If an employer makes an employee redundant, they are under a duty to pay them a redundancy payment (provided that the employee has over two years continuous service). If the employer does not have a specific policy in place for this they will pay the employee a statutory redundancy payment; this is calculated using the employee’s age, length of service and weekly pay.
Who is entitled to an enhanced redundancy payment?
Often employers wish to provide the employee with enhanced redundancy payments, either by requesting they sign a settlement agreement or simply paying the employee an enhanced sum on exit. Employers often describe payments as discretionary.
Problems have arisen however when an employer regularly exercises the discretion. In the recent case of Peacock Stores v Peregrine the Tribunal held that the consistent practice of any employer paying an enhanced redundancy package could become an implied contractual term if the enhancement was “consistently applied and well understood”.
An implied contractual term is a term which is not expressly written down in the contract but is deemed to be incorporated into it. A term can be implied by fact, custom or practice, common law or statute. In these circumstances if such a term is implied, failure to afford an individual the enhancement may constitute breach of contract or worse still a discriminatory act. Whether or not a term is implied will rely on the individual facts of each case.
Should a business have a formal redundancy policy?
If you want to take steps to address any risks in your business we would recommend that you look at your current practices and decide if you wish to implement a formal redundancy policy.
We are always happy to chat through any other concerns For more information on this, please do not hesitate to contact the employment law team on 0113 320 5000 or email @email.
