Settlement agreements and redundancy payments

Very often, if an employer is making some of its employees redundant, they will pay redundancy in accordance with the statutory redundancy scheme. This is a calculation based on age, length of service and a weeks’ pay.

An eligible employee will be paid:

 

  • One and a half weeks' pay for each year of service in which the employee was 41 or over.

  • One week's pay for each year of service between ages 22 and 40.

  • Half a week's pay for each year of service under the age of 22.

In the statutory scheme a week’s pay is currently capped at £450 per week, rising to £464 per week from 6 April 2014. A maximum of 20 years can be taken into account when calculating a statutory redundancy payment.

A recent case demonstrated that, where an employer consistently paid redundancy at the statutory rate but without applying the cap to a week’s pay or maximum service provisions, a future employee facing redundancy can view this manner of calculating redundancy pay as a contractual right. The crucial evidence in this case came from the employer’s former head of HR who stated that removing the statutory caps was “most definitely custom and practice”. This led the Judge to decide that there was a ‘consistently and well understood policy of enhanced redundancy payments’ and that failing to pay the claimant this uncapped redundancy payment was, in fact, a breach of contract.

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