Negotiating better redundancy pay is often the first thing on your mind when you are 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 it just doesn’t seem right, it may well have been underhand.
This guide covers:
- How do you negotiate a higher redundancy payout?
- What the law says about making people redundant
- Is there a genuine redundancy situation?
- Is the selection pool for the redundancy fair?
- Were the selection criteria objective and fairly applied?
- Were you consulted about the redundancy?
- Did your employer consider alternative work for you?
- Statutory redundancy pay
- Can you negotiate a better redundancy settlement payout?
- How long does a redundancy process take?
- Participating in the redundancy process
- Can I be made redundant on the basis of a test result only?
- Should you offer to resign before you’re made redundant?
- Remember to appeal against your redundancy
- Create your own redundancy letter to send to your employer
How do you negotiate a higher redundancy payout?
This article discusses whether and how you can negotiate a better redundancy payment than what may already be on offer, and get the payment made as part of a wider settlement agreement (once called a compromise agreement).
Note that a redundancy situation does not always lead to a settlement agreement. If your employers are confident that they have conducted a fair process (see below) they may decide simply to proceed to dismiss you without any kind of exit package.
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.
If it 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. (See below for further details.)
However, many employers offer a settlement with an increased redundancy payout. This is not only to ensure your smooth exit from the business, but also to protect themselves against any claims you may make against them for failing to carry out the redundancy process correctly. (See also our article ‘Is my redundancy fair?)
There is a lot of variety in such circumstances. Some employers offer large amounts even though they don’t have to, especially to high-earning employees. Some offer little more than statutory payments, but enough to make you accept, if your situation is hopeless.
If you want to negotiate the best deal possible in your particular circumstances, it’s important to understand that the ex gratia payment is often negotiable. If it isn’t, then you can focus on other areas such as bonus payments, the termination date, share options and holiday pay as points of negotiation to increase your overall exit package.
For more on how to negotiate a good 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.
Top TipsNicola Welchman
Ensure that there is a genuine business need to make you redundant
Consider whether the selection pool and criteria were fair
Consider whether you were consulted properly about your role
Your employer should offer you suitable alternative employment
What the law says about making people redundant
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, then that will be the key to negotiating a better redundancy package.
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.
As mentioned above, a lot of redundancy packages will take into account the element of doubt about the objectivity of the process, and will offer an enhanced amount, over and above the statutory minimum. Obviously the more your employer is offering you, the less useful it is to point out the holes in the process itself.
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. 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).
An employment tribunal 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. You might think that the 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. Employment tribunals will not ‘put themselves in the shoes’ of the employer for this.
Is the selection pool for the redundancy fair?
One of the ways that your employer can come unstuck in a redundancy dispute is in relation to who they decide is at risk of redundancy, in other words, choosing the ‘selection pool’ for redundancy.
If you have not been placed in a 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.
It becomes more complicated when there are people who are not doing the same job but where the roles are interchangeable or the skill sets for the jobs are similar. In those circumstances you should be arguing that the selection pool should include those roles as well.
Obviously, the bigger the selection pool, the less likely it is that you will be selected for redundancy.
In addition, in some circumstances in a redundancy dispute, an employer should consider what’s commonly referred to as ‘bumping’. This means making a more junior employee employer redundant and you taking their job instead.
Were the selection criteria objective and fairly applied?
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.
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.
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.
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.
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 with 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. The duty to consult with you is much more onerous if 20 or more people are at risk of redundancy.
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.
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.
Can you negotiate a better redundancy settlement 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 out.
One way of negotiating a better deal in a redundancy situation is if the pool is small (i.e. only two or three of you) and your employers are looking for voluntary redundancies, or are targeting you unfairly.
Or, if there is a large pool and you have evidence that you should not have been selected – either through a mistake in the scoring, or the pooling, or if there is alternative employment available. Once you’ve identified the weaknesses in your redundancy process, then you can go about making the case to your employer for negotiating a better payment.
Each circumstance varies in a redundancy situation in which the employer offers an enhanced package under a settlement agreement. Some employers offer huge 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 precedent is set, and if they too were to depart, then they would get a large package as well. Some offer little more than statutory, but enough to make the employee accept it if their situation is hopeless.
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 with your employer in such circumstances is more difficult.
Participating in the redundancy process
At the same time as negotiating 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 I be made redundant on the basis of a test result only?
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.
Create your own redundancy letter to send to your employer
As mentioned above, 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. It 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.
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