The legal requirements for withholding redundancy pay

The legal requirements for withholding redundancy pay

Statute provides that where an employee’s role is redundant and they unreasonably reject the employer’s offer of suitable alternative employment, this may disentitle them to receipt of a statutory redundancy payment. For this to apply, the offer of suitable alternative employment must be made before the employee's employment under the previous contract ends. Furthermore, the Employment Appeal Tribunal has previously ruled that an offer of alternative employment must be made after notice of dismissal has been given with the new role to commence immediately after the redundant role ends or within 4 weeks thereafter, otherwise it will not count for the purposes of the statutory scheme. A recent case has confirmed this. 

In this case, the claimant was employed by an NHS Foundation Trust as a Psycho-Social Intervention ("PSI") Worker. He was informed that, as a result of a reorganisation, his current role of PSI Worker was to be "deleted" and that he was at risk of redundancy. He began a trial of a different role of Care Coordinator within the same grading band, which he then rejected. There was a dispute as to whether this was suitable alternative employment. The Trust again offered him the Care Coordinator position, which he declined following which the Trust dismissed him for redundancy.

When the Trust dismissed the claimant for redundancy following his rejection of the alternative role he had been trialling, the Trust declined to make a redundancy payment. Its position was that the claimant had undertaken a statutory trial period and, in its view, the Care Coordinator role had been suitable alternative employment which was unreasonably refused, such that he was not entitled to a redundancy payment.

The claimant brought a claim for a declaration that he was entitled to a statutory redundancy payment.  The claimant asserted that at the time of the offer of the Care Coordinator role the claimant had not been given notice of termination, so it did not amount to an offer within the statutory regime which must be followed in order to potentially withhold the redundancy payment. He further argued that, in any event, the Care Coordinator role was not suitable alternative employment and/or that he had reasonably rejected the role. He stated that as he was dismissed by reason of redundancy, he was entitled to a redundancy payment.

The employment tribunal decided that the claimant had not actually been dismissed prior to starting the trial in the new role and therefore his trial in the new role was not the start of a statutory trial period. The tribunal commented that in the letter confirming his trial period in the new post of Care Co-ordinator, "nowhere…is there any statement that the claimant has been dismissed or is under formal notice of dismissal or termination for redundancy, notwithstanding that the claimant's previous role had been deleted and no longer existed for him or anyone else to carry out." 

The tribunal found that he had not been dismissed until after he had rejected the new role following the trial period.  The tribunal comment that as the claimant had not been through a restructure before in his professional life, he could not have known what to expect when he rejected the new role.  He could not have been expected to understand the consequences of rejecting an offer of suitable alternative employment in a redundancy situation (i.e. unless this was spelt out to him).

The Employment Appeal Tribunal upheld this decision. It stated that there is no rule of law that notification of the "deletion" of the post in which the employee is employed must inevitably amount to notice of dismissal. It depends on all the facts and circumstances of the case and that the tribunal had reached the correct conclusion based on the facts. 

Our advice

It does of course seem counter-intuitive and formulaic (and indeed, upsetting) to issue a notice of dismissal to an employee before formally offering an alternative role in order to avoid redundancy (particularly as dismissal is an action of last resort). However, this is the safest course of action where the employer may wish to withhold a statutory redundancy payment based on an employee’s unreasonable refusal of suitable alternative employment. In this scenario, what the employer is effectively doing is terminating the contract for the redundant role on notice (and this requires more than the employer simply stating that the redundant role is coming to an end). Should the employee accept an offer of alternative employment following termination of the redundant role (or continue in the role following the statutory trial period), the original dismissal essentially “disappears” and the employee remains in employment, having avoided redundancy. 

The FSB Legal Hub contains a suite of template letters that can be tailored for use in the event of staff redundancy.