid to you on a specified date soon after which should have been agreed beforehand in writing between you and your employer.

The payment may be combined with other payments as part of a wider settlement agreement, but you should be given a written statement saying how much your redundancy payment is and how it was worked out.  It will be paid into your bank account or whichever other account is normally used to pay you.

How long does a redundancy process take?

Redundancies involving several people, especially in larger companies, can take many months to determine. The first you hear of it may be at a consultation meeting, but management may have been discussing it for months previously.

They know who is in the pool, who is likely to survive and how much they are going to pay over statutory redundancy so that people leave under a settlement agreement and protect the company against legal action. In many cases these days, the decision has not even been taken in this country, so negotiating redundancy pay with your employer in such circumstances is more difficult.

How should you participate in the redundancy process?

At the same time as negotiating redundancy on a without prejudice basis, you should be running an ‘open’ position whereby you attend all the consultations and go through the appeals process, flagging up where you think they have gone wrong.

Be aware that sometimes it can be best not to point out these errors before you actually get made redundant, as your employer would then have a chance to correct them before making you redundant. That assumes that by now you don’t actually want your job back because you feel so aggrieved with their unfair treatment, or you’re sure they will select you anyway.

Ask questions about the redundancy process

Ask for disclosure of documents, especially scoring criteria. Demand to know who rated you against the criteria and why, and ask to see any evidence which the managers referred to, 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 and offer you an increased package. This is when submitting a written grievance to your employer can also be a good way forward, as it forces them actually to consider your arguments rather than just fobbing you off.

Can just a test result determine your redundancy?

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.

Should you offer to resign before you’re made redundant?

There is one tip which applies to all redundancy pay negotiations, whether you have a decent legal case or not. If you are sure that you are going to be made redundant, then you could offer to resign voluntarily first, 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 them a month of HR and management time, so you could ask for a month’s salary plus say another month to take into account their time and effort. It’s attractive from their point of view too as they won’t have to carry out any kind of fair process or give you a right of appeal.

Remember to appeal against your redundancy

If you are finally made redundant, then you should make sure that you appeal in writing against the decision, pointing out any defects with the procedure as set out above.  This can be useful evidence if you do end up challenging the decision in an employment tribunal, and more importantly it gives you that additional firepower for a negotiation.

 

Our Redundancy Letter Builder creates a legal letter to your employer

How can you write your own legal redundancy letter?

As mentioned earlier, we have developed a free on-line Redundancy letter builder which helps you to create a legal letter to your employer about your redundancy. It’s suitable for you whether you are still in employment and facing redundancy, or if you have recently been made redundant.

To generate the letter, you just answer some straightforward questions about your redundancy case and, based on your answers, the letter builder creates a letter for you.

The letter sets out the legal situation if you are about to be or have recently been made unfairly redundant and then proposes a way forward – either reinstatement or a settlement agreement – which you will have been asked to select earlier.  All you have to do then is add one or two final details, and it’s ready to send.

More redundancy guidance and legal help

For more on how to negotiate a better redundancy package, read our guide on how to negotiate a settlement agreement as well as our article on how much money you should get.  If you want a detailed estimate of how much you could get in a redundancy settlement agreement, try our settlement agreement calculator.

If you would like further legal help with your redundancy case, then get in touch with Monaco Solicitors to see if we can help you.  Our legal team comprises only senior solicitors with years of experience in winning redundancy and other employment law cases for employees.  We will quickly let you know whether it’s in your best interests to appoint legal representation.

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